China Stock-Index Futures Rise After PBOC Conducts Reverse Repo

China’s stock-index futures rose after traders said the central bank conducted reverse-repurchase operations to alleviate a cash squeeze.

Futures on the CSI 300 Index expiring in January gained 0.3 percent to 2,305.80 as of 9:18 a.m. local time. China Shenhua Energy Co. (601088), the nation’s largest coal producer, may advance after it said it plans to buy two units from its parent. Guangzhou Baiyun International Airport Co. (600004) may move after the Shanghai Securities News reported a plan for Guangdong’s free-trade zone has been submitted to the State Council. China Mobile Ltd. may move after its American depositary receipts climbed yesterday to widen a premium to their Hong Kong stock.

The Shanghai Composite Index (SHCOMP) climbed 0.2 percent to 2,089.71 yesterday, halting a nine-day losing streak. Borrowing costs have surged as the central bank suspended cash injections in its open-market operations and lenders hoarded cash to meet year-end regulatory requirements.

The CSI 300 Index (SHSZ300) rose 0.3 percent to 2,284.60. The Hang Seng China Enterprises Index (HSCEI) gained 0.2 percent. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.- listed Chinese companies, added 0.6 percent in New York.

The Shanghai Composite trades at 8.1 times projected profit for the next 12 months, the lowest level since July 31, according to data compiled by Bloomberg. It’s down 7.9 percent this year. The 14-day relative strength measure for the Shanghai Composite, measuring how rapidly prices have advanced or dropped during a specified time period, was at 29.1 yesterday. Readings below 30 indicate it may be poised to rise.

Reverse Repo

The People’s Bank of China will conduct 29 billion yuan of 7-day reverse repurchase agreements today, according to traders at primary dealers required to bid at the auctions. The central bank, which normally uses the tool to inject money into financial markets, had suspended offerings of reverse-repo agreements for almost three weeks, the longest pause since July.

The benchmark money-market rate climbed for a seventh day yesterday. The seven-day repurchase rate, a gauge of funding availability in the banking system, jumped 124 basis points to 8.84 percent, the highest level since June 20, according to a daily fixing from the National Interbank Funding Center. The rate, which has more than doubled from 4.37 percent in the past week, touched a record 10.77 percent in June.

Surging money-market rates in China sparked a stock sell-off this month that’s wiped $156 billion of market value from local equities, setting course for the biggest monthly loss since a record cash crunch in June.

Liquidity Concerns

“Chinese stocks are sensitive to liquidity concerns and investors easily go into panic mode,” said Banny Lam, Hong Kong-based co-head of research at Agricultural Bank of China International Securities Ltd. “Through the short-term liquidity operations, the PBOC is signaling it’ll provide funds when necessary. However, the central bank also wants lenders to be more disciplined in managing loans and credits.”

A plan for Guangdong-Hong Kong-Macau free-trade zone with a more open “negative list” than Shanghai’s free-trade zone was submitted to the State Council for approval in mid-December, the Shanghai Securities News reported today, citing unidentified people.

Shenhua may be active. The coal producer said it will buy two wholly owned units of its parent for 9.32 billion yuan ($1.5 billion). The company will pay 9.27 billion yuan in cash to Shenhua Group Co. for Shenhua Baotou Coal Chemical Co., Shenhua said in a statement. Shenhua Energy also said it will buy Shenhua Guohua Jiujiang Power Co. for 50 million yuan, the statement said.

China Mobile

Chinese equities rallied for the first time in three days in New York as China Mobile (CHL), the world’s biggest mobile phone carrier, gained after agreeing to sell Apple Inc.’s iPhone to its subscribers.

China Mobile will sell the two newest iPhone models in its retail stores starting Jan. 17, according to a joint statement Dec. 22. The deal may help China Mobile, which has 763 million users, draw high-end subscribers to its new fourth-generation network as it faces its first annual profit decline in more than a decade.

“The Apple deal will help China Mobile’s branding of the new 4G network as ‘high end’ to attract premium customers they have lost to China Unicom,” Tony Hann, head of emerging- market and equities at Blackfriars Asset Management Ltd., said in an e-mail yesterday. “It would be negative if China Mobile were to aggressively subsidize the iPhone. Their high-end target customers should be able to afford this.”

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., slipped 0.1 percent to $37.27, the lowest since Nov. 14. The Standard & Poor’s 500 Index added 0.5 percent to a record as Apple rallied and the International Monetary Fund indicated it would raise its outlook for the U.S. economy.

--Zhang Shidong. Editor: Allen Wan

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

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

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