China’s stocks rose, driving the benchmark index to its biggest gain in a month, on speculation the government will ease monetary policy and increase spending for infrastructure to stem the slowdown in the economy.
Sany Heavy Industry Co. and Zoomlion Heavy Industry Science & Technology Co. led an advance among machinery makers after the 21st Century Business Herald reported China may relax rules on lending to local government financing vehicles. China Life Insurance Co. and Ping An Insurance Group Co. gained more than 6 percent on a report that regulators will allow insurers to widen the scope of their investments. Huaneng Power International Inc. jumped to a one-month high on prospects falling coal prices will reduce the cost of generating power.
“Policy easing will go on throughout the year,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Liquidity is improving, which will help boost valuations.”
The Shanghai Composite Index gained 29.13 points, or 1.3 percent, to 2,318.92 at the close, the most since May 17. The 30-day volatility was at 15.37, compared with this year’s average of 18.59. The CSI 300 Index advanced 1.6 percent to 2,580.64. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, rose 1.4 percent.
Expectations that the government will increase spending on infrastructure projects and ease monetary policies have pushed the Shanghai index up 5.4 percent this year. The central bank cut deposit and lending rates for the first time since 2008 last week and reduced the reserve-requirement ratio three times since November. Charlene Chu, Beijing-based senior director of financial institutions at Fitch Ratings, said in a Bloomberg Television interview that she expects more reserve-ratio cuts.
Companies in the index posted profit growth of 14 percent on average last year, compared with an increase of 38 percent in the previous year, according to data compiled by Bloomberg. Stocks in the Shanghai measure are valued at 10.1 times estimated earnings, compared with the five-year average of 17.8, Bloomberg weekly data showed.
Sany Heavy, the biggest machinery maker, gained 1.4 percent to 14.92 yuan. Zoomlion, the second-biggest maker of construction equipment, added 1.3 percent to 11.04 yuan. XCMG Construction Machinery Co., China’s biggest crane maker, climbed 1.4 percent to 14.91 yuan.
Banks may be allowed to increase the proportion of their outstanding capital that can be lent to railway and road construction projects, the 21st Century Business Herald reported today. Some local government financing vehicles may be allowed to borrow again “appropriately,” according to the newspaper.
China Life, the nation’s biggest insurer, jumped 7.2 percent to 17.88 yuan, after the China Securities Journal reported a plan by regulators to ease infrastructure investments.
Insurers’ Investment Scope
The government may also allow insurance companies to invest in stock index futures, bond futures and overseas depository receipts, the Shanghai Securities News reported yesterday, citing an unidentified person. These changes may boost insurers’ investment returns while meeting their requirements to maintain long-term asset allocations, said Xie Jiyong, an analyst at Capital Securities Corp. in Shanghai, in a phone interview today.
Ping An, the second largest, climbed 6.5 percent to 45.28 yuan. New China Life Insurance Co., the third biggest, surged by the 10 percent daily limit, to 34.49 yuan. Over the past week, UBS AG, Credit Suisse Group AG, Deutsche Bank AG and China International Capital Corp. have recommended investors buy insurers after the central bank cut interest rates.
SAIC Motor Co., China’s largest carmaker, gained 1.9 percent to 14.93 yuan. Great Wall Motor Co., China’s biggest pickup truck maker, rose 3.7 percent to 17.73 yuan. The Ministry of Finance announced trade-in subsidies for the replacement of some commercial vehicles, with as much as 18,000 yuan offered.
A measure of utility stocks in the CSI 300 advanced 2.9 percent today, the biggest gain among the 10 industry groups. Huaneng Power, the listed unit of China’s largest power group, jumped 5.7 percent to 6.26 yuan. Datang International Power Generation Co., a unit of China’s second-biggest electricity producer, surged 7.8 percent to 5.78 yuan. Huadian Power International Corp., the listed unit of China’s fourth-largest power producer, gained 7.3 percent to 3.82 yuan.
Chinese power producers rely on coal to generate three-quarters of the nation’s electricity. China’s benchmark price for power-station coal at the port of Qinhuangdao fell to the lowest in almost 20 months last week as stockpiles surged to the highest level since November 2008, according to data from the China Coal Transport and Distribution Association.
Sanford C. Bernstein cut the 2012 average price forecast for coal by 2 percent to 735 yuan a metric and the 2013 price estimate by 1.5 percent to 665 yuan a ton, citing rising coal production, higher inventories, “weak” power consumption, lack of fiscal stimulus and cheaper imports.