China stocks rose for a second day after U.S. reports showed employment and consumer sentiment improved, boosting confidence in a global economic recovery and driving commodity prices higher.
PetroChina Co. and Zhuzhou Smelter Group Co. paced gains by raw-material producers after crude oil and metal prices advanced yesterday. Sany Heavy Industry Co. climbed 8.2 percent after Citic Securities Co. said the machinery industry stands to benefit from development in rural provinces. Poly Real Estate Group Co. led builders higher as investors speculated recent losses were excessive.
“Sentiment is improving and fear of a global recession is fading,” said Zhang Ling, a fund manager at Shanghai River Fund Management Co. “Chinese stocks will still be constrained as investors wait for clarity on next year’s monetary policies.”
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, added 38.33, or 1.3 percent, to 2,898.26 at the 3 p.m. close, adding to yesterday’s 1.1 percent advance. The CSI 300 Index rose 1.5 percent to 3,223.48.
The Shanghai gauge lost 9.5 percent as of yesterday since reaching an almost seven-month high on Nov. 8 on concern that accelerated monetary tightening will crimp economic growth.
The People’s Bank of China said yesterday it will strengthen liquidity management and “normalize” monetary conditions after having twice this month ordered banks to hold more in reserves to curb inflation that’s at a two-year high.
China stocks may gain about 20 percent next year as “abundant” liquidity and profit growth overshadows the risk of inflation, Credit Suisse Group AG said. Consumer price index gains may reach 5 percent next year while lending and deposit rates may increase by 125-150 basis points, analysts Vincent Chan and Peggy Chan wrote in a report.
PetroChina, the nation’s biggest oil company, added 2.1 percent to 11.18 yuan. China Petroleum & Chemical Corp., the second biggest, also known as Sinopec, gained 1.1 percent to 8.25 yuan. Zhuzhou Smelter, China’s biggest producer of refined zinc, advanced 8.7 percent to 17.31 yuan.
Crude oil for January delivery surged 3.2 percent yesterday in New York to $83.86 a barrel, the biggest gain since July 22. The London Metal Exchange Index of prices for six industrial metals including copper and aluminum increased 1.4 percent yesterday after three consecutive declines.
The U.S. Labor Department said jobless claims fell to 407,000 last week. The median projection of economists surveyed by Bloomberg News called for a drop to 435,000. The Thomson Reuters/University of Michigan final index of November consumer sentiment increased to 71.6, the highest level since June and exceeding the median economist estimate of 69.5.
Sany Heavy, China’s biggest maker of machinery for handling concrete, jumped 8.2 percent to 22.01 yuan as it resumed trading today after a shareholders meeting. Guangxi Liugong Machinery Co. climbed 4.6 percent to 37.12 yuan, a sixth day of gains.
China’s machinery industry will grow at a 15 to 20 percent annual pace in the next three to five years as the government takes steps to boost lesser developed provinces, analysts led by Guo Yaling wrote in a note today. The China Securities Journal said this week the government will soon announce a plan to develop the construction machinery industry.
Anhui Conch Cement Co. paced gains among cement makers on speculation demand for the building material will increase at the same time as government-mandated energy curbs reduce production, driving up prices.
Anhui Conch, China’s biggest cement maker, advanced 5.8 percent to 24.64 yuan, its biggest gain since Aug. 30. Gansu Qilianshan Cement Group Co. climbed 4.1 percent to 17.28 yuan. Tangshan Jidong Cement Co. surged 8.4 percent to 21.07 yuan.
Cement prices have risen more than 40 percent in East China since August as local governments limited electricity supply to manufacturers to meet energy reduction targets, Luo Guo, an analyst at Orient Securities Co., wrote in a report.
A measure of property stocks advanced 2.3 percent, its biggest gain since Nov. 5 and paring its loss this month to 5 percent.
Poly Real Estate, China’s second-largest developer by market value, gained 5.8 percent to 12.87 yuan after falling to the lowest level since Sept. 29 this week. China Vanke Co., the biggest, climbed 4 percent to 8.40 yuan.
Government lending restrictions have helped drag the Shanghai Composite down 12 percent this year after surging 80 percent in 2009. Policy makers suspended mortgages for third- home purchases and pledged to speed up trials of property taxes to curb gains in housing prices. Price gains in Chinese cities slowed to 0.2 percent in October from September, according to official data.
China needs to introduce “harsher” measures to curb real estate speculation and increase the supply of lower-cost housing as home prices rise, Ba Shusong, deputy director-general of the State Council’s Development Research Center, said in a commentary in China Business News today. The nation risks a real-estate bubble as property is one of few investment options, he said.
The nation will use quantitative and price tools to manage liquidity, Hu Xiaolian, a deputy governor of the People’s Bank of China, said yesterday after the market closed. China will also control the pace of bank lending for the remainder of this year, the official said.
“The government’s intention to curb inflation by even tighter monetary policies has become very clear to the market,” said Yuan Yi, chief strategist at Shenyin & Wanguo Securities Co. in Shanghai. “Expectations for tighter policies will cause market volatility and deeper corrections by the year end.”
Inflation reached 4.4 percent last month, the highest in two years. Analysts at nine banks surveyed by Bloomberg News last week predicted the PBOC will boost borrowing costs a second time by year-end.
China will have about 6.5 trillion yuan in new lending next year, China Securities Journal reported, citing an unidentified person. The target for new lending may be between 6 trillion yuan and 6.5 trillion yuan in 2011, less than “street” expectations of 7 trillion yuan and 7.5 trillion yuan, Credit Suisse said.
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