China’s stocks rose, with the benchmark index for mainland companies in Hong Kong surging the most since December 2011, after the government pledged to ease the one-child policy and boost private investment as part of the biggest package of economic reforms since the 1990s.
Citic Securities Co. (6837) and China Life Insurance Co. rallied more than 8 percent in Hong Kong and Shanghai to lead gains for financial shares. Baby formula maker Zhejiang Beingmate Technology Industry & Trade Co. jumped 3.6 percent. The yuan traded within 0.2 percent of a 20-year high, while the 10-year bond yield rose to the highest level since 2007 as China said it would accelerate steps toward currency convertibility and a freeing-up of interest rates.
The Hang Seng China Enterprises Index (HSCEI) climbed 5.7 percent to 11,307.33 at the close in Hong Kong, while the Shanghai Composite Index (SHCOMP) rose 2.9 percent to 2,197.22. China pledged to allow more private investment in state-controlled industries while couples can have two children if either parent is an only child, according to a Communist Party decision published by the official Xinhua News Agency on Nov. 15.
“The detailed document is positive because it addresses structural reforms, which is what China needs,” Erwin Sanft, head of China and Hong Kong equity research at Standard Chartered Plc, said in a telephone interview. “The lifting of a big overhang like this is very good for market valuations.”
The Shanghai index trades at 8.6 times projected earnings, compared with the five-year average of 12.5, according to data compiled by Bloomberg. Trading volumes in the index were 37 percent above the 30-day average. The Hang Seng China AH Premium index, a gauge of prices for mainland-traded shares versus those in Hong Kong, slid as much as 3.2 percent to the lowest level since October 2010.
China is liberalizing its policies in an effort to bolster an economy that’s heading for its weakest annual expansion since 1999. The Shanghai benchmark index has slumped 3.2 percent this year as slowing growth curbed corporate earnings.
“The announced reforms beat market expectations and are likely to boost market confidence and sentiment in the near term,” Wang Tao, an economist at UBS AG, wrote in a report today. “We see the main impact of the reforms to be a reduction of tail risks facing the economy.”
The Communist Party document, covering 60 measures, follows a communique issued Nov. 12 after a four-day party conclave in Beijing that pledged to elevate the role of markets in the nation while keeping the state in a “dominant” position.
China will develop a “mixed ownership economy” that helps state-owned assets maintain or increase their value and boost their competitiveness, according to Xinhua. The nation will accelerate convertibility of the yuan and freeing-up of interest rates, improve treasury yield curves and let qualified private investors set up small-to-medium sized banks, it said.
The yield on government bonds due August 2023 increased five basis points to 4.65 percent, according to prices from the National Interbank Funding Center. China’s 10-year yield reached a record 4.66 percent in November 2007, the highest in ChinaBond data going back to September 2007. The one-year swap, the fixed payment needed to receive the floating seven-day repurchase rate, increased as much as eight basis points to a five-month high of 4.59 percent.
“China announced last week that it will accelerate interest-rate liberalisation so, in the medium term, that may result in higher rates,” said Kumar Rachapudi, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd.
The yuan was little changed at 6.0921 per dollar. It has strengthened 2.3 percent this year and touched 6.0802 on Oct. 25, the strongest level since the government unified the official and market exchange rates at the end of 1993.
Jefferies Group LLC listed brokerages and insurers as among its top picks. Citic Securities, the nation’s biggest-listed brokerage, jumped 13 percent in Hong Kong and 10 percent in Shanghai. China Life, the largest insurer, surged 8.7 percent in Hong Kong and 10 percent in Shanghai. A gauge of financial shares in the CSI 300 rose 5.2 percent, the most among 10 industry groups.
Policy makers will seek to “push forward reform for a registration system” on initial public offerings, according to the Nov. 15 statement. The new system may hasten the approval process for the more than 700 companies still awaiting regulatory permission to proceed with their share sales.
“We believe China is on the cusp of a massive multiyear bull run,” Christie Ju, managing director at Jefferies in Hong Kong, wrote in a note to clients. She also favored auto, consumer, health-care and alternative-energy companies.
A measure of consumer-discretionary companies in the CSI 300 climbed 2.7 percent. SAIC Motor Corp., the biggest Chinese automaker, advanced 1.9 percent. Appliance maker Qingdao Haier Co. surged 5.1 percent.
Fidelity Investment Management Ltd. is adding more Chinese consumer-related stocks including Internet and health-care companies after details on the plenum were released, Catherine Yeung, an investment director for equities, said in a phone interview today from Hong Kong.
Under China’s current family-planning policy, couples are allowed to have a second child if both parents are only children. Last week’s document said the party plans to implement the reforms by 2020.
Zhejiang Beingmate, the unit of China’s second-largest baby formula maker, rose 3.6 percent in Shenzhen. China Mengniu Dairy Co. advanced 4.8 percent in Hong Kong.
The Bloomberg China-US Equity Index added 3.4 percent in New York on Nov. 15, while the db X-trackers Harvest CSI 300 surged 4.4 percent. The CSI 300 rose 3.3 percent to 2,428.90.
“With the new details out on reforms, there are more concrete directions,” Zeng Xianzhao, an analyst at Everbright Securities Co. in Chongqing, said by phone today. “Investors who were on the sidelines don’t have to hesitate anymore and are starting to place their positions.”
To contact the reporter on this story: Weiyi Lim in Singapore at firstname.lastname@example.org