China’s Stocks Rise as Signs of Economic Slowdown Spur Easing Speculation

China’s stocks rose for a third day on speculation the government will accelerate measures to boost the economy after a report on non-manufacturing industries signaled tight monetary policies are hurting businesses.

Sanan Optoelectronics Co. jumped 8 percent after Industrial Securities Co. said investors are speculating the light-emitting diode industry will get subsidies. China Life Insurance Co. rose to the highest in three months after Sinolink Securities Co. recommended insurers. The stock market’s gains were limited as developers fell after the Economic Information Daily reported land demand weakened across China because of a cash crunch.

“Some banks may have started to increase lending as part of the government’s policy fine-tuning,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “We’re likely to see an improvement in liquidity and that’ll allow the rebound to continue. It’s not to going to be a reversal as economic and earnings growth is still trending down.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, climbed 3.98 points, or 0.2 percent, to 2,508.09 at the close, its highest close since Sept. 21. The CSI 300 Index (SHSZ300) rose 0.1 percent to 2,744.30. Asian markets fell after euro-area leaders halted aid payments to Greece and said a referendum on the bailout plan will determine whether the nation becomes the first to exit the 17-country euro area.

The Shanghai Composite has fallen 11 percent this year after the central bank raised interest rates three times and lifted the reserve-requirement ratio to curb inflation that’s near a three-year high. It’s valued at 11.7 times estimated earnings, compared with a record low of 10.8 times on Oct. 21, according to weekly data compiled by Bloomberg.

PMI Index

A purchasing managers’ index of non-manufacturing industries fell to 57.7 from 59.3 in September, the China Federation of Logistics and Purchasing said on its website today. Manufacturing indexes released Nov. 1 gave contradictory readings. A gauge from the CFLP and the government fell to the lowest level since February 2009, while a measure released by HSBC Holdings Plc and Markit Economics rose.

“When the economy is cooling, service industries won’t be able to escape the impact, especially manufacturing-related services such as logistics and transport,” Lu Ting, a Hong Kong-based economist at Bank of America Corp., said before the data. “But government help for smaller businesses and increased consumer spending will support growth in services.”

LED Subsidy

Sanan jumped 8 percent to 15.34 yuan. Shenzhen Refond Optoelectronics Co. surged by the 10 percent daily limit to 18.49 yuan in Shenzhen. Foshan NationStar Optoelectronics Co. advanced 6.7 percent to 22.40 yuan.

Liu Liang, an analyst at Industrial Securities, said there’s “market speculation” that the government may announce measures to allocate about 8 billion yuan ($1.26 billion) to subsidize purchases of indoor and commercial LED lighting by the year-end. Liang said the National Development and Reform Commission is scheduled to hold a press conference tomorrow on a plan to phase out the use of fluorescent lights.

The Shanghai Composite has rebounded 8.2 percent from this year’s low on Oct. 21, after the government announced measures to help small businesses through easier access to bank loans and said it will lower the threshold for payment on value-added and business taxes for small companies.

Guotai Junan Securities Co., Mizuho Securities Asia Ltd. and Barclays Plc. said last week China may cut banks’ reserve requirements before the end of this year to stoke lending to small companies and boost the economy.

Inflation Outlook

The central bank may reduce interest rates by the second quarter of next year as inflation eases “significantly,” Wang Jin, an analyst at Shanghai-based Guotai Junan, said after Premier Wen Jiabao announced Oct. 25 the government may fine- tune its economic policies as needed. China won’t revise its monetary policy, Zhang Tao, director general of the international department of the People’s Bank of China, said yesterday in Cannes, France, before a Group of 20 summit.

The nation’s inflation rate may ease to 5.3 percent or 5.4 percent in October, said Zhu Jianfang, a Beijing-based economist at Citic Securities Co. The figure is scheduled for release on Nov. 9. Consumer prices rose 6.1 percent in September.

The Shanghai index may rise as high as 2,600 this month as “designated” stimulus policies reduce the risk of over- tightening and the slowing economy and earnings have been “priced in,” according to Sinolink Securities.

Sinolink Upgrade

Sinolink, based in Sichuan province’s Chengdu city, said the worst is over for stocks and it has turned “neutral” on China’s equities from “pessimistic,” Tao Jinggang, an analyst at the brokerage, said in a report dated today. Sinolink recommends shares of brokerages and insurance companies, according to the report.

China Life, the nation’s biggest insurer, climbed 3 percent to 18.04 yuan, its highest close since July 22. Ping An Insurance (Group) Co., the second largest, rose 0.8 percent to 40.38 yuan. China Pacific Insurance (Group) Co., the third biggest, advanced 0.9 percent to 21.29 yuan.

Restrictions on lending for some Chinese banks that meet regulatory requirements have been eased within a “reasonable scope,” Shanghai Securities News reported, citing an unidentified banker.

Poly Real Estate Group Co, China’s second-largest developer by market value, retreated 1.8 percent to 9.97 yuan. China Vanke Co., the biggest, lost 1.8 percent to 7.76 yuan. Gemdale Corp. fell 1.8 percent to 4.97 yuan.

About 133 Chinese cities sold 20 million square meters of land for residential housing development in October, 45 percent less than a year earlier, the Economic Information Daily reported today, citing SouFun Holdings Ltd. Demand for land weakened as developers faced a cash crunch, it said.

--Zhang Shidong. Editors: Allen Wan, Matthew Oakley

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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