China’s Stocks Gain, Erasing Weekly Drop, as Developers Advance

China’s stocks rebounded from a four-month low, erasing a weekly decline by the benchmark index, as investors speculated inflation may ease in coming months, reducing the need for further tightening measures.

Poly Real Estate Group Co. led gains by developers after Fan Gang, former central bank adviser, said inflation will probably peak at the end of June. Jiangling Motors Corp. paced an advance by automakers after increasing vehicle sales last month. Shanghai Chaori Solar Energy Science & Technology Co. rose after the China Securities Journal said the government plans to double solar-power generation capacity.

“There’s limited room for declines now as earnings are still growing, though possibly at a slower pace,” said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai. “There’s some speculation that inflation might peak in the second half of the year and that’ll help improve the market sentiment.”

The Shanghai Composite Index rose 22.8, or 0.8 percent, to 2,728.02 at the 3 p.m. close, climbing from the lowest level since Jan. 25. The gauge has risen 0.7 percent this week, the biggest gain in about two months. The CSI 300 Index added 1 percent to 2,986.35 today. China’s markets will be closed on June 6 for a holiday.

The Shanghai Composite has plunged 11 percent from this year’s high on April 18 on concern growth in the world’s second-largest economy is slowing after the central bank raised the reserve-requirement ratio for banks 11 times and boosted interest rates four times to cool inflation. A drop of more than 10 percent signals to some investors that the market has entered a correction. The stock gauge has fallen 2.9 percent this year, extending 2010’s 14 percent decline.

Equity Valuations

Stocks on the Shanghai Composite trade at about 15.3 times reported earnings, compared with a peak of about 52 times in 2007, according to data compiled by Bloomberg. The gauge’s relative strength index was 29.3 yesterday, below the 30 point level that indicates an asset may rebound in value.

A gauge tracking developers in the Shanghai Composite rose 0.9 percent from a September low. Poly Real Estate increased 1.6 percent to 9.19 yuan. China Vanke Co., the nation’s largest developer, added 0.9 percent to 7.79 yuan.

Commodity prices have stabilized as tighter monetary policies over the past eight months have absorbed excess liquidity, the China Daily cited Fan Gang as saying in Hong Kong.

China’s stock market won’t stabilize until inflation peaks, Jing Ulrich, Hong Kong-based chairman of global markets, China at JPMorgan Chase & Co., said at a briefing in Beijing yesterday. Government policies may be more accommodating in the fourth quarter after economic growth moderates in the previous quarter, Ulrich said.

New High

The central bank may raise interest rates ahead of the holiday on June 6 because consumer prices are expected to rise to a new high in May, the Shanghai Daily said May 31, citing UBS AG.

China needs to maintain stable long-term economic growth of 8 percent to 9 percent to prevent the buildup of bad loans, said Li Yang, a former adviser to the nation’s central bank.

“We must have stable GDP, something like 8 percent or 9 percent,” Li, also vice president of the Chinese Academy of Social Sciences, said in a speech delivered at Tsinghua University in Beijing late yesterday. “Once the economy fluctuates, there will be non-performing loans.”

Jiangling Motors, the commercial vehicle partner with Ford Motor Co. gained 1.1 percent to 25.60 yuan after saying it sold 16,765 vehicles in May, a 6.6 percent increase from a year ago.

Other automakers also rose. SAIC Motor Corp. climbed 2.7 percent, the most since April 29, to 17.44 yuan. Beiqi Foton Motor Co. added 1 percent to 8.78 yuan.

Auto Sales

China’s passenger car sales rose 25 percent to 885,800 units in May from a year earlier, while they fell 11 percent from April, the China Securities Journal reported today, citing the China Automotive Technology & Research Center.

Total vehicle sales gained 30 percent last month to 1.19 million units from a year earlier and fell 14 percent from April, the newspaper cited the center as saying.

Chaori Solar Energy advanced 1.4 percent to 18.65 yuan. Zhejiang Sunflower Light Energy Science & Technology Co. climbed 2.6 percent to 21.32 yuan.

China plans to double solar-power generation capacity to 10 gigawatts by the end of 2015, the China Securities Journal reported today, citing an unidentified person.

An industry development plan for the five years through 2015 has been submitted to the State Council for approval, the Beijing-based newspaper reported.

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