China’s stocks advanced, driving the benchmark index to a two-month high, as a cash crunch eased and investors bought shares of companies whose earnings benefit from rising prices.
Liquor maker Kweichow Moutai Co. led an advance for consumer-staples producers after January inflation unexpectedly rebounded to 4.5 percent during the Chinese new year holiday on accelerating food prices. Ledman Optoelectronic Co. jumped 3.4 percent after benchmark money-market rates fell, signaling improving liquidity. China Vanke Co. paced a two-day rally for property developers. Jiangxi Copper Co. slid 2 percent as Greek leaders fell short of a full agreement on a rescue plan.
“The Spring Festival effect boosted January inflation and it’s a one-off rebound,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. “Prices will come down in the following months. But the central bank will be reluctant to relax monetary policies since the inflation rate is still perceived as high.”
The Shanghai Composite Index rose 2.06 points, or 0.1 percent, to 2,349.59 at the close, the highest since Dec. 2. About two stocks advanced for every one that declined. The CSI 300 Index gained less than 0.1 percent to 2,529.23. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 1.6 percent yesterday in New York, led by solar companies.
The Shanghai index has rebounded 6.8 percent this year on speculation the central bank will further cut lenders’ reserve-requirement ratios to spur growth. It announced a cut in reserve ratios on Nov. 30, the first reduction since 2008, after boosting them and interest rates last year to cool inflation that accelerated to its fastest pace in three years in July.
Reserve-ratio cuts may be postponed after inflation jumped last month, Market News International reported, citing unidentified government officials and economists. Inflation pressure remains strong because Middle East tensions may boost oil prices, said a source familiar with discussions within the People’s Bank of China.
The January inflation rate compared with the median 4 percent estimate in a Bloomberg News survey of 33 economists and 4.1 percent in December. Producer-price inflation eased to 0.7 percent from a year earlier after a 1.7 percent gain in December, the statistics bureau said today. The Chinese holiday was from Jan. 22 to Jan. 28.
A measure of consumer staples stocks in the CSI 300 advanced 0.4 percent. Kweichow Moutai, China’s biggest producer of baijiu liquor by market value, rose 1.3 percent to 190.75 yuan. Zhejiang Beingmate Scientific-Industrial-Trade Share Co., a producer of milk powder for babies, climbed 2.4 percent to 24.11 yuan.
“Most investors and traders know January inflation readings were significantly distorted by the Lunar New Year holiday,” Lu Ting, a Hong Kong-based economist at Bank of America Corp., wrote in a report today. Inflation may slow to below 4 percent this month, Wang Tao, an economist at UBS AG, said in an interview with Bloomberg Television today.
China’s exports probably fell 1.4 percent from a year earlier in January, according to the median estimate of 31 economist surveyed by Bloomberg News. Goldman Sachs Group Inc. expected a drop of 3 percent. The figure is due tomorrow.
Exports probably declined in January after a slowdown in foreign trade in the second half of last year, Commerce Minister Chen Deming said. Overseas shipments “cannot make us optimistic” and are “expected to have negative growth due to Chinese New Year and other factors,” Chen said today in a written response to questions from Bloomberg News.
The ChiNext index of start-up companies advanced 0.8 percent to a one-month high in Shenzhen. Ledman Optoelectronic, a producer of light-emitting diode products, gained 3.4 percent to 16.36 yuan. Qingdao Eastsoft Communication Technology Co. climbed 2.7 percent to 56.09 yuan.
The seven-day repurchase rate, a gauge of funding availability in the financial system, fell 4.7 basis points to 3.67 percent at 3:08 p.m. in Shanghai for its first decline in four days, according to a weighted average compiled by the National Interbank Funding Center. A trader said the central bank will skip bill sales today.
A gauge of property stocks in the Shanghai Composite rallied for a second day, gaining 1 percent, after the government pledged to support first-time homebuyers and said it will increase support for building of affordable housing.
Vanke, the biggest developer, added 1.5 percent to 7.70 yuan. Poly Real Estate Group Co., the second largest, rose 1.3 percent to 10.56 yuan. Anhui Conch Cement Co., the biggest cement producer, advanced 1.5 percent to 17.40 yuan. The company’s Hong Kong-traded stock was also raised to “hold” at Deutsche Bank AG.
“Policy makers are now beginning the process of selectively easing up property tightening measures,” Jason Todd, global head of equity strategy at Religare Capital Markets Ltd., said in a report. “This primarily relates to mortgage lending and first time home buyer support. For now, we do not expect policy change at a national level.”
Government investment in low-income housing will rise by 20 billion yuan this year, 21st Century Business Herald reported, citing unidentified local officials. The central government budgeted 400 billion yuan in investment this year, it said.
Greek Finance Minister Evangelos Venizelos told reporters in Athens there were still “issues outstanding that must be resolved” before European finance ministers meet in Brussels today. He spoke after a meeting with Prime Minister Lucas Papademos and the so-called troika of lenders that ended just before 6 a.m. local time.
Greek Pension Cut
The meeting with lenders, representing the European Commission, the European Central Bank and the International Monetary Fund, took place after leaders of the three parties supporting the government met Papademos and failed to resolve a dispute over pension cuts.
Jiangxi Copper, China’s biggest producer of the metal, lost 2 percent to 26.74 yuan. Aluminum Corp. of China Ltd., the listed unit of nation’s biggest maker of the lightweight metal, fell 0.7 percent to 7.19 yuan.
“The twist on the European debt crisis will have a negative impact on investors’ appetite for risk assets,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai.