China’s Stocks Rise as Inflation Outlook Spurs Gains for Gold

China’s stocks rose to a three-month high, led by gold and coal producers, on speculation resource companies will benefit as the nation’s economy slows and inflation accelerates.

China Shenhua Energy Co. led gains among coal producers on speculation the nation’s biggest producer of the fuel will receive an asset injection from its parent company to become more competitive. Shandong Gold Mining Co. climbed to the highest since December as bullion prices rose. Industrial & Commercial Bank of China Ltd. paced gains for banks after Central Huijin Investment Co., a state investment company that controls the nation’s largest lenders, announced a bond sale.

“Inflationary expectations are usually a catalyst for resource stocks, which could be a haven for money seeking protection against higher consumer prices,” said Zheng Tuo, president of Shanghai Good Hope Equity Investment Management Co. “It’s not time for the government to ease its monetary policies now because there’s uncertainty over consumer prices.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, rose 21.7, or 0.8 percent, to 2,687.98 as of the 3 p.m. close, the highest since May 14. The CSI 300 Index added 0.6 percent to 2,955.40, led by energy producers.

The Shanghai gauge has rebounded 14 percent from this year’s low on July 5 as investors speculated the government would ease property curbs and allow more lending to counter slowing growth. That’s pared this year’s loss to 18 percent, after the government increased down-payment requirements on home sales and ordered banks to set aside more deposits as reserves.

Inflation Outlook

Rising vegetable prices are increasing inflationary pressure and reducing the likelihood the government will ease monetary policy in the near term, Jun Ma, chief economist for Greater China at Deutsche Bank AG, said in e-mailed comments.

China’s State Council, or cabinet, urged local governments to increase vegetable supplies to stabilize prices, according to a statement on the government’s website yesterday. The nation has seen large price swings in recent years and this year’s floods have disrupted supplies, according to the statement.

China’s consumer prices rose 3.3 percent in July from a year earlier, the highest in 21 months, as floods destroyed crops, increasing food costs, according to the statistics bureau

Consumer prices may rise above 4 percent this month, said Ma, ranked first in Institutional Investor’s 2010 All-China poll The government’s full-year inflation target is 3 percent.

“This policy implication will continue to cap the equity market’s performance for a while,” Ma said in the e-mail.

Gold Producers Rise

Shandong Gold, the country’s third-largest bullion producer, added 2.5 percent to 43.73 yuan. Zhongjin Gold Corp., the second largest, rose 0.8 percent to 35.63 yuan.

Gold, trading near the highest price in seven weeks, may climb for a second day as investors seek to preserve their wealth amid concern that the global economic recovery may falter.

A measure of energy stocks in the CSI 300 rose 3.1 percent today, the most among the 10 industry groups. Shenhua, the nation’s largest coal producer, climbed 5.4 percent to 25.71 yuan, the highest since May 5.

“There’s speculation that Shenhua may get assets injected by its parent,” said Li Dagang, a coal analyst at Essence Securities Co. in Shanghai. “The company’s recent management change also sparked market speculation that the asset injection may come soon.”

Three vice presidents were removed from their posts, Shenhua said in a statement last week. Huang Qing, Shenhua’s board secretary, and Cheng Zhong, director of the news office at Shenhua Group Corp., the parent company, couldn’t be reached for a comment in their offices.

New Assets

Other coal producers may follow with asset injections to expand as the government forces industrial mergers to reduce overcapacity. China Coal Energy Co., the nation’s second largest, rose 2.9 percent to 10.26 yuan. Datong Coal Industry Co., the third biggest, gained 2.1 percent to 17.22 yuan.

ICBC paced gains for banks, rising 0.7 percent to 4.18 yuan, after Huijin said it will sell 187.5 billion yuan on the nation’s inter-bank market. China Construction Bank Corp. climbed 0.8 percent to 4.82 yuan. Huijin owns stake in both banks. Almost 110 billion yuan will be channeled to state-owned commercial banks to help the lenders replenish capital and fund expansion, the China Daily newspaper reported Aug. 5.

A gauge of property stocks slid 0.8 percent today, the only group to decline in the Shanghai Composite, after the Oriental Morning Post reported Shanghai’s land administration may raise the cost of owning property.

Developers Decline

China Vanke Co., the nation’s biggest listed property developer, dropped 2.5 percent to 9.24 yuan. Poly Real Estate Group Co., the second largest, lost 2.2 percent to 12.87 yuan. Gemdale Corp., the fourth largest, slid 0.9 percent to 6.84 yuan.

Shanghai may raise the cost of owning property to curb speculative demand, according to a report from the city’s Ministry of Land and Resources branch published in the Oriental Morning Post. The government may use a mix of financial, taxation and land measures, it said.

Measures to rein in property speculations this year include higher down-payment and mortgage rates for multiple-home buyers and instructions for lenders to halt third-home loans in areas with “excessive” price gains.

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