China’s stocks rose for the first time in three days, led by telecommunication and technology companies, after valuations on the benchmark index approached the lowest level this year.
Chengdu Dr Peng Telecom & Media Group Co. paced gains for phone companies on speculation they will benefit from China Mobile Ltd.’s development of a fourth-generation network. Fiberhome Telecommunication Technologies Co. (600498) surged the most in two years before the release of its first-quarter earnings. Western Mining Co. (601168) rebounded from a four-month low after net income more than doubled.
The Shanghai Composite Index (SHCOMP) rose 1.6 percent to 2,218.32 at the close. The measure plunged 2.6 percent yesterday after a gauge of manufacturing missed estimates. The index trades at 12.1 times reported earnings, approaching the lowest level since Dec. 24. The CSI 300 Index advanced 1.9 percent to 2,495.58.
“Stocks have fallen a lot already and investors are looking for a good point to enter,” Tang Yonggang, an analyst at Hongyuan Securities Co. in Beijing, said by phone today. “They think it’s cheap enough now and technical support is strong at 2,100.”
The Shanghai Composite has slumped 8.9 percent from a Feb. 6 high on concern slowing growth will hurt earnings. China’s economy expanded 7.7 percent in the first quarter, missing estimates, as industrial production and fixed-asset investments in March fell short of forecasts. The preliminary reading of a Purchasing Managers’ Index fell to 50.5 for April from 51.6 in March, according to a report yesterday from HSBC Holdings Plc and Markit Economics, compared with the 51.5 median forecast.
A gauge of telecommunications stocks rose 5.9 percent, the most among 10 industrial groups on the CSI 300.
Fiberhome, which designs and makes telecom producers, surged 7.1 percent to 29.26 yuan, the most since Feb. 21, 2011. First-quarter net income will probably rise 24 percent from a year earlier, according to data compiled by Bloomberg. Chengdu Dr Peng, which makes networking systems, jumped 9.8 percent to 9.49 yuan, the most since Sept. 15, 2010.
“There’s speculation that mobile-phone operaters will start to bid for 4G equipment soon,” said Wu Kan, a Shanghai- based fund manager at Dazhong Insurance Co., which oversees $285 million. “The telecommunication industry is a bright spot for investment this year. As the bidding starts, telecom investment will pick up and benefit equipment makers.”
China Mobile Ltd. will boost capital spending by 49 percent this year as it shifts to a 4G network. The company may invite bidding on construction projects for 4G base stations in the middle of the second quarter, the Economic Information Daily reported April 19, citing an unidentified person.
Zhejiang Dahua Technology Co. led gains for technology companies, rising 6.2 percent to 40.44 yuan, a record high. Western Mining advanced 1.8 percent to 6.92 yuan. The company’s first-quarter net income more the doubled, according to a statement filed to the Shanghai Stock Exchange.
Du Meng, China’s top-performing fund manager in 2013, says he’s favoring technology, media, drug, environmental protection and alternative energy stocks as they are less dependent on economic growth for earnings. These industries will outperform companies whose earnings are most reliant on investment and exports this year, Du said in an e-mail yesterday.
Chinese stocks are becoming attractive with the decline in equity valuations and corporate profit growth poised to level out, according to Goldman Sachs Asset Management.
Chinese earnings growth will drop to about 15 percent to 20 percent, from around 20 percent to 30 percent, Alina Chiew, Goldman Sachs Asset Management’s head of Greater China equity, told reporters in New York.
“We are currently at a trough of the earnings and valuations cycle,” she said. “The market needs to wean itself off expectations of double-digit growth out of China.”
Chinese regulators have slowed approvals of investment quotas for foreigners, adding downward pressure to a stock market that has slumped the past two months on signs that the nation’s economic recovery is faltering.
The State Administration of Foreign Exchange approved an average quota of $880 million in February and March, compared with an average of $2.3 billion in the previous four months, according to data compiled by Bloomberg.
Australia’s central bank plans to invest about 5 percent of its foreign currency reserves in China as it deepens ties with the world’s second-largest economy, Deputy Governor Philip Lowe said in a speech today in Shanghai.
The decision “represents the first time that the RBA will have invested directly in a sovereign bond market of an Asian country other than Japan,” Lowe said.
The cost of hedging against swings in Chinese equities has risen to the highest level in almost four years relative to other emerging markets on signs the world’s second-largest economy is losing momentum.
The difference in implied volatility for the iShares FTSE China 25 Index Fund (FXI) and the iShares MSCI Emerging Markets Index Fund has more than doubled to 5.12 since Feb. 1, based on data compiled by Bloomberg on three-month contracts with an exercise price closest to the shares. That’s the biggest gap since August 2009 for the measure of options costs.
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