China’s Stock Index Climbs on Reserve-Ratio Cut; ICBC Advances

China’s benchmark stock index rose, extending its longest weekly winning streak since 2010, after the central bank announced a cut in reserve requirements for the first time this year to bolster economic growth.

Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. (3988) paced gains for financial stocks after reserve ratios were lowered by a half percentage point. China Vanke Co. led a gauge of real-estate companies to a one-week high after a central bank adviser said the nation needs targeted “fine- tuning” of its property market. China CNR Corp., the nation’s second-biggest train maker, dropped after the regulator approved a plan to sell new shares.

“The market will react positively to the reserve-ratio cut,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “The turning point for liquidity has appeared. What we want to see next is if the slowdown in economic growth can be halted after these measures are implemented.”

The Shanghai Composite Index (SHCOMP) climbed 6.42 points, or 0.3 percent, to 2,363.60 at the close. The CSI 300 Index (SHSZ300) rose 0.1 percent to 2,540.71. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, slid 0.2 percent on Jan. 17 in New York.

The Shanghai Composite advanced 0.2 percent last week, capping a fifth week of gains and the longest winning streak since Nov. 5, 2010, on speculation the government would reduce the reserve ratio a second time after cutting them Nov. 30.

Investors Waited

The proportion of cash that lenders must set aside will fall half a percentage point from Feb. 24, the central bank said Feb. 18 on its website. A 50 basis-point cut may add 400 billion yuan ($63 billion) to the financial system, according to Australia & New Zealand Banking Group Ltd. (ANZ) The previous reduction was the first since 2008.

“The markets have been awaiting this RRR cut since end-2011,” Lu Ting, a Hong Kong-based economist at the Merrill Lynch unit of Bank of America, wrote in a report. “This RRR cut is to some extent a surprise and will definitely be positive for markets in the coming week.”

The Bank of America economist, who had forecast a reserve- ratio cut in the first quarter, said the central bank will reduce the ratio twice more before the end of this year. Bank of America was rated first for Asia research in 2011 by Institutional Investor magazine.

The Shanghai Composite has rebounded 7.5 percent this year, after falling a combined 33 percent in the previous two years. The gain lags behind a 16 percent jump for the MSCI Emerging Markets Index (MXEF) and a 17 percent rally for the Hang Seng China Enterprises Index (HSCEI) of Chinese companies that are publicly traded in Hong Kong.

Top Buys

China’s A-share market may start to catch up once the easing cycle is confirmed, Minggao Shen and Ben Wei, analysts at Citigroup, wrote in a report dated yesterday.

ICBC, the nation’s biggest Chinese bank, gained 0.2 percent to 4.40 yuan. Bank of China, the third largest, added 0.3 percent to 3.03 yuan. Agricultural Bank of China Ltd., the fourth biggest, climbed 0.7 percent to 2.72 yuan.

“We believe RRR cuts are positive for banking shares mainly because monetary easing is a key catalyst for a valuation re-rating in our view,” Citigroup analysts said in a report. “We expect earnings at the bigger banks to be more resilient and hence our preference for the big banks.”

PetroChina Co., the nation’s biggest oil company, rose 1.1 percent to 10.29 yuan.

Property Outlook

The reserve-ratio cut will be “great news” for stocks as it signals the government is encouraging banks to lend to small companies hurt by the nation’s credit crunch, Gavin Parry, managing director of Hong Kong-based Parry International Trading Ltd., wrote in an e-mail yesterday.

The reduction is further evidence that liquidity will improve after the government set a higher target for 2012 money supply growth, he said. China’s M2 will probably grow by about 14 percent this year, the central bank estimates. That compares with a 13.6 percent increase in 2011.

A gauge of property stocks in the Shanghai Composite added 0.6 percent, its highest close since Feb. 10. Vanke, the largest developer, gained 0.5 percent to 7.83 yuan. Rival Poly Real Estate Group Co. advanced 0.6 percent to 10.77 yuan.

China needs targeted “fine-tuning” of its property market, while maintaining its property control directions, Li Daokui, an adviser to the central bank, said on his blog on Feb. 19. His comments came after China’s January home prices recorded their worst performance in at least a year, with none of the 70 cities monitored by the government posting gains.

Prices in 47 of the cities fell, while home values in the remaining 23 were unchanged from December, the National Statistics Bureau said in a statement on Feb. 18. New home prices in the nation’s four major cities of Shanghai, Beijing, Shenzhen and Guangzhou declined for a fourth month.

China CNR slipped 0.2 percent to 4.55 yuan. The railcar maker received approval from the China Securities Regulatory Commission for a placement of about 2.1 billion new shares, it said in an exchange statement.

--Zhang Shidong. Editors: Allen Wan, Richard Frost

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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