China's Stocks Advance, Capping Weekly Gain; Banks, Developers, Autos Rise

China’s stocks gained for the first time in three days, capping the benchmark index’s advance in the first week of 2011, as banks and developers rose on speculation shares are undervalued given their earnings growth prospects.

Industrial & Commercial Bank of China Ltd. and China Vanke Co. led a gauge of banks and developers to its best weekly gain since October. SAIC Motor Corp., the largest carmaker, climbed the most in a month after saying sales increased 31 percent in 2010. China Hainan Rubber Industry Group Co., the only listed rubber maker, jumped 84 percent on its first day of trading.

“Financial companies, such as banks and developers, were the underperformers last year with very low valuations,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “Expectations that their earnings will continue to grow and attractive stock prices triggered the rally.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, rose 14.60, or 0.5 percent, to 2,838.80 at the 3 p.m. close. The CSI 300 Index gained 0.2 percent to 3,166.62, led by financial stocks.

The Shanghai gauge climbed 1.1 percent this week after dropping 14 percent in 2010, the worst performer among the 14 biggest world benchmark indexes. The government ordered banks to set aside more reserves six times in 2010 and boosted rates twice to tame inflation and curb asset bubbles after record gains in lending and property prices.

A gauge of banks, developers and brokerages advanced 2 percent today, the most among the CSI 300’s 10 industry groups. Financial companies trade at an average 12.4 times estimated earnings, the lowest among the 10 industries, according to data compiled by Bloomberg.

Financial Index

The measure has jumped 3.2 percent this year, the biggest gainer among the 10 industry groups, after sliding 27 percent in 2010 as the worst-performing industry.

ICBC, the nation’s biggest listed lender, rose 3.4 percent to 4.30 yuan. China Construction Bank Corp., the second largest, gained 3.3 percent to 4.73 yuan. Industrial Bank Co., part-owned by a unit of HSBC Holdings Plc, jumped 7.1 percent to 26.52 yuan, the most since Nov. 2.

“We are very optimistic about China’s banking stocks,” Lewis Wan, chief investment officer at Pride Investments Group Ltd., said in a Bloomberg Television interview. “Inflation seems to be in under control. The economy will continue to be good and NPLs won’t go up too quickly,” he said, referring to non-performing loans.

China’s Vice Premier Li Keqiang estimated the country’s economy grew about 10 percent last year, the official Xinhua news agency reported, citing a transcript of comments he made to business executives during a visit to Madrid on Jan. 5.

Surpass Japan

China may have overtaken Japan to become the world’s second-largest economy in 2010 after its gross domestic product exceeded its Asian neighbor’s in the second and third quarters. The country has grown at an average 11.4 percent pace over the past five years.

China Vanke Co., the biggest listed property developer, gained 0.6 percent to 8.89 yuan. Poly Real Estate Group Co., the second-largest, advanced 0.1 percent to 14.39 yuan.

China’s home prices will rise 5 percent to 7 percent in 2011 as the government’s housing policy will remain “tight” amid efforts to contain an asset bubble in an expanding economy, according to Jones Lang LaSalle.

A property tax expected to be introduced in Shanghai this year will have a minimal impact because the levy will be low, Michael Klibaner, head of China research at the commercial- property broker, said yesterday. The Century Weekly magazine this week reported that the tax may be delayed following disputes among government departments.

No Re-financing Plan

Ping An Insurance (Group) Co., China’s second-biggest insurer, advanced 0.8 percent to 53.01 yuan. The company has no plan to conduct any re-financing exercise in the A-share market, Ping An said in a statement last night.

Reports on the company’s re-financing exercise are “ungrounded,” Ping An said in the statement. The operation condition of the company is “normal with a stable financial status,” it said.

The stock slumped 7.6 percent over the past two days after Citic Securities Co. said the company may need to raise up to 40 billion yuan.

SAIC added 2.9 percent to 15.45 yuan, the biggest gain since Dec. 13. The company said it sold 3.58 million vehicles in 2010. Sales rose 1 percent last month from a year earlier.

Auto Stocks

Anhui Jianghuai Automobile Co., a unit of China’s biggest light-truck exporter, gained 2 percent to 10.90 yuan after saying profit probably jumped more than 240 percent last year. Chongqing Changan Automobile Co., the partner of Ford Motor Co. and Mazda Motor Corp., rose 2.7 percent to 9.97 yuan. The company said it plans to raise as much as 4 billion yuan ($603.5 million) via the sale of as many as 410.7 million extra shares.

Hainan Rubber surged 84 percent from its offer price to 11.01 yuan. “Hainan Rubber controls almost all rubber resources in Hainan province, the largest reserves for the material in China, and it has the ambition to acquire more assets in the future,” said Li Chenyan, an analyst at Donghai Securities Co. in Beijing. “That has boosted investors’ buying sentiment in the company.”

Jiangxi Copper Co. and gold producer Zijin Mining Group Co. declined among commodity producers as a stronger dollar reduced the attractiveness of metals as an alternative investment.

Commodities slumped yesterday after the dollar strengthened on prospects U.S. unemployment rates probably dropped last month, reducing the appeal of metals as alternative investment.

Jiangxi Copper, the nation’s biggest producer of the metal, fell 4.7 percent to 42.87 yuan. Zijin Mining lost 1.3 percent to 7.89 yuan. Tongling Nonferrous Metals Group Co., the largest copper producer, slumped 6.2 percent to 32.50 yuan.

--Zhang Shidong. Editors: Allen Wan, Richard Frost

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-3040 or szhang5@bloomberg.net

To contact the editor responsible for this story: Reinie Booysen at rbooysen@bloomberg.net

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