Chinese Stocks Complete Biggest Monthly Gain Since 2012

July 31 (Bloomberg) --- China’s stocks rose, sending benchmark indexes to their largest monthly gain since December 2012, amid optimism government stimulus will boost economic growth.

Jiangxi Copper Co., the nation’s biggest producer of the metal, jumped 2.9 percent for a 15 percent gain this month. Poly Real Estate Group Co., the second-largest developer, added 2 percent, extending the July rally to 21 percent. Gauges of material and property stocks were the best performers in Shanghai this month, climbing 12 percent. Sinoma Energy Conservation Ltd. (603126) surged 44 percent on its first day of trading.

The Shanghai Composite Index (SHCOMP) rose 0.9 percent to 2,201.56 at the close, the highest level since Dec. 12. The measure rallied 7.5 percent this month amid signs of monetary easing, along with accelerated government spending and gains in manufacturing industries. A report tomorrow will probably show a factory gauge rose to an eight-month high in July, according to economists polled by Bloomberg.

“The manufacturing data should be positive tomorrow as the economy improves,” said Zhang Gang, a strategist at Central China Securities in Shanghai. “Cyclical stocks got a boost.”

The CSI 300 Index advanced 1.2 percent, led by consumer staples producers, for a July gain of 8.6 percent. The Hang Seng China Enterprises Index, or H-shares gauge, added 0.2 percent, extending a rebound since a March low to 21 percent. The Bloomberg index of the most-traded Chinese shares in the U.S. fell 0.1 percent yesterday.

New Optimism

Trading volumes in the Shanghai index were 43 percent above the 30-day average, according to data compiled by Bloomberg. The stocks gauge trades at 8.1 times estimated 12-month earnings, the highest level this year.

As the economy slowed this year, Premier Li Keqiang enacted stimulus by bringing forward railway spending, cutting reserve requirements for some lenders and reducing taxes. Growth accelerated for the first time in three quarters in the April-June period, expanding 7.5 percent from a year earlier and matching Li’s target for 2014.

China’s central bank presided over a bigger-than-estimated surge in new credit in June, while local media reported the People’s Bank of China set up a 1 trillion yuan ($162 billion) lending facility with the China Development Bank to fund housing projects. Tomorrow’s manufacturing data will probably show the official Purchasing Managers’ Index climbed to 51.4 in July, the highest since November, according to the median estimate of economists surveyed.

“Optimism is in the air,” Jian Chang, China economist at Barclays Plc, wrote in a note today. “The optimism reflects upside data surprises and positive news in July.”

Property Stocks

A measure of property stocks in the Shanghai index rose 1 percent today. Poly Real Estate climbed 2 percent, while China Vanke Co., the biggest developer, added 2.8 percent. Property stocks have been boosted by signs that local governments such as Hangzhou to Wenzhou are removing home purchase restrictions as well as prospects for reform of the household registration system, known as hukou.

China will stop classifying its people as urban or rural residents as it relaxes an internal-passport system that limits migrant workers’ access to cheap social services when they move to the city. Rural people won’t have to give up rights to countryside land and collective undertakings to get city permits, the State Council said in a statement yesterday.

The “government statement is positive for speeding up China’s urbanization and maintaining healthy growth of the real estate sector,” Lu Ting, Bank of America’s head of Greater China economics in Hong Kong, said in a note.

Retailers Gain

Material stocks in the CSI 300 jumped 1.9 percent today, the second-best performer among 10 industry groups. Aluminum Corp. of China Ltd. rose 1.1 percent today, extending this month’s jump to 20 percent. Technology stocks were the only industry group to drop this month, losing 0.1 percent.

Chongqing Department Store climbed 2.5 percent to the highest level since May 16. Inner Mongolia Yili Industrial Group Co. advanced for a fourth day, adding 5 percent.

Sinoma Energy, Suzhou TA&A Ultra Clean Technology Co. and Guangdong Taicheng Pharmaceutical Co. all jumped by the maximum limit of 44 percent in their first day of trading in Shanghai and Shenzhen. Five more companies will start trading tomorrow.

PetroChina Co. fell 0.3 percent after Societe Generale SA cut its rating. The shares jumped 3.1 percent yesterday. The Communist Party’s probe into Zhou Yongkang, a former parent company head, “will unlock significant shareholder value” at PetroChina, which will deepen cost-cutting efforts after last year’s purge of senior executives, Jefferies Group LLC analysts said in a note yesterday.

Stock Connect

The Shanghai stock exchange and China Securities Depository and Clearing Co. will conduct a test for the stock connect plan with Hong Kong on Aug. 11, 21st Century Business Herald reported, without saying where it got the information.

Pressure is increasing on China to spell out its stance on its tax as the country moves closer to starting the exchange link with Hong Kong that will give foreigners unprecedented access to the $3.5 trillion stock market and boost the yuan’s role in global financial transactions. MSCI Inc., which kept mainland shares out of its global indexes in June, says the lack of clarity on tax policy is one of investors’ biggest concerns.

While the nation’s laws suggest foreign equity investors are subject to a 10 percent levy on capital gains, the government has never collected the tax, according to PricewaterhouseCoopers. Confusion over the policy since China’s quota system for foreigners began more than a decade ago has led to a mishmash of compliance, with some setting aside cash for the liability and others anticipating it won’t be implemented, according to HSBC Jintrust Fund Management.

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

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

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