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China’s Stocks Rise to Seven-Month High

China’s stocks rose, driving the benchmark index to the highest level in seven months, after industrial profits climbed for a fourth month in December.

Sany Heavy Industry Co. led a rally for heavy machinery stocks after a report showed industrial companies’ net income increased 17.3 percent last month. Citic Securities Co. advanced to the highest level since April 2011 after regulators expanded the number of stocks allowed for margin trading and short selling. Kweichow Moutai Co., the biggest maker of baijiu liquor, dropped the most in seven weeks after Credit Suisse Group AG cut the stock to neutral.

The Shanghai Composite Index (SHCOMP) rose 2.4 percent to 2,346.51, the highest close since June 1. The CSI 300 Index (SHSZ300) climbed 3.1 percent to 2,651.86. The Shanghai index has risen 19.7 percent since approaching a near four-year low on Dec. 3 amid signs of an economic recovery. The CSI 300 rallied 26 percent.

“Industrial company profits are fueling gains for the index,” Huang Cendong, an analyst at Tebon Securities Co., said from Shanghai by phone today. “In the longer term, we expect Chinese stocks to rally as company earnings in general will be better this year.”

The Hang Seng China Enterprises Index (HSCEI) added 0.7 percent. The Bloomberg China-US 55 Index (CH55BN) lost 0.9 percent in New York on Jan. 25. Average trading volumes in the Shanghai index were 3.9 percent higher than the 30-day average. The 30-day volatility was at 20.6 on Jan. 25, compared with last year’s average of 17.1. The index trades at 10.1 times estimated earnings, compared with 10.9 for the MSCI Emerging Markets Index.

Industrial Profit

Industrial companies’ net income increased in December from a year earlier to 895 billion yuan ($144 billion), the National Bureau of Statistics said yesterday, after a 22.8 percent jump in November. Earnings for the full year gained 5.3 percent.

The “earnings data bode well for China’s listed companies’ earnings to be released in coming weeks,” Lu Ting, China economist at Bank of America Corp. wrote in a note to clients. “We expect the NBS industrial earnings growth to peak in the first half of 2013 at around 25 percent.”

A gauge of industrial companies in the CSI 300 rose 2.8 percent, the most in two weeks. Sany Heavy, the biggest maker of construction machinery, jumped 5.2 percent to 11.15 yuan. Zoomlion Heavy Industry Science & Technology Co., the second largest, added 3.7 percent to 9.24 yuan.

The CSI 300 Financial Index rose 4.8 percent, the highest close since April 2011. Citic Securities, the largest-listed brokerage, jumped 5.9 percent to 14.34 yuan. Haitong Securities Co., the second-biggest, rose 8.2 percent to 11.01 yuan.

Margin Trading

Shanghai will expand the number of stocks allowable for margin trading and short selling to 300 from Jan. 31, according to a statement from the city’s stock exchange. Shanghai currently allows 180 stocks for margin trading and short selling. Shenzhen will increase the number to 200 from 98, that city’s stock exchange said in another statement.

“This will increase the commission earnings of brokerages,” He Zongyan, an analyst at Shenyin & Wanguo Securities Co., said in a phone interview from Shanghai today. “Brokerages will also benefit from the boost in liquidity.”

Moutai (600519) led a decline for consumer-staples producers, sliding 5.6 percent to 178.50 yuan after its stock rating was cut from outperform at Credit Suisse. Volume growth for “high- end” Moutai producers may drop 3 percent this year, Credit Suisse said in a report dated today. Wuliange Yibin Co., the second-biggest maker of baijiu after Moutai, slumped 2.5 percent to 24.49 yuan.

-- Editors: Allen Wan, Chan Tien Hin

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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