China’s stocks rallied, sending the benchmark index to its biggest gain in four months, amid speculation the government is loosening funding restrictions for property developers and banks to support economic growth.
Shanghai Pudong Development Bank Co. (600000) and Industrial Bank Co. both surged at least 6.6 percent. The China Securities Regulatory Commission said after exchanges closed that lenders can issue preferred shares. China Vanke Co. and Poly Real Estate Group Co. jumped more than 6 percent after the Shanghai Securities News reported regulators are reviewing financing applications from “many” listed developers.
The Shanghai Composite Index (SHCOMP) climbed 2.7 percent to 2,047.62 at the close, the biggest gain since Nov. 18, after reaching record-low valuations yesterday. Policy makers are trying to bolster real estate and financial companies as the economy slows and bad debts increase. Allowing lenders to sell preferred shares would give them a new way to meet long-term fundraising requirements.
“Investors hear talk that banks may be the first to be included in the preferred-shares program,” said Xu Shengjun, analyst at Jianghai Securities in Shanghai. “Investors are hoping this will bring a lot of benefits to the companies, including boosting their capital.”
The Shanghai index has dropped 3.2 percent this year as analysts cut their estimates for 2014 economic growth, the nation suffered its first onshore corporate bond default and an unlisted developer collapsed. Today’s announcement on preferred shares follows a government statement this week that China will speed up construction projects to bolster the economy.
The CSI 300 Index surged 3.4 percent to 2,158.80, rebounding from the lowest level since Feb. 2, 2009. The Hang Seng China Enterprises Index (HSCEI) added 2.8 percent. It entered a bear market yesterday with a 20 percent retreat since Dec. 2.
The 300-stock measure gained 1.7 percent this week, snapping four weeks of losses. The index traded at 7.8 times projected 12-month earnings yesterday, the lowest since at least 2007, according to data compiled by Bloomberg. The Shanghai Composite’s multiple reached an all-time low of 7.5 yesterday.
A gauge of financial companies in the CSI 300 jumped 4.9 percent, posting the biggest gain among 10 industry groups and the steepest advance since Nov. 18. Shanghai Pudong Bank soared 10 percent to 9.89 yuan. Industrial Bank surged 6.6 percent to 9.48 yuan. Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp., the two biggest lenders, rose at least 1.8 percent in Shanghai and Hong Kong trading.
Companies in the Shanghai Stock Exchange 50 A-Share Index, which includes at least 10 banks, can issue preferred shares, according to a statement posted on the official microblog of the CSRC. They can use the funds to pay for acquisitions and buy back stock, the CSRC said.
Selling the securities would enable banks to have a supply of capital without adding pressure on common stock investors, according to Masterlink Securities Corp. Lenders are facing increasing competition for deposits after the central bank engineered a cash crunch last year to curb off-balance sheet financing that evolved to circumvent official credit curbs.
China’s four-biggest lenders, which reported $126 billion of earnings in the 12 months through September, sank to the lowest valuations on record in Hong Kong trading this month. The MSCI China Financials Index dropped to an almost decade low versus the global industry benchmark while the market value of ICBC fell below net assets for the first time on March 12.
China Vanke rose 6.7 percent to 8.01 yuan in Shenzhen. Poly Real Estate surged 6.8 percent to 7.20 yuan. The CSRC is reviewing financing applications from developers including Sundy Land Investment Co., Xinhu Zhongbao Co. and China Fortune Land Development Co., the Shanghai Securities News reported today, without citing anyone.
The CSRC this week allowed Tianjin Tianbao Infrastructure Co. and Join.In Holding Co. to sell A shares in private placements. The approval came after Zhejiang Xingrun Real Estate Co. collapsed with 3.5 billion yuan ($565 million) of debt.
Zhejiang Xingrun hasn’t declared bankruptcy and the local government in Fenghua city where the developer is based is having discussions with commercial banks that are owed money, said Xu Mengting, director of the news office of the Fenghua government. Pudong Bank also holds debt of Zhejiang Xingrun, the 21st Business Herald reported March 19.
Today’s stocks surge may be temporary, said Alex Wong, a Hong Kong-based director at Ample Capital Ltd.
“This is a short covering-led recovery after shares fell a lot,” said Wong. “We may see one or two more days of upside but China’s fundamentals are still weak. We weren’t falling for nothing.”
Chinese equity funds are posting their biggest outflows on record as concern deepens that the economy is slowing. Investors pulled out a net $1.5 billion in the week through March 19, of which $1.3 billion came from exchange-traded funds, Citigroup Inc. said today, citing EPFR Global.
A China Beige Book survey added to signs that Premier Li Keqiang may face difficulties reaching an expansion target of 7.5 percent this year without stimulus. The economy slowed this quarter, with industries including retail and mining showing weaker revenue growth, according to the survey.
To contact the reporter on this story: Weiyi Lim in Singapore at email@example.com