China’s Stocks Rise for First Time in 8 Days on Europe Optimism

China’s stocks rose for the first time in eight days on speculation the European debt crisis that has slowed global growth is easing after the region’s leaders agreed to ease repayment conditions for loans to Spanish banks.

China Life Insurance Co. (601628) and Citic Securities Co. led gains for insurers and brokerages on speculation they will benefit from a plan to develop Shenzhen’s Qianhai zone into a financial services hub. Kweichow Moutai Co. paced an advance for consumer staples producers, as Bank of Communications Co. recommended buying shares of companies whose earnings may be sheltered from the slowdown. Europe’s leaders, meeting for a two-day summit in Brussels, agreed to drop requirements that governments receive preferred creditor status on crisis loans to Spain’s banks.

“More fruitful results will come out of the Europe summit and that’ll help to contain the debt crisis,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Lower risk premiums are positive for equities.”

The Shanghai Composite Index (SHCOMP) gained 1.4 percent to 2,225.43 at the close, snapping a seven-day, 5.2 percent drop. The measure plunged 6.2 percent in June, making it Asia’s worst performing stock gauge this month. The CSI 300 Index (SHSZ300) rose 1.5 percent to 2,461.61. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, fell 1.5 percent in New York yesterday.

The Shanghai index has fallen 9.6 percent from this year’s peak on March 2 on concern the government isn’t loosening monetary policy quick enough to stem a slowdown. Stocks in the measure are valued at 9.72 times estimated earnings, compared with the average of 17.66 since Bloomberg began compiling the data in 2006.

Europe’s Progress

The 14-day relative strength measure for the Shanghai Composite, measuring how rapidly prices have advanced or dropped during a specified time period, was at 27.37 yesterday. Readings below 30 indicate it may be poised to rise. Thirty- day volatility was at 15.36 today, compared with this year’s average of 18.3. About 5.4 billion shares changed hands in the gauge yesterday, 37 percent lower than the daily average this year.

After 12 hours of talks in Brussels today, leaders of the 17 euro countries grew closer to solving the immediate crisis, allowing financial institutions to recapitalize without going through governments. Europe is China’s biggest export market, making up about 18 percent of the nation’s overseas shipments, according to Shenyin & Wanguo Securities Co.

A gauge of financial stocks in the CSI 300 surged 2 percent, the second most among the 10 industry groups. China Life, the nation’s biggest insurer, gained 3.9 percent to 18.30 yuan. Citic Securities, the largest listed brokerage, advanced 4.7 percent to 12.63 yuan. GF Securities Co. (000776) climbed 3.9 percent to 29.83 yuan.

Qianhai Zone

China will make Qianhai, part of the Shenzhen economic zone, a test ground for freer yuan usage and capital account convertibility, Zhang Xiaoqiang, vice chairman of the National Development and Reform Commission, said at a press conference today. Companies in Qianhai will be encouraged to sell yuan- denominated bonds in Hong Kong and to experiment with cross- border loans in the Chinese currency, Zhang said. The area, expected to host financial and services companies, was created by China’s State Council in 2010.

Financial stocks are better valued and insurers’ May income is improving, Xie Jiyong, analyst at Capital Securities Corp., said in a phone interview in Shanghai

A gauge of staples producers in the CSI 300 climbed 1.4 percent. Kweichow Moutai, the largest maker of baijiu liquor, advanced 1.3 percent to 239.15 yuan. Wuliangye Yibin Co. (000858), the second largest, gained 2.4 percent to 32.76 yuan.

Defensive Mode

Hao Hong, head of Chinese research at Bank of Communications Co. in Hong Kong, recommended investors buy “defensive” companies such as consumer staples producers and avoid “cyclical” companies.

China’s stocks are poised to extend losses after erasing this year’s gains amid concerns over a slowing economy, according to Hong, the only strategist who forecast declines for Chinese shares in 2012.

China will fine-tune its economic policies in a “timely and appropriate” manner, People’s Bank of China Governor Zhou Xiaochuan said today.

The government will maintain a prudent monetary policy and proactive fiscal policy, Zhou said at a forum in Shanghai, reiterating the stance set out by Premier Wen Jiabao in his annual work report to the nation’s legislature in March.

Industrial Profits

Stocks fell earlier after the statistics bureau said Chinese industrial companies’ profits declined for a second month in May. Income dropped 5.3 percent from a year earlier to 390.9 billion yuan ($61 billion), the National Bureau of Statistics said on its website. That compares with a 2.2 percent decline in April and 4.5 percent gain in March.

“Industrial profits will continue to be under pressure as the slowdown in the economy is curbing demand and deflation is further squeezing profits,” Dariusz Kowalczyk, senior economist and strategist with Credit Agricole CIB in Hong Kong, said before the release.

Energy and material producers were the worst-performing industry groups in the CSI 300 this month, losing more than 11 percent on concern China’s slowdown will curb demand for commodities.

Shanxi Lu’an Environmental Energy Development Co. (601699), a coal producer, slid 24 percent in June. Chinese demand for coal, the fuel for three-quarters of the nation’s power plants, has faltered as an economic slowdown slows electricity consumption. China’s power-station coal prices are “in free fall” amid weakening domestic demand and a glut of imports, Mirae Asset Securities Hong Kong Ltd. said in report June 27.

The Purchasing Managers’ Index compiled by the statistics bureau and logistics federation may drop to 49.9 this month, falling below the dividing line of 50 for expansion and contraction, according to the median estimate of 19 economists in a Bloomberg survey. The figure is due July 1.

--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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