The Bloomberg China-US 55 Index (CH55BN) of the most-traded Chinese equities in the U.S. rose to a two-month high as airline profits grew and the government signaled it will move to shore up growth. Online search engine Baidu Inc. surged 7 percent in after-market hours trading after third-quarter profit topped analyst forecasts.
China Southern Airlines (ZNH), Asia’s biggest carrier by passenger numbers, jumped to a seven-week high after saying its third-quarter profit rose to 3.1 billion yuan ($487 million). China Eastern Airlines Corp. (CEA), the nation’s third largest carrier by market value, posted the biggest two-day rally since 2009 after saying it expects to benefit from a trial tax change. PetroChina Co. (PTR), the nation’s largest oil producer, reported larger-than-forecast net income for the quarter ended in September on gains in crude.
Asia’s “earnings have been holding up pretty well,” Mark Konyn, chief executive officer of RCM Asia Pacific Ltd., which helps manage $150 billion globally, said in a Bloomberg Television interview in Hong Kong.
China shares rallied in the U.S. as the Standard & Poor’s 500 Index extended its best month since 1974, after European leaders agreed to expand a bailout fund to stem the region’s debt crisis. Metals and oil led an advance in commodities.
Premier Wen Jiabao’s comment this week that the government may fine-tune economic policies as needed fueled speculation that China, the world’s second-largest economy, is ending a two- year policy tightening campaign as growth slows.
Baidu, China’s most popular online search engine, said after markets closed that third-quarter net income climbed 80 percent to 1.88 billion yuan, or 5.38 yuan per American depositary receipt, compared with 1.05 billion yuan, or 3 yuan, a year earlier. That exceeded the 1.85 billion yuan average of eight analysts’ estimates compiled by Bloomberg. Its ADRs gained 5.8 percent to $138.39 at the close of U.S. trading.
It’s “a good time to be less defensive” in Chinese stocks because China may begin to ease measures designed to cool inflation, John Tang, a strategist at UBS AG, wrote in a research note yesterday.
The ishares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., jumped 5.8 percent, the most since June 2009, to $38.21. The Shanghai Composite Index gained for a fourth day to the highest in eight sessions.
China’s economy expanded 9.1 percent in the third quarter from a year earlier, the least in two years. The pace of inflation slowed to 6.1 percent last month from a three-year high of 6.5 percent in July.
“Policy fine-tuning towards loosening has actually occurred, especially for small- and medium-sized enterprises and local-government financing vehicles,” Shen Jianguang, a Hong Kong-based economist at Mizuho Securities Asia Ltd. wrote in a report yesterday. “The next step will be a targeted required reserve ratio cut for smaller banks, followed by a general cut.”
Analysts at Guotai Junan Securities Co. and Barclays Plc joined Mizuho in predicting a cut to banks’ reserve requirements this year.
The Bloomberg benchmark gauge surged 4.2 percent, the most in two months, to the highest level since Aug. 31. The S&P erased its 2011 loss, rising 3.4 percent to 1,284,59, the highest level since Aug. 1.
Investors are taking out a record amount of debt insurance on China amid concern that rising bad bank loans and slowing global growth will depress the world’s biggest exporter.
The net amount of Chinese sovereign debt covered by credit- default swaps doubled this year to $9.3 billion, the eighth highest of 1,000 entities tracked by the Depository Trust & Clearing Corp. Contracts on China were the sixth most-traded last week behind France, Spain, Germany, Italy and Brazil, with a daily average of $488 million.
China’s five-year credit default swaps fell about 21 basis points, or 0.21 percentage point, to 119.5, according to data provider CMA , which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
The Chinese yuan weakened 0.1 percent to 6.3595 per dollar in Shanghai, trimming its gains this year to 3.6 percent, according to the China Foreign Exchange Trade System
China’s central government approved a pilot program to replace a business tax with a value-added tax on the transport industry service sectors in Shanghai from Jan. 1, according to a statement from the State Council Oct. 26. China Eastern expects airlines will be included in the pilot run and will benefit from the tax change, Board Secretary Luo Zhuping said by telephone.
The carrier’s ADRs soared 15 percent to a seven-week high of $21.36. Each ADR represents 50 common shares. Its Hong Kong- traded shares jumped 11 percent to HK$3.23, the equivalent of 41.6 U.S. cents. China Southern’s ADRs leaped 9.6 percent to $31.80. PetroChina’s ADRs climbed 4 percent to $136, the highest in more than two months.
Oil futures for December delivery rose 4.2 percent to $93.96 a barrel on the New York Mercantile Exchange, the highest settlement level since Aug. 1. Prices have gained 2.8 percent this year.
China Unicom (Hong Kong) Ltd. (CHU), the second-largest mobile phone company of the nation, slid 2.2 percent, snapping a four- day gain, after its third-quarter profit missed analysts’ estimates as marketing costs and wages for employees rose.
Net income rose 21 percent to 1.61 billion yuan, from a re- stated 1.33 billion yuan a year earlier, according to figures derived from nine-month earnings reported by the Beijing-based company. Profit missed the 1.73 billion yuan average of three analysts’ estimates in a Bloomberg survey.
The Shanghai Composite Index has plunged 13 percent this year, compared with an 14 percent drop in Brazil’s Bovespa Index, 9.6 percent loss in Russia’s Micex Index, and a slump of 16 percent in India’s benchmark measure. The Shanghai measure is trading at 12.9 times earnings, compared with 15.4 for Indian stocks, 9.4 for Brazilian shares, and 5.9 for Russian equities.
Members of the Bloomberg China-US 55 Index: 21Vianet Group Inc 51Job Inc 7 Days Group Holdings Aluminum Corp Of China Asiainfo-Linkage Inc Autonavi Holdings Ltd Baidu Inc Changyou.com Ltd China Eastern Airlines China Life Insurance Co China Lodging Group China Mobile Ltd China Petroleum & Chemical Corp China Real Estate Inform China Southern Airlines Co China Telecom Corp Ltd China Unicom Hong Kong Cninsure Inc Cnooc Ltd Ctrip.com International E-commerce China Dangdang Inc Elong Inc Focus Media Holding Giant Interactive Group Guangshen Railways Home Inns & Hotels Management Inc Huaneng Power International Inc LDK Solar Co Ltd Melco Crown Entertainment Mindray Medical Intl Ltd NetEase.com Inc New Oriental Education Noah Holdings Ltd Perfect World Co Petrochina Co Qihoo 360 Technology Co Renren Inc Seaspan Corp Semiconductor Manufacturing International Corp Shanda Games Ltd Shanda Interactive Simcere Pharmaceutical Group Sina Corp Sinopec Shanghai Petrochemical Co Sohu.com Inc Soufun Holdings Ltd Spreadtrum Communications Inc Suntech Power Holdings Tal Education Group Trina Solar Ltd Tudou Holdings Ltd Wuxi Pharmatech Inc Yanzhou Coal Mining Co Yingli Green Energy Holding Youku.com Inc
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