China's Stocks Advance on Gains in Commodity Prices, Fed Easing Outlook

-- China’s stocks rose, led by energy and material companies, on gains in commodity prices and after U.S. Federal Reserve Chairman Ben S. Bernanke said the Fed may buy more Treasuries to boost growth.

Jiangxi Copper Co. paced an advance for metal producers after Macquarie Group Ltd. said the nation’s overall copper demand may rise in 2011. PetroChina Co. climbed more than 1 percent, leading energy companies higher, after Bernanke said Fed purchases of Treasury securities beyond the $600 billion announced last month are possible. SAIC Motor Corp. paced losses for automakers after the China Securities Journal reported China will end preferential treatment for some vehicles.

“The Fed’s remarks on further quantitative easing will help commodity prices,” said Wu Kan, Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, advanced 12.04 points, or 0.4 percent, to 2,854.47 at 10:06 a.m. The CSI 300 Index added 0.4 percent to 3,171.16.

Bernanke and other Fed officials have defended the central bank’s announcement that it will purchase $75 billion in Treasury securities a month through June to prop up a recovery so weak that only 39,000 jobs were created in November.

The purchase of more bonds than planned is “certainly possible,” said Bernanke. “It depends on the efficacy of the program” and the outlook for inflation and the economy.

In China, an early interest-rate increase would be good for stocks as it reduces the risk of policy over-tightening in the future, according to China International Capital Corp.

CICC would be more cautious about the stock market outlook in the first half of next year if the central bank were to not raise borrowing costs before the end of the year, analysts led by Hou Zhenhai wrote in a note dated yesterday.

Copper Demand

A gauge of material stocks in the CSI 300 surged 1.2 percent, as investors bought shares of commodity producers as a hedge against inflation. Jiangxi Copper Co., China’s biggest maker of the metal, gained 1.5 percent to 36.62 yuan. Tongling Nonferrous Metals Group Co. jumped 4.2 percent to 27.46 yuan.

China’s spending on a national power grid may account for 50 percent of the increase in the country’s overall copper demand next year, Macquarie said.

The nation’s overall copper demand is forecast to rise to 7.74 million tons next year, while the national grid copper usage may rise from at least 700,000 tons to over 1 million tons, Macquarie analyst Max Layton wrote in a report. Aluminum demand from the national grid may rise by 500,000 to 1 million tons next year to 2.5 million or 3 million tons, he wrote.

Copper in London climbed for a fifth day, set for its longest rally since July. The metal for three-month delivery on the London Metal Exchange rose as much as 0.5 percent to $8,765 a metric ton by 9:02 a.m. Singapore time.

Oil Stocks

PetroChina added 1.6 percent to 11.42 yuan. China Petroleum and Chemical Corp., known as Sinopec, gained 0.6 percent to 8.23 yuan.

Oil will advance to $120 a barrel before the end of 2012 as consumption grows in emerging economies, according to a Dec. 3 report from JPMorgan Chase & Co. Futures will average $93 a barrel next year, up from a previous estimate of $89.75, the bank’s analysts forecast.

China’s stocks may rise more than 20 percent in 2011, according to Nomura Holdings Inc. Nomura is bullish on industries including oil and gas, financial, property and consumer, according to the report.

Rate Outlook

Central Bank advisor Li Daokui said China may order higher reserve requirements for banks to counter capital inflows.

Li was commenting on the Communist Party Politburo announcement that the nation will move next year to a “prudent” monetary policy from the current “moderately loose” stance. The statement, which endorsed a continued “proactive” fiscal policy, was reported by the state-run Xinhua News Agency.

Boosting reserve requirements would counter inflows of money and “China’s own economic cycle, such as the fact that banks tend to lend more at the beginning of a year,” Li said in a phone interview in Beijing Dec. 3.

The People’s Bank of China raised lending and deposit rates in October for the first time since 2007, lifted banks’ reserve requirements with five publicly announced increases this year, and has restricted loan growth. The one-year lending rate is at 5.56 percent, while the deposit rate is 2.5 percent. October’s inflation rate of 4.4 percent was the highest in 25 months.

China’s next rate increase may be on Dec. 10 and the yuan may strengthen at a “slightly” faster pace before year-end, said Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd. who formerly worked for the International Monetary Fund and the European Central Bank.

SAIC slid 0.8 percent to 16.47 yuan. FAW Car Co. declined 0.6 percent to 18.22 yuan. Anhui Jianghuai Auto Co. fell 1.2 percent to 11.17 yuan.

China Securities Journal reported China will end a preferential purchase tax for vehicles with engines no larger than 1.6 liters next year, citing an unidentified person at the National Development and Reform Commission.

--Irene Shen. Editor: Allen Wan

To contact Bloomberg News staff for this story: Irene Shen in Shanghai at +86-21-6104-3049 or ishen4@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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