China’s Stocks Rise as Environmental, Small-Company Shares Gain

China’s stocks rose for a second day, led by environmental protection and small-company shares, after President Xi Jinping said the country mustn’t sacrifice the environment for economic growth.

Sound Environmental Resources Co. (000826) and Beijing SPC Environment Protection Tech Co. jumped at least 5 percent after Xi signaled a tolerance for slower expansion to avoid environmental degradation. Citic Securities Co. led brokerages higher after Premier Li Keqiang said the government will “steadily” open the securities markets to overseas investors. China Vanke Co. and Gemdale Corp. (600383) dragged down a measure of property developers by the most among five industry groups.

“Smaller companies benefit most from the restructuring of the economy,” said Mao Sheng, an analyst for Huaxi Securities Co. in Chengdu. “Traditional industries such as property and cement are leading losses today, as they get hit most with the prospect of less economic stimulus.”

The Shanghai Composite (SHCOMP) advanced 0.2 percent to 2,293.08 at the close, as seven stocks gained for every five that dropped. The CSI 300 Index added 0.1 percent to 2,599.59. The Hang Seng China Enterprises Index (HSCEI) rose 0.2 percent. The Bloomberg China-US 55 Index fell 0.7 percent in New York on May 24.

The Shanghai index has rebounded 5.5 percent from this year’s low set on May 2. It trades at 9.4 times 12-month estimated earnings, compared with a seven-year average of 15.7 times, according to data compiled by Bloomberg.

Trading volumes in the Shanghai Composite were 15 percent above the 30-day average today, data compiled by Bloomberg show. Thirty-day volatility was at 16.3, compared with this year’s average of 19.5, the data showed.

Industrial Profits

“There are not many catalysts in the market right now,” said Zhang Gang, a strategist at Central China Securities Holdings Co. in Shanghai. “Investors are waiting for May data such as PMI.”

The government is scheduled to release results of its official manufacturing index on June 1. A preliminary reading by HSBC and Markit’s Purchasing Managers Index last week was 49.6, below the 50 level that divides expansion and contraction.

The National Bureau of Statistics said today net income for industrial companies climbed 9.3 percent to 437 billion yuan ($71.3 billion) in April, after a 5.3 percent increase in March.

Sound Environmental surged 8.1 percent to 37.25 yuan. Beijing SPC Environment added 4.9 percent to 30.60 yuan. Beijing Originwater Technology Co. (300070) added 3.1 percent to 39.85 yuan. The ChiNext index of small-company stocks rose 1.5 percent.

The country won’t sacrifice the environment to ensure short-term growth, President Xi said during a study session of the Communist Party’s top leadership on May 24. His comments follow a statement issued on the same day that the State Council, which is chaired by Premier Li, approved measures including tax reform to revamp the economy.

No Stimulus

New leaders may be reluctant to implement stimulus to reverse an unexpected slowdown in first-quarter growth after a 4 trillion yuan package to support the economy during the global financial crisis led to inflation, a housing bubble and industrial overcapacity.

Citic Securities, China’s biggest listed brokerage, climbed 1.4 percent to 12.86 yuan. Haitong Securities Co. (600837), the second largest, gained 2 percent to 11.47 yuan. GF Securities Co. advanced 0.9 percent to 13.76 yuan.

China will “steadily” push forward opening stock, bond and insurance markets to foreign funds, according to a transcript of Premier Li’s speech distributed by the official Xinhua News Agency on May 25.

Property Tax

Guangzhou Automobile Group Co. (601238), which has manufacturing ventures with Toyota Motor Corp. and Honda Motor Co., surged 10 percent to 9.15 yuan. The stock jumped on speculation a proposal to allow unlimited reuse of license plates in the city where it’s based will spur vehicle sales.

Vanke, the biggest Chinese developer, fell 0.9 percent to 11.80 yuan. Gemdale retreated 0.8 percent to 7.72 yuan. The Shanghai property stocks gauge dropped 0.95 percent. China will expand property tax trials, according to a State Council statement posted on the central government website on May 24. [bn:WBTKR=600585:CH]

Anhui Conch Cement Co. [], the nation’s bigger marker of the building material, slid for a third day, losing 1.2 percent to 16.91 yuan. China will issue stricter nitrogen oxide emissions standards for cement factories, the China Securities Journal reported May 24, citing an unidentified environment ministry official.

--Zhang Shidong, Weiyi Lim. Editors: Allen Wan, Richard Frost

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net; 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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