China H-Shares Rally Most in Four Months on Stimulus Bets

Chinese stocks rose, sending a gauge of mainland companies listed in Hong Kong to its biggest gain in four months, amid speculation the government will do more to shore up economic growth.

PetroChina Co. (857) and China Petroleum & Chemical Corp. (386), the biggest Chinese refiners, each surged at least 3 percent. Aluminum Corp. of China Ltd. jumped 7.4 percent as prices for the metal reached a 16-month high. China Vanke Co. and Poly Real Estate Group Co. led gains for mainland developers after the National Business Daily said Wenzhou became the latest city to remove home-purchase restrictions.

The Hang Seng China Enterprises Index (HSCEI), also known as the H-share index, climbed 2.4 percent to 10,605.22 at the close in Hong Kong. The article on easing property restrictions follows a report from the China Business News yesterday that the government granted a 1 trillion yuan ($161 billion) loan to China Development Bank to help fund subsidized housing. The central bank refrained from draining liquidity from money markets today, as policy makers seek to keep economic growth from slipping below their 7.5 percent target.

“We have positive views on H shares,” Ryan Tsai, an Asia equity strategist at Standard Chartered Bank HK Ltd., said by phone today. “Policy easing, improving economic growth and increasing fund inflows should lead to further upside for the market.”

The Shanghai Composite Index rose 1 percent, while the CSI 300 Index increased 1.2 percent. Trading volumes on the Shanghai gauge were 29 percent above the 30-day average today, according to data compiled by Bloomberg.

Economy Stabilizing

The Shanghai Composite is valued at 7.7 times 12-month projected earnings, compared with a multiple of 7.1 for the H-share index, according to data compiled by Bloomberg.

The H-share gauge has rebounded 15 percent from this year’s low in March on signs China’s economy is stabilizing. Data last week showed growth accelerated for the first time in three quarters in the April-June period.

Manufacturing probably expanded this month at the fastest pace since March last year, according to the median estimate in a Bloomberg survey before a preliminary Purchasing Managers’ Index due July 24 from HSBC Holdings Plc and Markit Economics.

PetroChina rose 3.2 percent in Hong Kong, while China Petroleum, known as Sinopec, advanced 3.6 percent. PetroChina’s H shares trade at an 11 percent premium to A shares, the biggest since November 2007, according to data compiled by Bloomberg. Sinopec’s H shares trade at a 20 percent premium.

PetroChina has rallied 23 percent this year, while Sinopec gained 18 percent on speculation the government will continue with steps to open state-owned enterprises to private investment.

Metals Rally

“Hong Kong investors are lured by the prospect of SOE reforms and optimistic about PetroChina’s earnings,” Li Xin, an analyst at Masterlink Securities Corp., said in Shanghai.

A measure tracking material stocks increased 2.2 percent, the most among the CSI 300’s 10 industry groups. Chalco, the nation’s biggest producer of aluminum, jumped 5.3 percent in Shanghai, the biggest gain since March 28. The stock advanced to the highest level since February 2013 in Hong Kong.

Aluminum entered a bull market yesterday amid bets that demand will outstrip supply and today extended gains to $2,027 a ton, the highest since February 2013. Zinc climbed to the highest since 2011 after falling inventory and an improving demand outlook spurred speculation that consumption will exceed supply.

Vanke, China’s biggest listed property developer, added 2.7 percent in Shenzhen. Poly Real Estate, the second-biggest, rose 1.4 percent.

Loosening Curbs

Wenzhou, in eastern Zhejiang province, removed its home-purchase restrictions last month, the National Business Daily reported, citing an unidentified executive with a property developer. The government won’t strictly examine how many homes a buyer owns, it said. Wenzhou joins cities including Jinan and Wuhan that have loosened curbs to prevent falling home prices from undermining their economies.

“Possible loosening makes property stocks’ valuations attractive,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai.

China’s central bank refrained from draining funds using repurchase agreements for the second time in a month as cash demand tightened before share sales. Five companies including Guangdong Taicheng Pharmaceutical Co. and Suzhou TA&A Ultra Clean Technology Co. will start to sell initial public offering shares tomorrow.

Default Concern

Citic Securities Co., China’s biggest listed brokerage, added 4 percent in Hong Kong. First-half net income rose 93 percent from a year earlier to 4.08 billion yuan on expanding businesses and rising financial-asset prices, the company said, citing preliminary data. China Cinda Asset Management Co., the nation’s biggest bad-loan manager, surged 4.6 percent.

Huatong Road & Bridge Group Co. may avoid a bond default tomorrow as the government seeks stability in financial markets by helping the borrower, according to Founder Securities Co.

The Shanxi-based builder may repay the 429.2 million yuan ($69.2 million) in principal and interest on the July 23 due date, according to Song Jinzhi, head of fixed-income investment at the brokerage. Huatong warned investors last week about a possible non-payment, saying that Chairman Wang Guorui was assisting authorities with an investigation.

To contact the reporters on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net; Weiyi Lim in Singapore at wlim26@bloomberg.net

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

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