China’s benchmark stock index rose to the highest level in three weeks as money-market rates fell and property companies rallied on improving earnings prospects.
Poly Real Estate Group Co. (600048) surged to a three-week high and real-estate companies jumped the most among industry groups after Shenyin & Wanguo Securities Co. said developers may rally 20 percent from current levels. Guirenniao Co. (603555), which makes sports apparel, soared 44 percent on its first day of trading in Shanghai. Jiangxi Copper Co. led a rally for material producers.
The Shanghai Composite Index (SHCOMP) added 0.6 percent to 2,054.39 at the close, extending this week’s gain to 2.5 percent. The seven-day repurchase rate, a gauge of interbank funding availability, slid 77 basis points to 4.61 percent. Stocks dropped yesterday after a private report showed manufacturing may contract for the first time in six months. The Shanghai Composite will probably bottom out within days and begin to rebound, said Tom DeMark, the developer of market-timing indicators who predicted the measure’s rally in June.
“Bad news has been digested and liquidity has eased,” said Du Liang, an analyst from Shanxi Securities Co. “It shouldn’t be much of a problem for stocks to continue their uptrend. DeMark has been accurate several times, so if he says the index is going to rebound, there will be some influence.”
The CSI 300 Index added 0.6 percent. The Hang Seng China Enterprises Index (HSCEI) dropped 0.8 percent. Trading volumes in the Shanghai index were 22 percent above the 30-day average for this time of day, according to data compiled by Bloomberg. The nation’s financial markets will be closed from Jan. 31 to Feb. 6 for the Chinese new year holiday.
The Shanghai Composite climbed this week after the central bank added more than $42 billion to the financial system to meet cash demand before the holiday. The measure trades at 7.7 times 12-month projected earnings, compared with a multiple of 9.1 for the MSCI Emerging Markets Index.
A gauge of property companies in the Shanghai index rose 1.6 percent today, adding to a weekly gain of 5.5 percent, the most among five industry groups. China Vanke Co., the biggest developer, surged 4 percent to 7.79 yuan. Poly Real Estate, the second largest, climbed 3 percent to 8.18 yuan, extending this week’s rally to 9.8 percent. Gemdale Corp. advanced 1.5 percent to 6.20 yuan.
Chinese property stocks may rise on easing liquidity, analyst Han Siyi at Shenyin & Wanguo Securities wrote in a report yesterday. Falling money-market rates will spur a valuation expansion for developers, Han wrote, recommending Gemdale and Jinke Properties Group Co.
Real-estate prices will keep rising in the first half and stabilize in the second half, the China Securities Journal reported, cited Wang Wenxiang, vice head of the National Development and Reform Commission’s investment institute.
A measure of material companies in the CSI 300 gained 0.9 percen. Jiangxi Copper, the biggest Chinese producer, jumped 1.5 percent to 13.59 yuan. Aluminum Corp. of China Ltd. advanced 0.9 percent to 3.31 yuan.
Guirenniao surged 4.66 yuan to 15.26 yuan on the first day of trading in Shanghai. Eight more companies will start trading on Jan. 27. Fifty-two companies have been approved by the securities regulator to sell shares after the end of a more than yearlong IPO freeze.
The Shanghai Composite may slip to as low as 1,952, or 4.4 percent below yesterday’s close, and then rally “sharply,” DeMark wrote in an e-mailed response to questions from Bloomberg News. The measure, which touched an intraday low of 1,984.82 on Jan. 20, has lost 3.5 percent this year.
The index “is in a bottom zone,” wrote DeMark, the founder of DeMark Analytics LLC in Scottsdale, Arizona, who has spent more than 40 years developing indicators to identify market turning points. “We have now turned constructive.”
The Bloomberg China-US Index slumped 3.5 percent yesterday, while the iShares China Large-Cap ETF tumbled 4.5 percent, the most since November 2011. U.S. regulators barred the four largest accounting firms from conducting audits in China. The ruling sparked concern that companies won’t be able to put together their 2013 earnings reports in time to meet listing requirements in the U.S.
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