China stocks rose, with the benchmark index completing a sixth weekly advance, as commodity prices increased on speculation the U.S. Federal Reserve will succeed in stoking growth in the world’s biggest economy.
Jiangxi Copper Co. and Zijin Mining Group Co., the nation’s biggest producers of the metals, advanced at least 4 percent. Citic Securities Co., China’s largest listed brokerage, and Everbright Securities Co. paced gains among brokerages after reporting monthly profit.
“Commodity stocks are and will be the market’s favorite investment for the moment on the backdrop of ample liquidity around the world,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “The rally will carry on until we see a reversal of liquidity.”
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, gained 42.56, or 1.4 percent, to 3,129.50 at the 3 p.m. close. The measure rose 5.1 percent this week while its six-week winning streak is the longest since July 2009. The CSI 300 Index advanced 1.2 percent to 3,520.80.
The Shanghai gauge has rebounded 32 percent since reaching this year’s low on July 5 on expectations central banks around the world will inject more cash into their economies to boost growth. It remains down 4.5 percent this year after the government raised bank reserve requirements and curbed lending growth to cool the economy.
Prices of oil and metals jumped yesterday after the U.S. Federal Reserve said it will buy an extra $600 billion of Treasuries to boost growth, spurring inflation concerns.
Crude oil for December delivery rose 2.1 percent in New York yesterday to $86.49 a barrel, the highest settlement price since April 6. Copper futures advanced 3.3 percent to a 28-month high. Gold futures surged to a record of $1,393.40. The London Metal Exchange Index of prices for six industrial metals including copper and aluminum rallied 3.1 percent yesterday, the most since May.
An index tracking Chinese materials stocks climbed 1.7 percent, the second most among the CSI 300’s 10 industry groups and capping a 26 percent advance this quarter.
Jiangxi Copper rallied 4.2 percent to 45.32 yuan. Zijin Mining added 4.5 percent to 10.31 yuan. Baoshan Iron & Steel Co., China’s biggest publicly traded steelmaker, rose 0.3 percent to 7.34 yuan.
Investors should reduce their weighting of commodity stocks in mid-November to avoid the risk of government policy tightening, Essence Securities Co. said. Tighter credit may happen at any time when inflation accelerates to more than 4 percent, analyst Fan Yan wrote in a report today.
The Fed’s bond purchase plan will further drive the rally for global stocks and push commodity prices “higher and higher,” said Templeton Asset Management Ltd.’s Mark Mobius.
“We could have an optimistic scenario for quite some time,” Mobius, who oversees about $34 billion, said in a telephone interview from Beijing yesterday. “Commodities are the big area for us. We are great believers in higher commodity prices and therefore are investing in commodity companies.”
Mobius said he’s “very bullish” on China as the country has “no big problems.” Even though stock valuations are not as attractive as last year they are “not out of sight” and Templeton funds are buying companies that are expanding in the nation’s less developed regions, particularly consumer companies.
“It’s not as easy as it was but we’re still buying and finding opportunities,” he said.
Demand is so strong in China that Mobius is now looking at airline stocks, an industry that he said he normally “wouldn’t touch” because of low profit margins.
The central bank unexpectedly raised benchmark lending and deposit rates on Oct. 19, two days before official data showed inflation had accelerated to the fastest pace in 23 months.
China should return to a “normalized” monetary policy as quantitative easing in the U.S. pumps cash into the world’s fastest-growing major economy and fuels price risks, the central bank’s research head said.
The stance adopted to counter the financial crisis has completed its “mission,” Zhang Jianhua said at a forum in Beijing today. The nation faces inflation risks and “huge pressure” on asset prices, Zhang said.
Citic Securities led gains for brokerages, rising 0.9 percent to 16.26 yuan. Citic said October net income was 517 million yuan ($77.7 million) on revenue of 1.02 billion yuan, without giving comparative figures. Everbright Securities, the nation’s fifth-largest brokerage, gained 2.1 percent to 18.67 yuan. The company said October net income was 279.9 million yuan on revenue of 539.8 million yuan.
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