China’s Stocks Rise on Support Measure Prospects; Chalco Climbs

China’s stocks rose for the third time in four days as speculation the government will introduce measures to bolster equities overshadowed concern the nation’s slowing economy will hurt profits.

Aluminum Corp. of China Ltd., whose parent company took over rare earth companies, jumped 10 percent after China Central Television reported the government will increase punishment for excess rare earth production and encourage the formation of large producers. China Cosco Holdings Co. gained 2.9 percent after a measure of shipping rates advanced. PetroChina Co. fell 1.1 percent after Mirae Asset Securities Co. said the oil producer may post a “disappointing” decline in net income.

The Shanghai Composite Index (SHCOMP) rose 1.36 point, or 0.1 percent, to 2,378.20 at the close. The measure climbed 0.8 percent after the 21st Century Business Herald reported that as much as 40 percent of Guangdong province’s 100 billion yuan ($15.8 billion) of pension funds may be invested in stocks.

The index later fell as much as 0.7 percent after the government said the money will “mainly” be invested in bonds.

“The pension fund news is a long-term positive boost for the market,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “That means the government has opened the flood gates for more local pensions to enter the stock market. There are expectations that more support measures will follow.”

Stocks Volatility

Thirty-day volatility in the Shanghai Composite was at 14.9, near a one-week low. About 13.6 billion shares changed hands in the measure yesterday, or 7.9 percent higher than the daily average this year. The CSI 300 Index (SHSZ300) added 0.1 percent to 2,587.79. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 1.1 percent in New York yesterday.

The Shanghai Composite has rebounded 8.1 percent this year on expectations the central bank will take measures to boost economic growth including cuts in lenders’ reserve-requirement ratios. Stocks in the index trade at 9.9 times estimated profit, compared with a record low of 8.9 times on Jan. 6, weekly data compiled by Bloomberg showed. The index has lost 22 percent over the past two years.

The National Council for Social Security Fund will manage Guangdong’s pension funds, the government agency said yesterday. The national pension fund denied media reports about investing Guangdong’s pension funds in the stock market, according to a statement on its website today. It will invest the money “mainly” in government and corporate bonds and other fixed- income securities, and deposit the money in banks, according to the statement.

Rare Earth

“Cyclical stocks, like Chalco, usually react quickly if the market has increasing capital,” said Wu Kan, a Shanghai- based fund manager at Dazhong Insurance Co., which oversees $285 million. “News that the government will regulate rare-earth mining also fuels speculation such measures will benefit large producers.”

Chalco surged 10 percent to 7.59 yuan. Parent Aluminum Corp. of China took over five rare-earth companies in the east Jiangsu province to boost capacity in June. China will increase punishment for rare-earth over-production, China Central Television reported yesterday, citing the Ministry of Industry and Information Technology.

China Cosco, the world’s largest operator of dry-bulk ships, gained 2.9 percent to 5.29 yuan. China Shipping Development Co., a unit of China’s second-biggest sea-cargo group, rose 1.3 percent to 6.37 yuan.

The Baltic Dry Index, a broader measure of costs to transport commodities, advanced for a 19th session yesterday, the longest winning streak since it rose for 23 days in June 2009. It gained 0.6 percent yesterday.

Oil Earnings

PetroChina, the biggest oil company, dropped 1.1 percent to 10.10 yuan. The company is expected to report a 7 percent decline in 2011 net profits due to losses from oil refining and natural gas imports, Gordon Kwan, Mirae’s head of energy research in Hong Kong, said in a report e-mailed yesterday.

China Oilfield Services Ltd. (2883), the drilling unit of the nation’s largest offshore oil producer, slid 3.2 percent to 17.89 yuan. Net income fell to 4.04 billion yuan last year, the company said in a statement. This compares with the average of 4.2 billion yuan based on 10 analyst estimates compiled by Bloomberg.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., slid 1.8 percent in its third day of declines to $37.27, the lowest level since Jan. 13.

--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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