China’s Stocks Advance to Seven-Month High on Earnings Outlook

China’s stocks rose to the highest level in seven months after Citigroup Inc. said earnings have bottomed out and Guosen Securities Co. forecast a rebound in profits. Satellite-navigation companies led the advance.

Shanghai Electric Power Co., supplier of a third of the electricity in China’s richest city, advanced 4.1 percent after the company estimated profit rose 80 percent last year. North Navigation Control Technology Co. (600435) paced a rally for companies that will benefit from government-mandated use of domestic navigation systems in vehicles. GoerTek Inc. (002241), a supplier of Apple Inc. (AAPL), dropped 1.7 percent from a record.

“Market sentiment is very strong as the economy is on a mild recovery path and regulators continue to come up with positive policies such as allowing more foreign investment,” said Dai Ming, a fund manager at Hengsheng Hongding Asset Management Co. in Shanghai, which manages $190 million. “Even if there’s a correction, the magnitude isn’t likely to be big.”

The Shanghai Composite Index (SHCOMP) climbed 0.6 percent to 2,325.68 at the close, the highest level since June 1. It jumped 3.1 percent yesterday after the head of the securities regulator said the government can increase by 10 times the size of two investment programs that allow foreign investors to buy Chinese stocks and bonds.

The CSI 300 Index (SHSZ300) rose 0.7 percent to 2,595.86 today, while the Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong fell 0.2 percent. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, added 0.7 percent in New York yesterday.

Earnings Outlook

The Shanghai Composite has risen 19 percent from an almost four-year low on Dec. 3. The measure trades at 12.9 times reported earnings, compared with the seven-year average of 21.4, according to data compiled by Bloomberg since 2006. Average trading volumes were 53 percent higher than the 30-day average. Thirty-day volatility was at 21.2, compared with last year’s average of 17.1.

Analysts may start raising earnings forecasts as early as this month, Minggao Shen and Ben Wei, Citigroup strategists, wrote in a report today.

The CSI 300 and Hang Seng China Enterprises Index (HSCEI) may advance another 15 percent to 20 percent in the first half, they wrote. Further gains will be “reshaped” by government policy meetings in March and in the coming fall, they wrote.

Profits will post a “robust rebound” and grow 25 percent in 2013 amid recent improvement in economic conditions and last year’s low base, Zhou Binglin, analyst at Guosen Securities, wrote in a note today.

Economic Data

December economic data including industrial production and fixed-asset investment as well as a report on fourth-quarter gross domestic product are due on Jan. 18. Economic growth may have recovered to 7.8 percent in the fourth quarter from a year earlier, after sliding to a three-year low of 7.4 percent in the previous period, according to the median estimate in a Bloomberg News survey.

Shanghai Electric jumped 4.1 percent to 4.86 yuan, the highest close since Sept. 11, after saying profit probably rose 80 percent in 2012. Cosco Shipping Co. (600428), a unit of China’s biggest shipping company, slipped 0.7 percent to 4.13 yuan after saying net income may have dropped 87 percent last year.

North Navigation jumped 10 percent to 12.96 yuan. China Spacesat Co. (600118) gained 2.7 percent to 15.95 yuan. Beijing UniStrong Science & Technology Co. climbed 1.1 percent to 19.07 yuan.

All tour coaches, long-distance buses and vehicles that transport dangerous articles should install the Beidou navigation system, the official Xinhua News Agency reported yesterday, reiterating a government statement from earlier this month. China launched the first satellite for the system in 2000 and a preliminary version has been used for traffic control, weather forecasting and disaster relief work on a trial basis since 2003, according to the report.

Foreign Investors

GoerTek, which makes acoustic devices for Apple, lost 1.7 percent to 39.90 yuan, snapping a five-day, 15 percent surge. Apple fell to an 11-month low in New York yesterday after the Nikkei newswire said orders for iPhone 5 parts had been cut about 50 percent following lower-than-expected sales.

The iShares FTSE China 25 Index Fund, the largest Chinese exchange-traded fund in the U.S., added 0.5 percent to $41.31 in New York, as the prospect of greater foreign investor access stoked appetite for the nation’s assets.

China can raise the level of quotas for the Renminbi Qualified Foreign Institutional Investors and the Qualified Foreign Institutional Investors programs, Guo Shuqing, chairman of the China Securities Regulatory Commission, said at a conference in Hong Kong yesterday. RQFII allows offshore yuan in Hong Kong to be invested in mainland’s securities while QFII permits foreigners to buy yuan-denominated stocks and bonds.

--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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