Chinese Stocks Advance as Index Caps Best Quarter in Three Years

Chinese stocks rose, capping the best quarter in three years, as consumer discretionary and technology stocks advanced in the last trading day before a weeklong holiday shuts the nation’s markets.

Shanghai Oriental Pearl (Group) Co. jumped by the 10 percent daily limit after the central government inaugurated the Shanghai free trade zone yesterday. Suning Commerce Group Co., the retail-chain operator, climbed 10 percent, while BesTV New Media Co. rallied to a record high.

The Shanghai Composite Index (SHCOMP) rose 0.7 percent to 2,174.67 at the close. Volumes were 36 percent lower than the 30-day average. Stocks advanced even after a manufacturing gauge increased less than analysts forecast. Markets will be closed Oct. 1-7 for National Day holidays. Companies with the word Shanghai in their names led gains this quarter on speculation they will benefit from the government’s plan to cut regulation in the free-trade area.

“We will see declines in the stock market in the fourth quarter,” said Xu Shengjun, analyst at Jianghai Securities Co. “PMI data today is below forecast and there’s expectations fourth-quarter macro data may be weak.”

The CSI 300 Index added 0.6 percent to 2,409.04, while the Hang Seng China Enterprises Index (HSCEI) slid 1.6 percent, heading for its biggest loss in a month.

The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics rose to 50.2 in September from 50.1 in August. The final number was less than last week’s 51.2 preliminary reading and the 51.2 median estimate in a Bloomberg News survey of economists.

Stock Valuations

The Shanghai index has risen 9.9 percent since June, the biggest increase since the three months ended September 2010. The gauge is still down 4.2 percent this year and trades at 8.7 times projected earnings for the next 12 months, compared with the five-year average of 12.6 times.

Shanghai Oriental Pearl surged 10 percent to 10.54 yuan, taking its gain this quarter to 91 percent. Shanghai Haibo Co. jumped 9.9 percent to 7.85 yuan. Shanghai Xinhua Media Co. climbed 10 percent to 8.38 yuan, gaining by the daily limit for a second straight day.

The area is a testing ground for free-market policies that Premier Li Keqiang has signaled he may later implement more broadly in the world’s second-largest economy. Li and President Xi Jinping are expected to seek support for national plans to reduce the government’s hand in the economy and financial system at a Communist Party plenum this November.

Zone Impact

China’s State Council announced some details for the zone in a Sept. 27 statement, including plans to allow trials of yuan convertibility in capital flows. At a briefing yesterday, the zone’s executive deputy director, Dai Haibo, gave more details, including the establishment of an international energy center to trade crude futures.

“The impact will reveal itself slowly,” said Wellian Wiranto, an investment strategist at the wealth-management unit of Barclays Plc, which oversees about $217 billion worldwide. “They are learning as they go, they are trying to see the impact of the opening up and if it’s applicable to the rest of country.”

Gauges (SHSZ300) tracking consumer discretionary and technology companies rallied at least 2.4 percent, the most among the 10 industry groups on the CSI 300.

Suning Commerce Group, the retail-chain operator, climbed 10 percent to 12.85 yuan, while BesTV New Media Co. rose 10 percent to 52.35 yuan.

Options traders are paying the least in four months to protect against drops in the largest Chinese exchange-traded fund in the U.S. on prospects a recovery in the world’s second-largest economy will be sustained.

The premium of three-month puts on the iShares China Large-Cap ETF over calls was 3.1 points on Sept. 26, the smallest since May 21, options data compiled by Bloomberg showed. The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. dropped 0.4 percent last week, led by E-House China Holdings Ltd. (EJ) and China Unicom (Hong Kong) Ltd.

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

To contact the editor responsible for this story: Richard Frost at rfrost4@bloomberg.net

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