China Stocks Jump on Economic Plan to Become Asia's Best Market This Year

China’s benchmark stock index rallied today, making it the best performer among Asia’s major markets in 2011, after the government said domestic consumption will drive economic growth over the next five years.

Gree Electric Appliances Inc. (000651), China’s largest maker of home air-conditioners, climbed to a record high and Qingdao Haier Co., the country’s biggest maker of refrigerators, gained 4.4 percent after Premier Wen Jiabao said incentives for rural purchases of home appliances may boost spending. PetroChina Co. and China Shenhua Energy Co., the largest producers of oil and coal, surged as oil prices climbed.

“There will be active investment and construction activities at the beginning of the five-year plan,” said Victoria Mio, a Hong Kong-based portfolio manager at Robeco Hong Kong Ltd., whose parent oversees $200 billion. “The A-share market has a window of opportunity for a rebound.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, gained 53.90, or 1.8 percent, to 2,996.21 at the 3 p.m. close, the highest since Nov. 15. It has surged 12 percent from the 2011 low set on Jan. 25. The CSI 300 Index (SHSZ300) advanced 2 percent to 3,334.51 today.

The Shanghai gauge has rebounded 6.7 percent this year, after plunging 14 percent in 2010, on signs the world’s second- biggest economy is withstanding tightening steps. Manufacturing growth is still expanding after the central bank boosted banks’ reserve requirement ratio eight times since the start of 2010, while raising interest rates three times to rein in inflation that reached 4.9 percent in January, near the 28-month high of 5.1 percent in November.

Retailers Jump

The government will target 8 percent economic growth this year and “decisively” curb increases in prices that may threaten social stability, Wen said in his state-of-the-nation report on the opening session of the National People’s Congress over the weekend. The premier had already disclosed an annual growth target of 7 percent for the five-year plan, running from 2011 to 2015, down from the previous 7.5 percent. The goals are routinely surpassed, with China’s economy expanding an average 11 percent over the past five years.

Gree Electric jumped 4.6 percent to 22.59 yuan. Haier gained 4.4 percent to 31.09 yuan. GD Midea Holding Co., China’s second-biggest publicly traded appliance maker, rose 1 percent to 20.62 yuan. Hisense Electric Co., the biggest manufacturer of flat-panel televisions, climbed 5.7 percent to 14.43 yuan.

“Expanding domestic demand is a long-term strategic principle,” Wen said. Subsidies for urban low-income earners and farmers and continued incentives for rural purchases of home appliances may boost spending, he said.

Retailers, electric appliances makers and agricultural companies may have reported 2010 earnings exceeding estimates, according to China International Capital Corp.

Stocks Outlook

China’s stocks may extend their gains this month as inflation probably eased in February and the government shifts its focus to “maintaining stability” amid Middle East tensions, Hou Zhenhai and Wang Hui, analysts at CICC, wrote in a report.

The government’s plans to boost domestic consumption and invest more in underdeveloped industries including technology will lift the nation’s stock market, said Robeco’s Mio.

Consumer, alternative energy, agriculture, Internet and software companies will benefit most from government efforts to cut the economy’s dependence on exports, she said. Investors should avoid shippers, export-oriented companies and railway construction stocks, Mio said.

Annual Gain

The MSCI China Index may rally 13 percent in the four weeks following the National People’s Congress led by property companies, CLSA Ltd. said in a report today, citing the average gain after annual meetings since 2006.

A gauge of oil and coal companies in the CSI 300 surged 7.3 percent, the most among the 10 industry groups. PetroChina added 2.6 percent to 12.10 yuan. China Petroleum & Chemical Corp. (600028), the nation’s second-biggest oil producer, also known as Sinopec, rose 1 percent to 8.84 yuan.

Crude oil for April delivery gained as much as $2.02, or 1.9 percent, to $106.44 a barrel in after-hours trading in New York. Prices surged amid concern unrest in Libya will spread to other oil producers in the region and as a falling U.S. jobless rate signaled that fuel demand will climb. Libyan leader Muammar Qaddafi sent troops to recapture towns in the western part of the country and prepared to quash protests in Tripoli.

Shenhua jumped by the 10 percent daily limit to 28.37 yuan after the company received approval from the National Development and Reform Commission to start developing a coal field in Inner Mongolia.

Lu’an, Anhui Conch

Shanxi Lu’an Environmental Energy Development Co. surged 10 percent to 64.05 yuan. Sheyin & Wanguo Securities Co. raised the coal producer’s per-share earnings forecast for 2011 by 9.8 percent to 3.35 yuan after the company’s 2010 profit exceeded market estimates, Zhan Lingyan and Liu Xiaoning, analysts at the Shanghai-based brokerage, wrote in a report today.

Anhui Conch Cement Co., China’s biggest cement maker, advanced 4.5 percent to 37.59 yuan, the highest close since January 2008. Gansu Qilianshan Cement Group Co. surged 6.5 percent to 22.39 yuan. UBS AG reiterated its “bullish view” on the industry because of possible price increases for the building material.

--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: Darren Boey at dboey@bloomberg.net

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