Airlines Top Rally as PMI Outlook Propels Gains: China

Chinese equities rose for a third day in New York, led by China Eastern Airlines Corp. (CEA), on prospects manufacturing expanded for a fifth month, helping sustain a recovery in the world’s second-largest economy.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in the U.S. climbed 0.2 percent to 94.02 yesterday, trimming its February loss to 6.2 percent. China Eastern, the second-largest domestic carrier, surged the most in seven weeks after BOCOM International Holdings Co. recommended buying airline stocks. Spreadtrum Communications Inc. (SPRD) led technology stocks higher. 7 Days Group Holdings Ltd. (SVN) climbed after agreeing to a going-private deal at a higher price.

The Purchasing Managers’ Index will probably show today an increase to 50.5 from 50.4 a month earlier, according to the median estimate of 30 economists surveyed by Bloomberg. The Bloomberg China-US gauge capped the longest stretch of gains in a month, following a rally in Shanghai yesterday, on speculation the government will announce measures to boost local markets before the nation’s annual legislature meeting on March 5.

“If the PMI stays above 50, it will help drive up stocks further,” Michael Ding, lead manager of the China Region Fund (USCOX) at U.S. Global Investors Inc., which oversees $2.2 billion, said yesterday by phone from San Antonio, Texas. “People are also watching for possible new government policies out from the March Congress meeting, including the economic growth target.”

ETF Jumps

The iShares FTSE China 25 Index Fund (FXI), the largest Chinese exchange-traded fund in the U.S., advanced 1.2 percent to $38.95, rising the most in a month. The Standard & Poor’s 500 Index (SPX) was little changed at 1,514.68.

The China-US gauge’s 6.2 percent slump in February is the largest since May, after rising 8 percent in the previous two months. Concern Chinese policy makers will take steps to curb rising home prices sent shares lower, according to Ding at U.S. Global Investors. Premier Wen Jiabao called for home-purchase restrictions in cities with excessive price gains, according to a government statement Feb. 20.

China Eastern’s American depositary receipts soared 4.1 percent to $21.12, rallying the most since Jan. 10. China Southern Airlines Co. climbed 1.4 percent to a one-week high of $27.55.

BOCOM International reiterated a rating equivalent to buy on China’s aviation sector. Improving operation, lower jet-fuel prices and appreciation of the Chinese yuan will help boost airline earnings further, Geoffrey Cheng, an analyst at BOCOM in Hong Kong, wrote in a report yesterday.

Spreadtrum Advances

China Eastern, based in Shanghai, was among the regional top buys recommended by Deutsche Bank AG in a note on Feb. 26. Passenger demand will grow 10 percent in 2013 to 2014 for China Eastern and China Southern as business travel rebounds amid a pickup of the Chinese economy, it said.

Jet kerosene has slid in 11 straight days in Singapore, extending its loss to 2.3 percent in February, according to data compiled by Bloomberg. China’s yuan has strengthened 0.1 percent against the U.S. dollar this year, after rising 1 percent in 2012 in its third year of appreciation.

Spreadtrum, the Shanghai-based company whose chips are used by mobile-phone makers including Huawei Technologies Co. and ZTE Corp., jumped 5.9 percent to $17.51, the highest level since Jan. 9. Semiconductor Manufacturing International Corp. (SMI), an integrated circuit foundry also based in Shanghai, advanced 4.4 percent to $2.83.

4G Development

China Mobile Ltd. (CHL), the nation’s biggest wireless operator, plans to purchase one million TD-LTD smartphones and data cards as it expands a trial of its fourth-generation network this year, according to a Feb. 27 e-mailed statement.

The 4G network development will be negative for the telecom operators’ earnings over the next two years and positive for equipment vendors, Bin Liu, an analyst at Citigroup Inc. in Hong Kong, wrote in a note yesterday.

China Mobile’s ADRs slid 0.6 percent to $54.8 in New York, trading below its Hong Kong shares for the first time in three days. China Unicom (Hong Kong) Ltd. (CHU), added 2.4 percent to $14.57, the steepest gain since Jan. 9, while China Telecom Corp. gained 1 percent to a one-week high of $52.01.

7 Days Group Holdings Ltd., China’s second-largest budget hotel operator, climbed 1.5 percent to $13.37 in New York.

The company, based in Guangzhou, said yesterday that it agreed to a buyout price of $13.8 per ADR, up from the $12.7 offer it previously received in September from private-equity firms led by the Carlyle Group LP and Sequoia Capital.

Worst Performer

Suntech Power Holdings Co., the world’s biggest solar panel-maker, dropped 17 percent to $1.15. The company was the worst performer on the China-US gauge.

Suntech, based in China’s Jiangsu province, is talking with the local government of Wuxi about the possibility of financial support as $541 billion of its bonds due March 15, ShiDinghuan, president of the Chinese Renewable Energy Society and an adviser to the nation’s cabinet, said Feb. 27. The company hired UBS AG last year and began talks with creditors about how to refinance the debt following a disclosure that it was a victim of fraud.

Ambow Education Holding Ltd., a Beijing-based tutoring service provider, tumbled 10 percent to a record low of $1.17, extending its slump this year to 48 percent.

The Hang Seng China Enterprises Index (HSCEI) jumped 2.6 percent to 11,437.17 yesterday, the steepest rally since Jan. 2, while the Shanghai Composite Index of domestic Chinese shares added 2.3 percent to 2,365.59, the most in a month.

To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net

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