China’s Stocks Rise on Manufacturing Growth, Paring Weekly Loss

China’s stocks rose, narrowing the benchmark index’s biggest weekly loss since November, as a report showing manufacturing expanded eased concerns the nation’s policy tightening measures have slowed the economy.

Anhui Conch Cement Co., China’s biggest cement producer, climbed 2.1 percent as the factory gauge stayed above the expansion threshold. China Southern Airlines Co. (600029) gained the most in two weeks as a stonger yuan may cut its U.S. dollar-based debt. Datang International Power Generation Co. led a rally for power producers on speculation the government may allow them to boost prices. Industrial Bank Co. (601166) slid 3.3 percent after Orient Securities Co. said banks’ net interest margin growth will slow.

“The economy is still doing well and I don’t see a big growth slump after all these tightening measures,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. Shanghai. “The broader market is now very close to its valuation bottom so a further big drop isn’t likely.”

The Shanghai Composite Index (SHCOMP), which tracks the bigger of China’s stock exchanges, rose 24.47, or 0.9 percent, to 2,911.51 at the 3 p.m. close. It fell 3.3 percent this week, the most since the five days ended Nov. 12, and lost 0.6 percent this month. The CSI 300 Index (SHSZ300) gained 1 percent to 3,192.72. China’s markets will be closed on May 2 for a holiday.

The Shanghai Composite has declined 4.8 percent from a five-month high on April 18 amid concern the government will add to 10 increases in lenders’ reserve requirements and four rises in interest rates to cool inflation. The drop has pared the stocks gauge’s advance this year to 3.7 percent.

Manufacturing Growth

China’s manufacturing sustained its expansion this month even as the government raised interest rates and let the yuan strengthen at a faster pace, a purchasing managers’ index showed.

The index was 51.8 in April, unchanged from March, HSBC Holdings Plc. and Markit Economics said today. A reading above 50 indicates expansion. The China Federation of Logistics and Purchasing is expected to report on May 1 that its PMI index rose to a one-year high of 53.9 in April, according to the median forecast in a Bloomberg survey of 20 economists. The measure is a leading indicator for the economy.

Anhui Conch, China’s biggest cement maker, gained 2.1 percent to 37.78 yuan, pacing an advance for industrial companies. SAIC Motor Corp. (600104), the largest carmaker, added 2.7 percent to 18.22 yuan. Wuhan Iron & Steel Co. climbed 2.7 percent to 4.62 yuan.

A gauge of utility companies in the CSI 300 surged 4.1 percent, the most among the 10 industry groups. Datang Power, a unit of China’s second-biggest electricity producer, jumped 9.5 percent to 7.01 yuan. Huaneng Power International Inc., the listed unit of China’s largest power group, advanced 6.3 percent to 6.09 yuan.

Power Shortages

“If the shortage will last for more than one year, China may need to approve more coal-fired power projects but before that, they need to raise tariffs more so that the independent power producers will be willing to spend on additional capex,” Dave Dai, an analyst at Securities Capital Markets, said in e- mailed response to questions. “It will still depend on where inflation is going over the next few months.”

China Southern, the biggest carrier by fleet size, rose 4.2 percent to 8.69 yuan. China Eastern Airlines Corp. (600115), the second largest, added 2.4 percent to 6.32 yuan. Air China Ltd., the largest international carrier, gained 1.4 percent to 11.10 yuan.

The yuan appreciated as much as 0.2 percent to 6.4898 per dollar in Shanghai today, the strongest level since the country unified official and market exchange rates at the end of 1993, according to the China Foreign Exchange Trade System. The Chinese currency has strengthened on speculation the central bank will allow appreciation to slow consumer prices, which rose at the fastest pace since 2008 last month.

Yuan Gains

Every 1 percent yuan appreciation will add 600 million yuan ($92 million) to Air China’s earnings, according to Rao Xinyu, head of investor relations, while China Southern said on March 29 every 1 percent gain in the yuan will boost profit by 400 million yuan.

A gauge of financial companies in the CSI 300 slid 0.5 percent, the only decliner among the 10 industry groups. Industrial Bank, part-owned by a unit of HSBC Holdings Plc, slid 3.3 percent to 29.20 yuan, the most since Feb. 22 and trimming its gain to 21 percent this year. Huaxia Bank, part-owned by Deutsche Bank AG, slumped 5.3 percent to 12.52 yuan.

Net interest margin for Industrial Bank dropped 23 basis points to 2.11 percent in the first quarter from the previous three months while that for Huaxia Bank fell 3 basis points to 2.47 percent, Mao Junhua and Luo Jing, analysts at China International Capital Corp., wrote in a report today. One basis point is 0.01 percentage point.

Interest Margins

“Net interest margin growth may slow in the second quarter as rising costs of deposits would erode yields on lending,” Jin Lin, a banking analyst at Orient Securities in Shanghai, said by phone. “Banks are under pressure to lure deposits to meet daily loan-to-deposit ratios.”

China’s banks are demanding record interest rates to lend to one another for six months or more, anticipating policy makers will raise borrowing costs and order additional funds set aside as reserves to rein in inflation.

The Shanghai interbank offered rate, or Shibor, for six- month yuan loans jumped 111 basis points this year to 4.67 percent yesterday, the highest level since the daily fixing was introduced in October 2006.

--Zhang Shidong. With assistance from Jianguo Jiang and Winnie Zhu in Shanghai. Editor: Allen Wan

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

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

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