China’s benchmark stock index rose for a sixth day as investors shifted funds to financial companies on improving earnings prospects from so-called defensive companies including producers of consumer staples.
Citic Securities Ltd., among the top 10 biggest losers on the Shanghai Composite Index this year, jumped 6.3 percent as share trading volumes on China’s exchanges surged. Huaxia Bank Co. gained 1.3 percent after forecasting higher profit. Liquor maker Kweichow Moutai Co. and Yunnan Baiyao Group Co., a producer of traditional medicines, slid for a fourth day.
“Abundant liquidity globally and a more optimistic outlook for the economy and corporate profits will push stocks higher,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. “Risks are rising for small caps with high valuations such as consumer and pharmaceutical stocks, as money keeps flowing to cheaper, cyclical big-cap shares.”
The Shanghai Composite added 18.28, or 0.6 percent, to 2,879.64 at the 3 p.m. close, the highest close since April 28, even as about five stocks fell for each that gained on the index. The CSI 300 Index rose 0.2 percent to 3,224.14. A gauge of small and medium-sized companies slid 3.1 percent in Shenzhen today, the most since Aug. 10.
The Shanghai gauge has rebounded 22 percent from the 2010 low on July 5, surpassing the threshold some investors consider the beginning of a bull market, on signs that economic growth will remain resilient. The measure is still down 12 percent this year as government efforts to cool the economy and avert asset bubbles helped drag the gauge down 27 percent in the first half.
A gauge tracking financial stocks on the CSI 300 advanced 1 percent today, paring its annual loss to 20 percent.
Citic Securities, China’s biggest listed brokerage, gained 6.3 percent to 13.65 yuan, the highest close since June 23 and trimming its decline in 2010 to 36 percent. Haitong Securities Co., the worst performer on the Shanghai Composite this year with a 44 percent loss, rose 3.8 percent to 10.68 yuan. China Merchants Securities Co. added 2.6 percent to 23.14 yuan.
Investors traded an average 25.1 billion shares a day on China’s two exchanges since markets reopened on Oct. 8 following a weeklong holiday. That compares with the daily average of 14.3 billion shares this year, according to data compiled by Bloomberg.
Royal Bank of Scotland Group Plc turned bullish on China’s stocks, boosting allocations to “overweight” from “underweight.” Relative valuations and liquidity conditions have become more attractive, Emil Wolter, the Singapore-based head of Asian regional strategy at RBS said in a note to clients.
Huaxia Bank, partly owned by Deutsche Bank AG, advanced 1.3 percent to 12.03 yuan after saying nine-month net income may increase more than 50 percent from a year earlier.
Other lenders also advanced. Industrial & Commercial Bank of China Ltd., the nation’s biggest listed lender, rose 3.6 percent to 4.38 yuan, the highest since May 26. China Construction Bank Co., the second largest, added 2.1 percent to 4.92 yuan.
Banking stocks are valued at 10.8 times estimated earnings for 2010, representing a 35 percent discount to other large-capitalization stocks such as energy companies, analysts led by Zhu Yan at Citic Securities wrote in a report today. Banks may report a 31 percent earnings increase for the first three quarters, according to the report.
China’s stocks are in a “solid bull market” and the nation’s indexes may rise 20 percent in the next six months, according to Robert Lutts, president and chief investment officer of Cabot Money Management.
“I like growth in the economy, I like valuations and I think profitability will be very strong,” Lutts, based in Salem, Massachusetts, wrote in e-mailed comments. “I now have a large weighting in China.”
Gauges of consumer staple and health-care stocks, two of the three biggest gainers on the CSI 300 this year, slumped more than 2.6 percent today.
Moutai, China’s biggest producer of baijiu liquor by market value, slid 1.6 percent to 158.44 yuan, capping a four-day, 8.7 percent plunge since the stock closed at a 10-month high on Oct. 8. Wuliangye Yibin Co., the second biggest, lost 3.8 percent to 31.89 yuan.
“China’s domestic consumption has shown some signs of slowing,” Nicholas Yeo, head of China and Hong Kong equities at Aberdeen Asset Management, said in a conference call today.
Among pharmaceuticals, Yunnan Baiyao dropped 3.1 percent to 64.10 yuan, paring its advance this year to 38 percent. Tianjin Tasly Pharmaceutical Co. slid 2 percent to 33.66 yuan. The stock closed at a record high last week after surging 63 percent in 2010.
China’s small-cap stocks, comprising mainly technology, consumer and health-care companies, have outperformed big-cap shares over the past year after the government drafted plans to bolster emerging industries such as bio-pharmaceuticals.
The nation’s stock rally may falter as the Shanghai Composite faces “risk” at the 3,000-level, according to Chart Partners Group Ltd.
“Looking forward over a medium-term to long-term horizon, China must break above and stay above 3,000 in order to turn the macro cycle bullish,” said Thomas Schroeder, managing director at Chart Partners in Bangkok. “Otherwise this rally is simply a range move that would fail under 3,000.”