China’s Stocks Rise for 5th Day as Inflation Cools; Poly Gains

China’s stocks rose for a fifth day after inflation cooled for a fourth month in July, allowing more leeway for the central bank to ease monetary policy.

Poly Real Estate Group Co. climbed 1.6 percent after the second-biggest Chinese developer reported a jump in sales last month. Luzhou Laojiao Co. led an advance for a gauge of consumer staples producers, after the liquor maker posted a first-half profit. China’s consumer prices rose 1.8 percent last month, compared with a 2.2 percent gain in June. Other data showed producer prices sliding more than forecast and industrial output growing less than estimated.

“Inflation isn’t a concern now,” said Dai Ming, a fund manager at Hengsheng Hongding Asset Management Co. in Shanghai, which manages $190 million. “Market expectations about policy loosening is there and that’ll provide support to the market.”

The Shanghai Composite Index (SHCOMP) added 0.6 percent to 2,174.10 at the close, the highest since July 19. The CSI 300 Index (SHSZ300) climbed 0.9 percent to 2,411.70. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong gained 1 percent. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, slid 0.7 percent.

The Shanghai Composite has tumbled 12 percent from this year’s high on March 2 amid concern the economic slowdown is deepening. The index is valued at 9.7 times estimated profit, compared with the 17.5 average since Bloomberg began compiling the data in 2006. Thirty-day volatility in the Shanghai index was at 14.1 yesterday, compared with this year’s average of 17.6. About 7.3 billion shares changed hands in the gauge, 43 percent higher than the daily average this year.

Inflation Data

China’s consumer prices rose 1.8 percent from a year earlier, the National Bureau of Statistics said. That compares with the 1.7 percent median forecast in a Bloomberg News survey of 33 economists. Producer prices fell 2.9 percent from a year earlier, the fifth straight drop, a separate report showed.

A gauge of consumer staples producers jumped 2.9 percent, tied with drugmakers for the biggest gain among 10 industry groups in the CSI 300. Luzhou Laojiao rose 5.2 percent to 42.29 yuan after it said first-half profit advanced 42 percent on sales that increased 46 percent. Sichuan Swellfun Co., which also makes spirits, surged 6.4 percent to 28.69 yuan.

“Inflation remains tame,” Xianfang Ren and Alistair Thornton, China economists at IHS Global Insight, wrote in a report. “Nowhere more so than in producer prices, which continue to highlight the severe deflationary pressure rippling across the country. Not one of the 16 PPI sub-indexes registered a positive month-on-month number. Deflation, not inflation, is the greatest short-term threat to the Chinese economy.”

A gauge of property stocks in the Shanghai Composite rose 1.3 percent, the most among five industry groups. Poly Real Estate climbed 1.6 percent to 10.92 yuan after sales volume jumped 66 percent last month compared with a year ago, while sales value surged 80 percent.

Developers Rally

China Vanke Co., the biggest developer, rose 0.8 percent to 9 yuan. Gemdale Corp. advanced 2.2 percent to 5.67 yuan.

China may set new property controls as early as this month after the central government’s inspection team returns to Beijing, the official China Securities Journal reported today.

The government has some room to issue more policies, including raising the transaction tax on existing homes and expanding a property tax trial, the newspaper reported, without saying where it got the information. The policies will be based on inspection results and likely be this month as the government may want to avoid the traditional property sales season in September and October, it said.

Industrial Output

China’s industrial output rose 9.2 percent in July from a year earlier, the National Bureau of Statistics said today.

The growth compares with the 9.7 percent median estimate in a Bloomberg News survey of 32 analysts and a 9.5 percent increase in June.

Fixed-asset investment excluding rural households increased 20.4 percent in the January to July period from a year earlier, a report from the Beijing-based agency showed. That compared with the 20.6 percent median estimate in a Bloomberg survey and a 20.4 percent rise in the first half of the year.

Retail sales in July grew 13.1 percent from a year earlier after a 13.7 percent gain in June. The median forecast was for an increase of 13.5 percent.

“There’s no surprise on industrial production which signals slower growth in the economy,” Dai said.

The Shanghai Composite has fallen 1.2 percent this year as the economy grew 7.6 percent in the second quarter, the slowest pace since 2009. The People’s Bank of China cut interest rates twice since early June and lowered lenders’ reserve requirement ratios three times starting in November as part of the government’s efforts to spur credit growth and support the economic expansion.

--Zhang Shidong. With assistance from Leon Lazaroff in New York. 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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