China’s Stocks Rise, Capping Weekly Gain, on Policy Speculation

China’s stocks rose, capping a third week of gains for the benchmark index, on speculation the government will ease monetary policy and increase fiscal spending on infrastructure to bolster economic growth.

Railcar makers CSR Corp. (601766) and China CNR Corp. (601299) jumped more than 3 percent after the China Securities Journal reported railway spending may exceed government targets. Industrial & Commercial Bank of China Ltd. and Industrial Bank Co. led a gauge of financial companies to the highest level in seven weeks after the same newspaper reported that a cut in lenders’ reserve-requirement ratios may be the first option as the government loosens policy.

“The good news is there are expectations for a reserve- requirement ratio cut this weekend after all the noise the entire week,” said Zhang Han, a strategist at Guotai Junan Securities Co. in Shanghai. “This easing would boost stocks.”

The Shanghai Composite Index (SHCOMP) gained 28.2 points, or 1.2 percent, to 2,406.86 at the close. The CSI 300 Index advanced 1.2 percent to 2,626.84. The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. climbed 0.6 percent to a one-week high of 103.33 yesterday in New York.

The Shanghai index rose 2 percent this week, extending this year’s advance to 9.4 percent. Stocks in the gauge are valued at 10.2 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg. About 9.4 billion shares changed hands in the Shanghai Composite yesterday, 19 percent higher than the daily average this year. Thirty-day volatility in the gauge was at 18.9.

Policy Outlook

A measure of financial stocks including banks, brokerages and insurers in the CSI 300 rose 1.7 percent today, the second- biggest gain among 10 industry groups. The gauge surged 2.7 percent this week, the most among the groups. ICBC, the nation’s biggest lender, gained 1.6 percent to 4.42 yuan today, while Industrial Bank climbed 2.7 percent to 13.93 yuan.

China Life Insurance Co., the biggest insurer, surged 3.6 percent today and gained 5.2 percent this week. Xie Jiyong, an analyst at Capital Securities Corp. in Shanghai, said yesterday insurance premiums will pick up in the second quarter after falling in the previous three months.

Haitong Securities Co. advanced 2.4 percent to 10.33 yuan today. Haitong is poised to raise HK$13 billion ($1.7 billion) in Hong Kong’s biggest first-time stock sale since December, said two people with knowledge of the matter.

The government may do more fine-tuning and pre-emptively adjust monetary policy to ease liquidity pressures, the China Securities Journal reported today, without citing anyone. The central bank has cut reserve ratios once this year after boosting them and interest rates in 2010 and 2011 to tame inflation. Borrowing costs have not been reduced since 2008.

Overweight Stocks

Chinese stocks are UBS AG’s “biggest overweight” position as the government eases monetary policy, and the economy avoids a deeper slowdown, according to the brokerage’s Asian equity strategists.

The People’s Bank of China pledged to ensure adequate availability of cash in the financial system by using tools including reductions in the reserve-requirement ratio, the official Xinhua News Agency said in an April 18 report, citing an interview with an unidentified person at the central bank.

“China is probably due for a rally here as the PBOC begins to understand the extent of the problems globally and internally with the property market,” Andrew Economos, head of sovereign and institutional strategy Asia ex-Japan at JPMorgan Asset Management in Hong Kong, said in a Bloomberg television interview today. “I think we will start to see easing in terms of reserve requirement ratio cuts as well as reverse repo, basically to flood the market with capital. That’s going to be good news for equities in China.”

CSR gained 3.5 percent to 4.97 yuan, the highest close since March 2. China CNR advanced 3.2 percent to 4.49 yuan, the highest close since Dec. 12.

Rail Investment

Railway investment may be “slightly” more than the planned 516 billion yuan this year, the China Securities Journal reported, without citing anyone. Banks have started to extend loans for railway construction projects since the beginning of the second quarter, the newspaper reported.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., rose for a third day, gaining 0.6 percent to a one-month high of $37.77.

-- Editors: Allen Wan, Darren Boey

To contact Bloomberg News staff for this story: Weiyi Lim in Singapore at wlim26@bloomberg.net; Belinda Cao in New York at lcao4@bloomberg.net; Leon Lazaroff in New York at llazaroff@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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