China’s Stocks Advance for First Time in Nine Days, Paring Monthly Decline

China’s stocks rose, ending the longest losing streak for the benchmark index since December 2008, as investors speculated losses were excessive.

Huaneng Power International Inc. (600011), the listed unit of China’s largest power group, advanced the most in three weeks after a government official said electricity prices will be raised. China Shenhua Energy Co. led energy companies higher as coal and oil prices increased. Poly Real Estate Group Co. slid to a six-month low after the Shanghai Daily said the central bank may boost interest rates as soon as this weekend.

The Shanghai Composite Index rose 21.43, or 0.8 percent, to 2,727.79 at 2:04 p.m., snapping an eight-day, 5.8 percent retreat. The CSI 300 Index added 0.8 percent to 2,978.38.

“The power price increase may help lift market sentiment,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “The move should go some way to easing power shortages and removing some pressure on production capacity.”

The government will raise retail electricity prices starting next month, the first increase in more than a year, to curb demand and boost power generation as the nation battles a shortage that may be the worst in history.

The Shanghai Composite has lost 6.3 percent this month, the biggest loss since June 2010, on concern growth in the world’s second-largest economy is slowing after the central bank raised the reserve-requirement ratio for banks 11 times and boosted interest rates four times to cool inflation. The gauge has plunged 11 percent from this year’s high on April 18, a sign to some investors that the market has entered a correction.

Relative Strength

Stocks on the Shanghai Composite trade at about 15.3 times reported earnings, compared with a peak of about 53 times in 2007. The gauge’s relative strength index dropped to 24 yesterday, below the 30 point level that indicates an asset may rebound in value.

Huaneng Power gained 1.6 percent to 5.62 yuan, set for the biggest rise since May 9. China Yangtze Power Co. advanced 1.2 percent to 7.40 yuan.

Power prices for industrial users in 15 provinces will increase starting tomorrow and those paid by residential users will remain unchanged, said an official with the National Development and Reform Commission, the top economic planner, who declined to be identified because of internal rules.

China is battling an electricity supply shortfall that may reach as much as 40 gigawatts this summer, surpassing the shortage in 2004, the country’s worst, according to State Grid Corp. of China. The price increase, the first since November 2009, may spur power plants to increase utilization rates after rising coal costs and government caps on electricity tariffs.

Earnings Boost

The tariff increase “only partially removes the price distortion,” Citigroup Inc. analysts led by Minggao Shen said in a report dated yesterday. After the rise, the power tariff/coal price ratio is still “far below” the average level in 2009-2010, they wrote. Still, the increase may indicate the bottom for earnings of independent power producers and boost coal companies, the analysts said.

Shenhua Energy advanced 0.8 percent to 28.06 yuan. Yanzhou Coal Mining Co. added 1.2 percent to 31.94 yuan. PetroChina Co rose 0.2 percent to 11 yuan.

Benchmark power-station coal prices at Qinhuangdao port increased 0.6 percent yesterday from a week earlier to the highest level since October 2008, according to data from the China Coal Transport and Distribution Association. Crude for July delivery gained as much as 86 cents to $101.45 in New York and was at $101.17 recently.

Inflation Concern

The central bank may raise interest rates ahead of a public holiday on June 6 because consumer prices are expected to rise to a new high in May, Shanghai Daily said today, citing UBS AG. Inflation rose 5.3 percent last month, exceeding the government’s full-year target of 4 percent.

A gauge tracking property stocks on the Shanghai Composite was the worst performer among the five industry groups. Poly Real Estate fell 2.5 percent to 9.27 yuan, set for its lowest close since Dec. 10. China Vanke Co., the nation’s largest developer by market value, dropped 0.8 percent to 7.74 yuan.

Home sales in China may decline by more than 10 percent this year because of government tightening measures, the Shanghai Daily said, citing Nie Meisheng, head of the China Real Estate Chamber of Commerce.

The government has intensified its crack-down on speculation in the property market by introducing purchase limits in some cities.

--Irene Shen. Editor: Richard Frost

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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