China’s stocks rose, sending the benchmark index to the highest in two months, after the central bank said it will keep a “moderately loose” monetary policy and steelmakers rallied on improving earnings prospects.
Anhui Conch Cement Co. led gains for cement makers after Citic Securities Co. raised its recommendation on the industry. Baoshan Iron & Steel Co., the listed unit of China’s second-biggest steelmaker climbed to a two-month high after spot prices jumped 6.9 percent from last week.
“Loosening tightening policies by the government is a big possibility in the second half,” said Larry Wan, Beijing-based head of investment at Union Life Asset Management Co., which oversees the equivalent of $2.21 billion. “The market is also turning optimistic about third- and fourth-quarter corporate earnings after some good numbers from interim results.”
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, climbed 14.45, or 0.6 percent, to 2,648.12 at the 3 p.m. close, the highest since May 28. The CSI 300 Index rose 0.5 percent to 2,877.58, led by material stocks.
The Shanghai index has rebounded 12 percent from this year’s low set on July 5 on expectations the government will ease property curbs and allow more lending to offset a slowdown in economic growth. Still, the measure is down 19 percent in 2010 on concern measures to control real-estate speculation and accelerating inflation will damp earnings.
Deputy central bank governor Ma Delun said the nation will maintain a moderately loose monetary policy in the second half of this year, the Financial News reported. China will also maintain the stability and continuity of monetary policy in the second half, Ma was cited as saying during a meeting in Shanghai.
“Sentiment, which is mainly behind the rally, is still strong, as corporate earnings are good and the government’s tightening policies have entered a quiet ‘observation’ period,” said Li Jun, a strategist at Central China Securities Holdings Co. in Shanghai.
Anhui Conch, China’s biggest cement maker, gained 3.3 percent to 20.22 yuan. Gansu Qilianshan Cement Group Co. surged 4.5 percent to 16.12 yuan. Huaxin Cement Co. added 1.1 percent to 18.65 yuan.
China’s cement industry was raised to “overweight” by Citic analyst Pan Jianping, who cited construction of low-income housing and government-backed industry mergers in a report today.
Baoshan Steel gained 2.2 percent to 6.55 yuan, its highest since May 24. Hebei Iron & Steel Co., the listed unit of China’s biggest steelmaker, rose 1.5 percent to 4.14 yuan. Angang Steel Co. added 3.2 percent to 8.80 yuan.
The average spot price for domestic hot-rolled steel sheet has climbed 6.9 percent since last week, data from Beijing Antaike Information Development Co. showed.
Standard Chartered Bank last week raised its recommendation on some Chinese steelmakers, citing a possible earnings recovery in the fourth quarter amid lower iron ore contract prices.
HSBC Private Bank’s Arjuna Mahendran, who predicted a decline in China’s stocks in January, said the country’s month-long equities rally may falter if the government isn’t able to boost the economy and contain inflation.
“It’s not going to be an easy ride to regain losses,” said Mahendran, the head of investment strategy for Asia in Singapore at HSBC Private Bank, a unit of Europe’s largest bank overseeing $460 billion globally. “We might see some short-term gains on the index, but there could be reversals until the picture of overall inflation is clearer.”
Chinese manufacturing data could jolt global markets by showing the first contraction in 17 months, according to analysts at Societe Generale SA and Westpac Banking Corp.
Seasonal factors mean there is a “tangible risk” the government-backed Purchasing Managers’ Index for July will slip below 50 for the first time since February 2009, said Glenn Maguire, chief Asia economist for Societe Generale in Hong Kong. A PMI released by HSBC Holdings Plc could also show a contraction, he said.
The official PMI index probably fell to 51.4 this month from 52.1 in June, according to a survey by Bloomberg News. The figure is due Aug. 1.
China’s stocks will be “choppy” over the next few months before rallying towards the end of the year and entering a bull market, according to Sandy Mehta, chief investment officer for Value Investment Principals.
The outlook for stocks is improving because U.S. economic growth will offset the slowdown in Europe, while China’s tightening concerns have eased, he said in a phone interview from Hong Kong. He recommended consumption and commodity stocks.
The following companies were among the most active in China’s markets. Stock symbols are in brackets after companies’ names.
Citichamp Dartong Co. (600067 CH) rose 5.2 percent to 10.93 yuan, the highest close since April 16. The developer plans to grant 36 executives options allowing them to buy 20 million company shares at 10.39 yuan, Citichamp said in a statement.
Guangdong Electric Power Development Co. (000539 CH) jumped 6.7 percent to 6.88 yuan, the biggest gain since April 2009. The electricity supplier said it plans to buy assets from its parent for 6.1 billion yuan ($900.2 million) through a private placement. Trading in the stock had been suspended since June 30.
Xi’an Aircraft International Corp. (000768 CH) surged the 10 percent daily cap to 11.66 yuan after the company said net income for the first nine months of this year may gain 950 percent to 1,000 percent from a year ago.