China’s stocks rose for a fifth day, sending the benchmark index to its longest winning streak in three months, as technology and solar companies climbed on improving earnings prospects.
GoerTek Inc. (002241), an Apple Inc. supplier that reported a 66 percent increase in first-quarter earnings, surged 10 percent to lead a gauge of technology stocks to the steepest gain among industry groups. Xi’an LONGi Silicon Materials Co. (601012) jumped 10 percent after people familiar with the discussions said the U.S. is engaged in talks with China to resolve a trade row over solar-energy equipment. ZTE Corp. (000063) lost 1.9 percent on concern a month-long rally for telecom stocks was excessive.
“Investors are buying technology stocks as they believe these stocks can sustain faster earnings growth amid a lackluster economy,” Li Jun, a strategist at Central China Securities Co. in Shanghai, said by phone today. “As long as liquidity is ample, smaller stocks will carry on a rally.”
The Shanghai Composite Index (SHCOMP) gained 0.2 percent to 2,305.11 at the close, the highest since March 25. The five-day streak is the longest since an eight-day rally that ended Feb. 6.
The Shanghai index has rebounded 6 percent since May 2 on speculation the government is accelerating economic reform after saying investment projects for airports and gas fields won’t need pre-approval any more. The index trades at 10 times estimated earnings, the highest since March 21, according to data compiled by Bloomberg. Trading volumes were 41 percent higher than the 30-day average, while 30-day volatility was at 16, compared with this year’s average of 19.6, data showed.
The CSI 300 Index added 0.2 percent to 2,614.85 today, while the Hang Seng China Enterprises Index (HSCEI) dropped 1.1 percent. The CSI Smallcap 500 Index rose 1.3 percent. The ChiNext index, dominated by technology companies, jumped 2.1 percent, adding to a 50 percent gain for this year. The Bloomberg China-US 55 Index added 1.7 percent yesterday.
A gauge of technology stocks in the CSI 300 surged 4.7 percent today, the highest close since November 2011. GoerTek jumped 10 percent to a record high of 71.34 yuan. Hangzhou HIK-Vision Digital Technology Co. (002415), a maker of video surveillance, climbed 6.8 percent to 41.78 yuan.
China International Fund Management’s Du Meng is bullish on the technology, media and alternative energy companies that dominate the nation’s small-cap stock indexes, saying they will benefit most from government efforts to boost consumption and to invest in “emerging” industries.
Du, whose China International Emerging Momentum Fund has climbed 41 percent this year for the best performance among 785 China funds, said in an April 23 e-mail that the companies still have higher growth potential than industries that rely on exports and fixed-asset investment.
Hao Hong, the chief China strategist at Bank of Communications Co., who predicted in a Bloomberg Television interview on Jan. 2 that smaller companies would outperform. He now says ChiNext stocks are a “crowded trade” that may unwind.
The preliminary negotiations focus on setting a quota on Chinese exports and a minimum price for solar-energy equipment, in exchange for suspending U.S. duties on the goods, according to two people familiar with the U.S. position who asked not to be identified to discuss private discussions.
A gauge of phone stocks in the CSI 300 lost 1 percent. This trimmed its gain to 18 percent this month, the biggest advance among 10 industry groups. Its 14-day relative strength index, measuring how rapidly prices have advanced or dropped during a specified time period, was at 78 yesterday. Readings above 70 indicate a price may be poised to fall.
ZTE, China’s second-biggest phone-equipment maker, slid 1.9 percent to 12.99 yuan. Fiberhome Telecommunication Technologies Co. (600498) retreated 1.4 percent to 34.68 yuan.
UBS AG today cut its China economic growth forecast for this year to 7.7 percent from 8 percent and lowered next year’s estimate to 7.8 percent.
“With rising corporate and local government leverage, little labor market pressure and existence of excess capacity in some sectors, the government seems to be less focused on cyclical growth boosters and more on structural reforms, which would take time to implement and bear fruit,” Wang Tao, an economist at UBS, wrote in a report.
HSBC Holdings Plc and Markit Economics are due to release a preliminary reading for manufacturing this month on May 23. The index was probably at 50.4, unchanged from 50.4 a month earlier, according to the median estimate of 12 analysts in a Bloomberg survey. A reading above 50 indicates expansion.
“The market needs consolidation at this level after the recent run-up,” said Dai Ming, a fund manager at Hengsheng Hongding Asset Management Co. in Shanghai, which manages $190 million. “Investors’ confidence is gradually picking up on expectations the economy will stabilize.”
--Zhang Shidong. Editors: Allen Wan, Richard Frost
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