China’s Stocks Rebound, Led by Drugmakers, Consumer Companies

China’s stocks rebounded, capping a second week of gains for the benchmark index, as concerns about faster inflation and a property bubble spurred investors to switch to drugmakers and other so-called defensive industries.

Hualan Biological Engineering Inc. jumped 9.2 percent, leading a rally for health-care stocks. Wuliangye Yibin paced gains for consumer staples after Credit Suisse Group AG and JPMorgan Chase & Co. said the government’s next 5-year plan will focus on consumption. Property developers fell to the lowest in two months on speculation the government will intensify measures to curb real-estate prices including raising interest rates.

“Health-care companies are the ones that are least vulnerable to economic swings amid uncertainty over the economy,” said Zhang Ling, a fund manager at Shanghai River Fund Management Co. “Recent attacks by superbugs and bacteria have given another excuse to buy these shares.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, climbed 0.3 percent to 2,663.21 as of the 4 p.m. local time, erasing a drop of as much as 1 percent earlier. It rose 0.3 percent this week. The CSI 300 Index gained 0.2 percent to 2,932.55.

The Shanghai measure plunged 27 percent in the first half of the year as the government increased down-payment requirements on home sales and ordered banks to set aside more deposits as reserves to curb surging property prices. The gauge has rebounded 12 percent from this year’s low on July 5, paring this year’s loss to 19 percent, as investors speculated the government would ease lending curbs to spur growth.

Drugmakers Rally

A measure tracking 17 drugmakers on the CSI 300 Index surged 5.1 percent to a record high on speculation tick-borne disease and drug-resistant bacteria will increase demand for antibiotics and vaccines, Shanghai River Fund said. The gauge rallied 6.9 percent this week, the most among the 10 groups.

Hualan Biological Engineering Inc., which won a government order for its swine flu vaccine last year, jumped 9.2 percent to 54.49 yuan. Yunnan Baiyao Group Co. gained 6.5 percent to 64.55 yuan.

The Ministry of Health ordered medical institutions to be on alert against the drug-resistant bacteria NDM-1, Xinhua News Agency said yesterday, without saying where it obtained the information.

A measure of consumer staples rose 1.9 percent for the second-biggest gain in the CSI 300 Index. Wuliangye Yibin, a liquor maker, advanced 4 percent to 33.89 yuan. Chinese consumption stocks will be among the beneficiaries of the government’s next five-year plan for the economy, JPMorgan and Credit Suisse Group said this week.

JPMorgan’s chairwoman for China equities and commodities Jing Ulrich said she likes health-care stocks and consumer companies, including beverage makers, as the government “rebalances” its economy away from exports.

Trade Data

China posted a third straight trade surplus of more than $20 billion, highlighting friction with the U.S. over claims that the nation’s currency is undervalued.

Exports climbed 34.4 percent in August, while imports grew a more-than-forecast 35.2 percent. Economists’ median forecasts were for a 35 percent increase in exports and a 27.5 percent gain in inbound shipments. The $20.03 billion trade surplus, reported today by the customs bureau on its website, compared with $15.7 billion for the same month a year earlier.

Chinese data including consumer prices and industrial output will be reported tomorrow instead of the previously scheduled Sept. 13, the National Bureau of Statistics said in an e-mail yesterday. Central bank and statistics bureau press officials weren’t immediately available to comment last evening.

‘Huge Shock’

Investors are speculating that the central bank may raise the deposit rate to combat the erosion of savings by inflation, according to analyst Chen Jianbo. Inflation may have accelerated to 3.5 percent in August, based on the median estimate of 31 economists in a Bloomberg News survey, while the one-year deposit rate is 2.25 percent. In July, consumer prices rose 3.3 percent from a year earlier.

An increase in Chinese interest rates would be a “huge shock” and is a “low probability event,” according to Stephen Green, head of China research at Standard Chartered Plc.

Inflation probably rose as recent floods pushed up food prices, bolstering agricultural producers. Investors should buy producers of seed and fertilizer, farm machinery and companies involved in the shipping and storage of soft commodities as food prices go on a “multi-year” rally, according to Nomura Holdings Inc.

Shandong Dacheng Pesticide Co. jumped by the 10 percent maximum to 8.44 yuan. Shandong Huayang Technology Co., a pesticide maker, also rose 10 percent to 10.37 yuan.

Property Stocks

A gauge of property stocks in the Shanghai Composite dropped 1.3 percent, the lowest since July 16. China Vanke Co., the nation’s biggest listed property developer, fell 1.5 percent to 8.16 yuan. Poly Real Estate Group Co., the second largest, lost 1.7 percent to 11.13 yuan.

China’s property prices in 70 major cities climbed 9.3 percent, the statistics bureau’s newspaper, China Information News, reported today. That was less than the 10.3 percent increase in July and the median 10 percent estimate in a Bloomberg News survey of eight economists. Prices were unchanged from July.

“With property prices not falling, it has shattered the market expectations that the government would relax tightening measures,” said Larry Wan, Beijing-based head of investment at Union Life Asset Management Co., which oversees the equivalent of $2.21 billion. “The changing expectation will weigh on stocks.”

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