China’s stocks rose to a two-week high as commodity producers jumped on U.S. jobs data and China United Network Communications Ltd. (600050) led a rally for phone companies after its controlling shareholder increased its stake.
China United, which controls the nation’s second-largest mobile phone operator, climbed 2.2 percent. Jiangxi Copper Co. (600362) and Tongling Nonferrous Metals Group Co. drove commodity stocks higher as copper prices surged the most in 18 months on May 3. Guangzhou Hi-Target Navigation Tech Co. (300177) jumped 10 percent, sending the ChiNext index of small companies to a two-year high.
The Shanghai Composite Index (SHCOMP) advanced 1.2 percent to 2,231.17 at the close, the highest level since April 22. The measure trades at 9.6 times estimated earnings, compared with the seven-year average of 17.5, according to data compiled by Bloomberg. The CSI 300 Index climbed 1.3 percent to 2,525.98. The Hang Seng China Enterprises Index (HSCEI) added 1.5 percent.
“Stocks are cheap at this level and some funds are moving in on prospects for a rebound,” said Li Jun, a strategist in Shanghai at Central China Securities Co. “Even though the economy is stagnant, it isn’t getting worse either.”
The Shanghai Composite has slumped 8.4 percent from a Feb. 6 high on concern slowing economic growth is hurting earnings. A private report today from HSBC Holdings Plc and Markit Economics showed the nation’s service industries expanded at a slower pace last month. Trading volumes in the Shanghai index were 2.6 percent up from the 30-day average, while 30-day volatility was at 18.9, the highest since April 15, according to data compiled by Bloomberg.
A measure of telecom stocks climbed 3 percent today, the most among the CSI 300’s 10 industry groups. China United added 2.2 percent to 3.72 yuan, the highest close since Feb. 8. China United Network Communications Group, the controlling shareholder, bought 21.9 million shares in the company on May 3, according to an exchange statement.
Jiangxi Copper, China’s biggest producer of the metal, rose 3.6 percent to 21.33 yuan. Tongling Nonferrous, the second largest, added 3.7 percent to 15.42 yuan. Yunnan Copper Industry Co. (000878), the fourth largest, climbed 3.2 percent to 12.51 yuan.
Copper futures for July delivery soared 6.8 percent in New York on May 3, the biggest gain for a most-active contract since Oct. 24, 2011. The metal climbed 4 percent last week, the most since mid-September. U.S. payrolls expanded by 165,000 workers following a revise increase in March that was larger than estimated, government data showed. The median forecast of economists surveyed by Bloomberg was for a gain of 140,000.
The ChiNext index gained 2 percent to 958.02, the highest close since April 26, 2011. Guangzhou Hi-Target surged 10 percent to 17.24 yuan. East Money Information Co. (300059) climbed 10 percent to 18.48 yuan.
“The logic behind the rally for small-caps is that investors believe the economy is stagnant so big-caps, which are usually closely linked to the economy in terms of earnings, don’t offer investment opportunities,” said Central China’s Li. “They think small-caps are less tied to economic growth.”
The HSBC Non-Manufacturing Purchasing Managers’ Index fell to 51.1 last month, compared with 54.3 in March. A reading above 50 indicates expansion. An official report last week showed service industries expanded at a slower pace in April.
Slowing Chinese economic growth this year may be a “blessing in disguise” as monetary policy could remain accommodative, property tightening could take a breather and policy reforms may be accelerated, according to Citigroup Inc.
Citigroup recommends Chinese property, infrastructure, health-care, consumer, insurance and transport stocks as they stand to benefit from accommodative policies and the redistribution of earnings to so-called downstream industries, analysts Minggao Shen and Ben Wei wrote in a report dated May 3.
The statistics bureau is scheduled to report April trade and inflation data this week. China probably posted a 10 percent gain in exports, unchanged from the previous month, according to the median estimate of 29 economists surveyed by Bloomberg. Exports probably grew between 10 percent and 13 percent last month, the Economic Information Daily reported today, citing Li Jian, a researcher with the Commerce Ministry.
Inflation probably quickened to 2.3 percent in April from 2.1 percent in March, another survey showed. The trade report is due to be released May 8 with the consumer-price data set for the following day.
The yuan weakened today, retreating from a 19-year high, on speculation demand for dollars increased after Chinese regulators said they would step up scrutiny of the foreign- exchange positions of banks and companies.
The Bloomberg China-US 55 Index rose 0.3 percent in New York on May 3, adding to 1.4 percent gain for the week. The iShares FTSE China 25 Index Fund (FXI) climbed 0.9 percent. Bets on declines in Sina Corp. (SINA) shares plunged to a record low last week on prospects the Chinese Internet company’s alliance with Alibaba Group Holding Ltd. will propel advertising sales on its social media platform.
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