China Stocks Rise as Spending Report Overshadows MSCI

China’s benchmark stock index rose as utilities climbed on speculation the government is planning to announce measures to combat water pollution, overshadowing MSCI Inc. (MSCI)’s decision to exclude local shares from global gauges.

Chongqing Water Group Co., which treats urban wastewater, jumped the most in three months and Beijing Originwater Technology Co. surged 5.1 percent. China Business News reported a 2 trillion yuan ($321 billion) plan to curb water pollution has been submitted to the nation’s cabinet. Citic Securities Co., China’s biggest listed brokerage, and Ping An Insurance (Group) Co. led declines for financial shares.

The Shanghai Composite Index (SHCOMP) rose 0.1 percent to 2,054.95 at the close. MSCI, which based its decision on limitations to investing in China’s A shares, said it may consider an inclusion in 2015. The gauge climbed the most in a month yesterday after the central bank said it will reduce reserve requirements for some banks by 0.5 percentage point effective June 16 and authorities allowed new share sales to resume.

“There will be more measures if growth doesn’t stabilize,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “The MSCI’s exclusion of China stocks will have a short-term negative impact on the market.”

The CSI 300 Index was little changed at 2,160.77. The Hang Seng China Enterprises Index (HSCEI) slipped 0.2 percent. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.- listed Chinese companies, added 1 percent yesterday.

A measure of utility companies in the CSI 300 gained 0.8 percent, the steepest advance among 10 industry groups. Chongqing Water added 2.8 percent while Beijing Originwater surged the most since April 29.

Water Pollution

The plan to curb water pollution will speed up improving water-environment quality and protect its safety, China Business News reported, citing an unidentified official at the Ministry of Environmental Protection. Two calls to the ministry’s news department went unanswered.

About 10 percent of the nation’s surface water was heavily polluted and worse than the level set for agriculture use, the ministry’s vice minister Li Ganjie was cited as saying.

A measure of financial stocks dropped 0.4 percent, the most among the 10 industry groups. Citic Securities declined the most in two weeks while Ping An fell 0.8 percent, the first loss in three days.

MSCI has been consulting with banks and funds on whether to include A shares in its benchmark Chinese and developing-nation gauges for the past year. Some international investors who measure returns against the indexes have said the proposal is unworkable unless China removes the capital controls that limit access to local securities.

‘Some Progress’

“China is making some progress, but it sounds like MSCI wants to see the tradability of A shares before they put them in the index,” Alan Gayle, who helps oversee about $50 billion in assets as a senior strategist at RidgeWorth Capital Management, said by phone from Atlanta yesterday. “MSCI is clearly leaving the door open for the inclusion, but it is contingent on performance.”

The Shanghai Composite has dropped 2.9 percent this year on concern the slowing economy will hurt earnings and new share offerings will divert funds.

China’s statistics bureau is due to release May data on industrial production, retail sales and investment on June 13. Factory output probably expanded 8.8 percent, compared with 8.7 percent growth in April, according to the median estimate in a Bloomberg survey. Inflation accelerated to 2.5 percent last month for the fastest pace since January, the bureau said yesterday.

The Shanghai Composite is valued at 7.6 times 12-month projected earnings, compared with the five-year average multiple of 11.7, according to data compiled by Bloomberg. Trading volumes in the index were little changed from the 30-day average.

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

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

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