China’s Stocks Climb From Six-Week Low on Easing Europe Debt Speculation

China’s stocks (SHCOMP) rose from a six-week low on speculation recent losses were excessive and European leaders will step up efforts to contain the debt crisis.

China Merchants Bank Co. (600036) and Ping An Insurance (Group) Co. led gains by financial companies on speculation slowing inflation will prompt the government to ease monetary policies. Gansu Qilianshan Cement Group Co. (600720) and Hebei Iron & Steel Co. dropped among building-material makers on concern slumping property sales will curtail real-estate construction.

“The decline is a bit overdone and given the prospect the government will relax more policies going forward, there should be a chance for valuations to recover,” said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai. “We see some progress towards European leaders solving their debt crisis but at a gradual pace. That’ll make the market volatile.”

The Shanghai Composite Index added 6.83 points, or 0.3 percent, to 2,332.73 at the close, erasing an earlier 0.4 percent loss and climbing from the lowest close since Oct. 21. The CSI 300 Index (SHSZ300) rose 0.5 percent to 2,528.23. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, retreated 1 percent in New York yesterday.

The Shanghai Composite has plunged 17 percent this year, exceeding last year’s 14 percent decline, after the central bank raised interest rates and lenders’ reserve-requirement ratios to curb inflation. The index is valued at 11.1 times estimated earnings, compared with a six-year average of 18.3 times, according to weekly data compiled by Bloomberg.

Stocks to Rally

China’s equities will rally in the first half of 2012 as the stock market is among cheapest in Asia, Michael Kurtz, chief Asian equity strategist at Nomura Holdings Inc., told reporters in Kuala Lumpur today. He recommends investors favor financial, energy and material companies in a market that trades 33 percent below its long-term average.

Merchants Bank advanced 1.1 percent to 11.89 yuan. Ping An, China’s second-biggest insurer, rose 3 percent to 37.92 yuan. China Minsheng Banking Corp. (600016), the nation’s first privately owned bank, added 1.2 percent to 6.12 yuan.

China’s statistics bureau is scheduled to report November’s inflation rate and other economic figures on Dec. 9. Consumer prices probably increased 4.5 percent last month from a year ago, compared with a 5.5 percent rise in October, according to the median estimate of 33 economists surveyed by Bloomberg. Inflation reached a three-year high of 6.5 percent in July.

Interest Rates

Swap traders are betting that China will lower interest rates at least twice in the coming year as inflation slows, rejecting the consensus view of economists that borrowing costs will be left unchanged.

Contracts based on the one-year deposit rate reflect expectations that the People’s Bank of China will cut the official savings rate to below 3 percent over the next 12 months. Eleven of 20 economists surveyed by Bloomberg last week predicted the rate would stay at 3.5 percent through 2012, while four said they expected at least one increase.

China’s inflation may slow to about 3 percent next year, the Shanghai Securities News reported, citing Zhang Liqun, a researcher at the State Council’s development research center.

Standard & Poor’s affirmed China’s sovereign ratings and said the outlook remains stable, citing the nation’s “exceptional” growth prospects, holdings of overseas assets and modest government indebtedness. China’s long-term credit rating is AA- and its short-term rating is A-1+, the company said in a statement yesterday.

Chanos View

S&P and Moody’s Investors Service’s rosy outlooks on China debt are wrong, Reuters reported, citing James Chanos, president and founder of Kynikos Associates. Chanos holds short positions on shares in miners, construction companies that ship raw materials to China and some Chinese banks, according to the report.

German Finance Minister Wolfgang Schaeuble said the recent move by S&P to place 15 euro nations including Germany and France on review for possible downgrades will help force European leaders to ratchet up efforts to resolve the debt crisis at their summit in Brussels.

China’s November export growth was lower than the previous month, Chong Quan, the country’s deputy international trade representative, said in Beijing today. Exports grew 15.9 percent in October. Europe is China’s biggest export market, accounting for 18 percent of its overseas shipments, according to Shenyin & Wanguo Securities Co.

Property Concern

Gansu Qilianshan Cement lost 3 percent to 10.19 yuan. Hebei Steel, the listed unit of China’s biggest steelmaker, dropped 1.2 percent to 3.35 yuan. Fujian Cement Inc. retreated 2.3 percent to 8.40 yuan.

China may decide and announce a plan for an expansion of property tax trials to other cities at year-end, China Securities Journal reported, citing Jia Kang, a researcher at China’s Ministry of Finance. No decision has been made on which cities the property tax trials will be introduced, according to the report.

Poly Real Estate Group Co. (600048), China’s second-largest developer by market value, said yesterday contracted sales slumped 36 percent from a year ago in November.

--Zhang Shidong. Editors: Richard Frost, Darren Boey

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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