China’s Stocks Rise After Biggest Two-Month Drop, Led By Banks

China’s stocks rose following the biggest loss in two months on speculation earnings of drugmakers and consumer staples producers will be sheltered from slowing economic growth.

Industrial and Commercial Bank of China Ltd. and China Construction Bank Corp. (939) gained more than 1 percent after Credit Suisse Group AG said lenders may report profit growth of 20 percent this year. Jointown Pharmaceutical Group Co. rose the most in three months on prospects the government will boost development of the drug-distribution industry. Jiangxi Copper Co., the biggest copper producer, fell to a seven-month low.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, added 6.4 points, or 0.2 percent, to 2,872.40 at the 3 p.m. close. The gauge slumped 2.3 percent yesterday. The CSI 300 Index (SHSZ300) retreated 0.1 percent to 3,126.12. The MSCI Emerging Markets Index slid 0.2 percent.

Yesterday’s “plunge is a bit overdone and may create an opportunity for a rebound in some defensive sectors,” said Tu Jun, a strategist at Shanghai Securities Co. “Some investors are betting on a rebound after excessive losses.”

The nation’s economic growth can exceed 9 percent this year although it faces uncertainties including the risk of over- tightening, Yu Yongding, a former academic adviser to the People’s Bank of China said today.

Inflationary pressure “remains high but is controllable this year,” and there is no need to be “overly worried” about price increases, Yu said. While it will be difficult for the government to keep inflation within its 4 percent target this year, limiting the growth in consumer prices to under 5 percent is “achievable,” he said.

Bank Stocks

Credit Suisse said banks will boost profit in 2011 after they signaled “continued strength” in fee income and net interest margins in the first quarter. The brokerage remains “constructive” on large banks with ICBC, China Construction Bank and Agricultural Bank of China Ltd. (601288) making up its top picks, analysts led by Sanjay Jain wrote in a report today.

ICBC, the nation’s bigger lender, jumped 1.6 percent to 4.60 yuan, its biggest gain since April 6. China Construction Bank, the second largest, advanced 1.4 percent to 5.19 yuan.

Bank shares in China and so-called consumption stocks are among those that may rebound in the third quarter, Anthony Cragg, a portfolio manager at Wells Capital Management, said in a Bloomberg Television interview, without naming any companies.

“Those countries who got onto the inflation problem earlier and more proactively and aggressively will come out of it earlier and I would put China in that category,” said Cragg.

China’s central bank has lifted borrowing costs four times since October to cool prices that grew at the fastest pace since 2008 in March. It ordered lenders to set aside reserves 10 times since the start of last year to curb lending.

Defensive Stocks

A gauge tracking health-care companies in the CSI 300 gained 1.4 percent, the second-most among 10 industry groups. The measure tracking consumer staples rose 1.3 percent.

Joinown Pharmaceutical surged 6.3 percent to 14.17 yuan, the most since Feb. 10. The Ministry of Commerce will announce a five-year plan for the drug distribution industry today, the China Business News reported yesterday. The plan includes a system to set up as much as three national medicine distributors each with annual sales of more than 100 billion yuan ($15.4 billion), it said.

Kweichow Moutai Co., the biggest producer of baijiu liquor, advanced 0.8 percent to 184.95 yuan. Chongqing Brewery Co. (600132), the second-biggest brewer, added 1.4 percent to 60.09 yuan.

Jiangxi Copper led declines for copper producers, losing 2.4 percent to 33.79 yuan, the lowest since Sept. 30. Yunnan Copper Industry Co. (000878) slipped 0.7 percent to 22.99 yuan.

Copper in London slumped to the lowest price in more than seven weeks on concern that extended tightening measures in China may curb demand in the world’s largest user. Three-month delivery copper on the London Metal Exchange fell as much as 1 percent to $9,037 a metric ton, the lowest level since March 15.

--Irene Shen. Editors: Allen Wan, Darren Boey

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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