Chinese Stocks Rise as Subway Plan Stokes Stimulus Speculation

Chinese stocks rose for the first time in three days on speculation policy makers will take more steps to stimulate the economy after a government agency approved subway plans for 18 cities.

China Railway Construction Corp. (601186) climbed the most in five months. LandOcean Energy Services Co., which makes drilling equipment for oil and shale gas, advanced to the highest close since April after Shanghai Securities News said the nation plans to auction five shale-gas blocks in Hunan province. Kweichow Moutai Co. (600519) led consumer-related shares lower as Goldman Sachs Group Inc. cut its forecast for the country’s growth outlook.

“The subway development plan boosts investors’ expectations of more spending by the government,” Xu Shengjun, an analyst at Jianghai Securities Co. in Shanghai, said by phone today. “Still, it’s widely expected economic data to be released soon won’t be great and will drag on stocks.”

The Shanghai Composite Index (SHCOMP) increased 0.7 percent to 2,051.92 as of the close. About six stocks rose for every one that fell in the gauge, which sank yesterday to its lowest level since February 2009. The CSI 300 Index (SHSZ300) added 0.8 percent to 2,217.82. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong gained 0.5 percent.

Signs that China’s economic slowdown is deepening have dragged the Shanghai Composite down 7.8 percent this quarter. The gauge, which dropped 1 percent the past two days, trades at 9.4 times estimated profit, near the lowest level since January, according to weekly data compiled by Bloomberg.

“Many investors are buying today because the index has fallen quite a bit the past few sessions,” Jianghai’s Xu said.

Subway Plan

China Railway Construction, builder of more than half the nation’s rail links, climbed 4.2 percent to 4.49 yuan, the biggest advance since April 5. CSR Corp. (601766), China’s biggest trainmaker by market value, jumped 4.4 percent to 4.04 yuan, the biggest gain since July 11.

Rail stocks led a gauge of industrial companies in the CSI 300 index up by 1.6 percent, the most among 10 industry groups. The National Development and Reform Commission approved development plans of subways in 18 cities including Suzhou, Hangzhou, Guangzhou, Tianjin and Shenzhen, the agency said on its website yesterday.

The government said yesterday industrial output will expand by about 10 percent this year, lowering its sights from an 11 percent goal given in December after weaker-than-anticipated domestic and overseas demand.

Factory Production

A slow recovery abroad and weak investment at home will keep weighing on factories, the Ministry of Industry and Information Technology said in a statement on its website yesterday. China’s economic growth dipped to a three-year low of 7.6 percent last quarter.

The People’s Bank of China has held off signaling further easing measures after two interest rate cuts this year.

Goldman Sachs cut its estimate for China’s 2012 gross domestic product growth to 7.6 percent from 7.9 percent and reduced its 2013 forecast to 8 percent from 8.5 percent, economists Li Cui, Yu Song, MK Tang and Yin Zhang wrote in a note to clients, citing weaker economic data and softer external demand.

The three-month outlook for China is weak and stimulus policies are likely to be late and insufficient, Christopher Eoyang, Goldman Sachs’ chief growth markets strategist, said at a media briefing in Singapore today.

Consumer-staple shares dropped the most in the CSI 300 Index today amid concern product demand will decline. Kweichow Moutai, China’s largest maker of baijiu liquor, retreated 1 percent to 231.75 yuan. Yonghui Superstores Co. (601933) lost 2.1 percent to 23.05 yuan.

No Catalyst

“We’re seeing more data showing growth slowing in China but we’re also seeing very few signs that the central bank is interested in aggressive easing,” Timothy Ghriskey, the chief investment officer at Solaris Group LLC, which manages about $2 billion in assets, said in a phone interview from Bedford Hills, New York. “If the central bank stays on the sidelines, we don’t see a short-term catalyst that might send us in a different direction.”

LandOcean gained 3.2 percent to 23.02 yuan. China Oil HBP Science & Technology Co. (002554) gained 5.3 percent to 11.23 yuan after the shale-gas auction report.

Bohai Ferry Co. (603167), an operator of passenger liners, surged 6.9 percent to 11.76 yuan on its first day of trading in Shanghai. The company offered 101 million shares in its initial public offering, according to data compiled by Bloomberg.

The Shanghai Composite’s 30-day volatility reading was at 12, compared with this year’s average of 17. About 5.7 billion shares changed hands in the gauge yesterday, about 26 percent lower than the daily average this year. The gauge sank 2.7 percent in August, a fourth straight month of declines. That’s the longest streak since the five months through August 2004, according to data compiled by Bloomberg.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. sank 1 percent to 86.29 yesterday. The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., declined for a second day, losing 0.9 percent to $32.17.

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

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

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