China’s Stocks Rise on Europe Outlook, Prospects for Pension Fund Buying

China’s stocks rose on speculation the government may encourage pension funds to invest in the nation’s equities and Europe’s debt crisis is easing.

The Shanghai Composite Index (SHCOMP) added 5.3 points, or 0.2 percent, to 2,290.29 at 9:33 a.m. local time, driving valuations to 9.4 times estimated earnings, near the record low of 8.9 times reached on Jan. 6. The CSI 300 Index rose 0.2 percent to 2,466.07. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, retreated 1.5 percent in New York.

China may announce methods for local pensions to invest in the stock market as soon as the first quarter, the Securities Times reported today, citing an unidentified person. As much as 30 percent of pension assets, or about 580 billion yuan ($91.6 billion), may be allowed for stock investment, according to the newspaper, which is operated by the People’s Daily.

“The hope lies in government support measures such as encouraging more local pensions to invest in stocks and the market believes these measures will materialize soon,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Corporate earnings are slowing but most of this looks like they are being priced into equities now.”

The Shanghai Composite has gained 3.9 percent in January, its best start to the year since 2009, on speculation slowing growth will prompt the central bank to relax monetary policies and the government will take measures to support stocks.

Chinese insurers have invested between 10 percent and 12 percent of their assets in equities, lower than the 25 percent cap, the China Securities Journal reported today, citing company data. Insurers’ equities investment continued to drop in the fourth quarter, it said.

Europe Outlook

Greek Prime Minister Lucas Papademos said major progress had been made in debt-swap talks with bondholders. He spoke to reporters in Brussels after a European Union summit. Europe accounts for 18 percent of Chinese exports, according to Shanghai-based Shenyin & Wanguo Securities Co.

Chinese listed companies have started to announce annual earnings reports and will finish before the end of April. Forty- five companies in the Shanghai Composite have released annual profits so far, gaining 19 percent on average and trailing estimates by 3.2 percent, according to data compiled by Bloomberg. That compared with an increase of 38 percent in the previous year.

SAIC Motor Corp. (600104), China’s largest carmaker, advanced 0.1 percent to 15.50 yuan after it estimated 2011 net income jumped more than 40 percent from the previous year’s 13.7 billion yuan as sales climbed 12 percent.

The China Federation of Logistics and Purchasing is due to release a manufacturing index for this month tomorrow. The gauge may fall to 49.6 from 50.3 in December, according to the median estimate of 17 economists in a survey by Bloomberg News. The number of 50 is the dividing line between expansion and contraction.

--Zhang Shidong. Editors: Allen Wan, 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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