Investors increased bullish bets on China’s currency, pushing yuan forwards to a five-month high, on prospects rising industrial output will help the world’s second-biggest economy meet its growth target this year.
Twelve-month non-deliverable forwards on the yuan strengthened 0.24 percent to 6.3515 per dollar yesterday in New York, after the currency climbed to a 19-year high in Shanghai and touched the strong end of its trading range for the first time. The Bloomberg China-US Equity Index of the most-traded Chinese companies in the U.S. rose for a second day, led by Melco Crown Entertainment Ltd. (MPEL) after the casino operator said it plans to invest in and operate projects in the Philippines.
The yuan is poised for its best month against the dollar since December as data from industrial production to retail sales indicates China’s economy may be reviving after a seven-quarter slowdown. Growth in factory output will be faster this quarter than in the three months to Sept. 30, helping the world’s biggest exporter achieve its 7.5 percent economic expansion target, Zhu Hongren, chief engineer at China’s Industry and Information Technology Ministry, said yesterday.
“The economy has picked up, but more importantly the perception has picked up,” Steven Bell, who manages $600 million in assets as principal portfolio manager at GLC Ltd., a London-based hedge fund, said by phone yesterday. “Earlier this year, people’s worry about China’s economy increased, which caused a decline in yuan demand. The trend of fund outflows has now reversed and China will probably attract more inflows.”
China ETF Gains
The Bloomberg China index advanced 0.3 percent to 96, while the iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., climbed 0.9 percent to $37.53 in its second day of gains in New York.
The Standard & Poor’s 500 Index (SPX) rose 0.3 percent to 1,412.97 after Procter & Gamble Co., the largest consumer-products maker, and Aetna Inc., the third-biggest U.S. health insurer, reported earnings results that beat analysts’ forecasts.
The Shanghai Composite Index (SHCOMP) of domestic shares slumped 0.7 percent to a one-week low of 2,101.58. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong retreated 0.2 percent to 10,616.43, also the weakest level in a week.
The Conference Board’s leading index for China increased 0.3 percent last month from August, the New York-based research group said in a statement yesterday, citing a preliminary reading. That compared with a 1.7 percent gain in the previous month. A preliminary purchasing managers’ index published on Oct. 24 indicated sentiment in the sector improved in September.
Gains in the yuan’s NDFs narrowed their discount to the onshore rate to 1.7 percent, from a gap of as much as 2 percent on Oct. 23. That discount was the widest since March 2009.
“The whole Chinese PMI this week and other data suggest the significant weakness in manufacturing is behind us,” said Bell, adding the forwards’ discount will probably narrow to trade at a premium to the rate in Shanghai.
Melco Crown jumped 6.2 percent to $14.76 in New York, the strongest close since May 3. The company’s American depositary receipts, each representing three underlying shares, traded 4.5 percent above its Hong Kong stock, the biggest premium since Sept. 7.
A unit of the Melco signed an agreement with SM Investments Corp., Belle Corp. and PremiumLeisure and Amusement Inc. to invest in and operate casino facilities in Manila, according to a statement yesterday. Melco’s investment in the project may be as much as $600 million, $325 million of which will be funded by issuing debt, the company said.
ADRs of Cnooc Ltd. (883), China’s largest offshore oil explorer, added 1.4 percent to $209.23 in New York, the highest close in more than five months.
The Beijing-based company has received loan commitments of more than $15 billion to acquire Canada’s Nexen Inc., according to two people familiar with the matter. Cnooc has shortlisted about 15 banks for the financing plan, the people said, asking not to be identified because the details are private.
Cheng Khoo, an analyst at BNP Paribas SA, raised the 12-month price target for Cnooc’s Hong Kong-traded stock to HK$18.50, or $2.39, from HK$17.80 yesterday, and maintained a buy recommendation. Analysts at China International Capital Corp. and ICBC International Holdings Ltd. also lifted their price estimates. Each Cnooc ADR represents 100 Hong Kong shares.
China Eastern Airlines Corp. (CEA), the nation’s second-largest air carrier, advanced 3 percent to a three-month high of $17.82.
China’s airlines will show substantial profit improvements on rising traffic, lower fuel costs and appreciation in the Chinese yuan, analysts at UOB-Kay Hian Holdings Ltd. said in a note on Oct. 24. China Eastern is scheduled to post third-quarter results on Oct. 30.
LDK Solar Co., the world’s second-largest maker of wafers for photo-voltaic cells, retreated 3.6 percent to 86 U.S. cents in New York, after rising over the three previous days.
The company, based in Xinyu, China, agreed to sell three solar plants at its manufacturing sites to Henan Xindaxin Materials Co. for 140 million yuan ($22.4 million) as part of an effort to improve its balance sheet, according to a statement on Xindaxin’s website yesterday. LDK will lease the plants back from Xindaxin for 9.9 million yuan a year for six years, starting Nov. 1, and has the option to repurchase them, according to the statement.
China Unicom (Hong Kong) Ltd., the nation’s second-biggest wireless carrier, lost 2.7 percent to $16.82 in New York, the steepest slump in a month. The company reported a 27 percent increase in third-quarter profit to 2.02 billion yuan yesterday, missing the 2.21 billion-yuan median of seven analysts’ estimates in a Bloomberg survey.
Thirty-day volatility in the Bloomberg China-US gauge fell to 15.2 yesterday from 16.36 the previous day, and compares with this year’s average of 23.1. The Bloomberg Chinese Reverse Mergers Index, which tracks a basket of companies that gained U.S. listings after buying firms that already trade, gained 0.5 percent to a three-day high of 71.87.
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