Most Chinese Stocks Rise After Manufacturing Growth Accelerates

Photographer: Nelson Ching/Bloomberg

Workers package China Kweichow Moutai Distillery Co. baijiu liquor at the company's facility in the Maotai section of the Renhuai District in Zunyi, Guizhou Province, China. Close

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Photographer: Nelson Ching/Bloomberg

Workers package China Kweichow Moutai Distillery Co. baijiu liquor at the company's facility in the Maotai section of the Renhuai District in Zunyi, Guizhou Province, China.

Most Chinese stocks rose after an official report showed manufacturing strengthened last month. Machinery companies rallied, while Kweichow Moutai Co. plunged the most in seven years after reporting slowing profit growth.

Zoomlion Heavy Industry Science and Technology Co. and Sany Heavy Industry Co. surged more than 5 percent. Kweichow Moutai, the nation’s biggest liquor maker by market value, plunged 10 percent after reporting the slowest profit growth for a six-month period since 2009. Everbright Securities Co. slumped 8.5 percent after it drew a record penalty and two executives quit.

About five stocks rose for every four that fell on the Shanghai Composite Index (SHCOMP), which was little changed at 2,098.45 at the close. The CSI 300 Index added 0.3 percent to 2,320.34. The government’s Purchasing Managers’ Index climbed to a 16-month high of 51 in August, up from the previous month’s 50.3.

“The recent economic data has been good,” said Mao Sheng, an analyst for Huaxi Securities Co. in Chengdu. Moutai slumped because “its first-half earnings were below expectations.”

The Hang Seng China Enterprises Index (HSCEI) jumped 2.1 percent. The Bloomberg China-US Equity Index slid 0.7 percent in New York. Trading volumes in the Shanghai index were 40 percent higher than the 30-day average, according to data compiled by Bloomberg. It’s valued at 8.4 times its projected 12-month earnings, compared with the five-year average of 12.6 times, according to data compiled by Bloomberg.

The Shanghai index rallied 5.3 percent last month, the biggest gain among benchmark indexes in Asia, as reports ranging from industrial production to money supply signaled the economy is stabilizing. The positive economic data overshadowed Everbright Securities’s Aug. 16 trading error that sparked the biggest intraday swing for stocks since 2009.

PMI Report

China’s economy is strengthening after a two-quarter slowdown, as new factory orders jumped and overseas demand rebounded. The official PMI figure compared with the 50.6 median estimate of 31 analysts in a Bloomberg News survey. A separate manufacturing PMI released today by HSBC Holdings Plc and Markit Economics rose to 50.1 last month from 47.7 in July, the biggest gain in three years and the first reading above 50 since April.

Improvement in manufacturing may bolster confidence that the economy is responding to Premier Li Keqiang’s policies to support growth amid a crackdown on shadow banking aimed at curbing financial risks. JPMorgan Chase & Co. yesterday joined Deutsche Bank AG and Credit Suisse Group AG in raising estimates for an increase in gross domestic product, citing strength in infrastructure and real-estate, and a pickup in exports.

Zoomlion, China’s second-largest maker of construction equipment, jumped 8.1 percent to 5.74 yuan after falling 42 percent this year through yesterday. Bigger rival Sany Heavy climbed 5.3 percent to 7.60 yuan. The stock slumped 32 percent this year through yesterday.

Stocks Rotation

“There’s expectation there will be more investment in machinery in the second half and the industry is further boosted by the PMI data too,” Han Weiqi, Analyst at Capital Securities Corp, said by phone today. Machinery stocks “had fallen a lot this year and now it’s their turn for a stocks rotation.”

A gauge of consumer-staples producers in the CSI 300 slid 1.5 percent, the most among 10 industry groups. Moutai dropped 10 percent to 151.92 yuan. Its first-half net income rose by 3.6 percent to 7.25 billion yuan, the slowest profit growth since the second half of 2009, according to data compiled by Bloomberg. That trailed Capital Securities’ estimate for 10 percent growth, according to Liu Hui, an analyst at the brokerage. Wuliangye Yibin Co., the second-biggest baijiu maker, dropped 5.4 percent to 18.33 yuan.

Graft Probe

“First-half earnings were much lower than expectations,” Liu said by phone from Shanghai. “With strict controls on government purchases of expensive liquor, they are not going to get a boost in sales for the second half of the year. Earnings will remain weak.”

China’s new party leadership pledged in December to reduce lavish receptions and live more frugally. President Xi Jinping had warned that unless corruption is reduced at all levels of government, social unrest may rise and lead to the party’s demise.

Jiang Jiemin, head of the State-Owned Assets Supervision and Administration Commission, is under investigation for alleged “serious disciplinary violations,” the Ministry of Supervision said yesterday. He is also the former chairman of state-owned China National Petroleum Corp., the country’s biggest oil producer. Four officials at CNPC and its unit, PetroChina Co., were removed from their posts as part of investigations by China’s graft watchdog last week.

Everbright Plunges

Everbright Securities slumped 0.86 yuan to 9.21 yuan, a record low. Assistant President Yang Chizhong and Board Secretary Mei Jian tendered letters of resignation to the board on Aug. 31, according to two company statements. The broker was fined a total of 523 million yuan ($85 million) after an investigation into 23.4 billion yuan of erroneous buy orders found it traded on inside information, the China Securities Regulatory Commission said Aug. 31.

China, the best-performing Asian stock market last month, will weather the tapering of U.S. stimulus that has triggered routs in other emerging-market equities, according to a Bank of America Corp. report.

The world’s second-largest economy has low foreign debt, “huge” foreign exchange reserves, a “sustained” current account surplus and high savings that shield it from capital outflows, wrote Lu Ting, a Hong Kong-based economist at Bank of America.

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net

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