China’s Stocks Advance on Speculation of State Purchases

China’s stocks rose, with a gauge of mainland shares traded in Hong Kong climbing the most in a week, as speculation that state-linked investors are buying equities overshadowed concern that the economy is slowing.

Yanzhou Coal Mining Co. (1171), the fourth-biggest Chinese coal miner by market value, increased at least 2.5 percent in both Hong Kong and Shanghai. China Petroleum & Chemical Corp. (386), also known as Sinopec, climbed 2.2 percent after the Shanghai Securities News reported the refiner may open its shale gas business to private investment. Preliminary manufacturing data due tomorrow is expected to signal a fifth month of contraction.

The Hang Seng China Enterprises Index rose 1.1 percent to 9,995.39 at the close, and the Shanghai Composite Index added 0.8 percent to 2,024.95. The Shanghai gauge rebounded from early losses after breaching the 2,000 threshold that analysts have cited as a trigger for state-linked funds to enter the market and the state to announce measures to support growth. Stocks have rebounded from near these levels at least three times this year as the government took steps to reduce money-market rates and speed infrastructure spending.

Government Action

“The stock market is approaching the level which the government can’t tolerate,” said Cai Feng, a strategist at Guoyuan Securities Co. in Shanghai. “The level of 2,000 is more crucial. The government will use tactics including policies, public opinion and funds. In terms of injection of funds, it will increase holdings of big state-owned companies and buy index ETFs.”

Hong Kong’s Hang Seng Index ended little changed at 22,836.52. The CSI 300 Index and the China AMC CSI 300 Index exchange-traded fund both increased 1 percent. Trading volume on the Shanghai index was 32 percent below the 30-day average, according to data compiled by Bloomberg.

Calls to China Investment Corp., the sovereign fund that holds the government’s stakes in banks and brokerages, were not answered today.

The Shanghai measure has lost 4.3 percent this year on speculation slowing economic growth will curb earnings and a flood of initial public offerings would divert funds. The government said this week it plans to have about 100 IPOs from June through the end of this year.

China Economy

Industrial-output and investment growth unexpectedly decelerated last month, while new building construction fell 22 percent in the first four months of the year. New-home prices rose in April in the fewest cities in a year and a half as developers offered discounts.

The Shanghai index should break below the 2,000 level as the weaker property market drags down the economy, Hao Hong, China equity strategist at Bocom International Holdings Co., said in an e-mailed response to questions. The gauge is at risk of falling to 1,800, according to Lim Say Boon, Singapore-based chief investment officer at DBS regional wealth management.

Factory Activity

HSBC Holdings Plc and Markit Economics are scheduled to release their flash manufacturing Purchasing Managers’ Index tomorrow. The gauge probably rose to 48.3 from the final reading of 48.1 a month earlier, according to the median estimate of Bloomberg surveys. A reading below 50 indicates contraction.

China’s economy is still facing downward pressure and the government needs to cut lenders’ reserve-requirement ratios, Zhu Baoliang, head of the State Information Center’s economic forecasting department, said at a briefing in Beijing yesterday.

Yanzhou Coal increased 2.7 percent in Hong Kong and 2.5 percent in Shanghai. The presidents of China and Russia failed to sign a $400 billion gas supply deal at a meeting yesterday in Shanghai. The Chinese government sees expanding gas supply as a way to curb air pollution that has frequently exceeded limits recommended by the World Health Organization.

Sinopec Investment

Sinopec climbed 2.2 percent after the Shanghai Securities News reported the company will court private investors for shale gas exploration, transport and sales. Great Wall Motor Co., a sport-utility vehicle maker, rose for a sixth day in Hong Kong, adding 3.5 percent to extend gains on a plan to expand in Russia.

Lenovo Group Ltd. (992), the world’s largest maker of personal computers, gained 3.4 percent in Hong Kong after reporting a 25 percent jump in fourth-quarter profit as its desktop models and mobile devices gained global market share.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. and the iShares China Large-Cap ETF, both declined 0.6 percent yesterday.

Futures on the Standard & Poor’s 500 Index rose 0.2 percent. The equity measure dropped yesterday as retailers from Staples Inc. to Urban Outfitters Inc. missed earnings estimates and smaller companies slid.

(A previous version of this story stated an incorrect percentage move for Yanzhou Coal at the close.)

To contact the reporters on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net; Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net

To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net Allen Wan, Richard Frost

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