China Stocks Rise on Stimulus Prospects After Manufacturing Data

China’s Stocks Reverse Earlier Gains on Manufacturing Concerns
The Shanghai Composite has fallen 14 percent from this year’s high on March 2 amid concern the economic slowdown is worsening. Photographer: Qilai Shen/Bloomberg

Chinese stocks rose, led by material producers, on speculation the U.S. and China will increase economic stimulus after a report from the Asian nation showed manufacturing may be contracting at a faster pace this month.

Zijin Mining Group Co. and Jiangxi Copper Co., the nation’s biggest gold and copper producers, led a rally for metal stocks after minutes from a U.S. Federal Reserve meeting showed many policy makers favored more monetary easing. People’s Bank of China Governor Zhou Xiaochuan said adjustments to interest rates and banks’ reserve requirements are still possible.

“The Fed’s favoring of easing is definitely a boost to shares today,” said Zhang Gang, a strategist at Central China Securities Holdings Co. in Shanghai. “Investors hope this may stimulate the global economy like the last time U.S. had quantitative easing. Governor Zhou’s talk of policy easing also boosted optimism.”

The Shanghai Composite Index gained 0.3 percent to 2,113.07 at the close. The CSI 300 Index advanced 0.3 percent to 2,302.20. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong rose 1.6 percent. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, advanced 0.4 percent in New York.

The Shanghai Composite has fallen 14 percent from this year’s high on March 2 amid concern the economic slowdown is worsening. China’s export growth collapsed to 1 percent in July from a year earlier after an 11.3 percent gain in June, while industrial production and lending missed economists’ forecasts, data released earlier this month showed.

Flash PMI

The preliminary reading of 47.8 for a purchasing managers’ index released by HSBC Holdings Plc and Markit Economics called the flash PMI compares with a final 49.3 for July. A number below 50 indicates contraction. If confirmed, it would be the weakest level since November and extend to 10 months the longest run of readings below the expansion-contraction dividing line of 50 in the index’s eight-year history. The government’s own monthly index, due to be released on Sept. 1, had a July reading of 50.1, the weakest in eight months.

The data signal more monetary and fiscal stimulus may be needed to secure a second-half rebound in economic growth. Policy makers lowered interest rates in June and July after two reductions in reserve-requirement ratios for lenders this year as the economy expanded at the slowest pace since 2009.

“Use of either tool can’t be ruled out,” PBOC’s Zhou said in Beijing when asked whether the recent use of reverse-repurchase transactions means the central bank will make less use of reserve-ratio and interest-rate tools.

Fed Outlook

A gauge of material producers in the CSI 300 climbed 1.7 percent, the most among the 10 industry groups. Jiangxi Copper rose 2 percent to 21.59 yuan. Aluminium Corp of China Ltd. gained 1.2 percent to 5.90 yuan.

Zijin Mining, the biggest Chinese gold producer, rose 2.4 percent to 3.92 yuan. Shandong Mining gained 3.9 percent to 36.54 yuan. Gold futures for December delivery reached $1,655.90 an ounce on the Comex, the highest for a most-active contract since May 2.

The MSCI Asia Pacific Index gained 1.1 percent after minutes from the Fed’s last gathering released yesterday showed that “many members” believed more monetary accommodation would be needed fairly soon unless the pace of the economic recovery picks up.

In Beijing today, Fed Bank of Chicago President Charles Evans urged easier monetary policy around the world, including in China, to guard against economic shocks, broadening his call for more stimulus in the U.S.

“I don’t need to see any more data to know that I think we should have more accommodation,” Evans said to reporters, referring to the U.S. “I certainly would applaud anybody who takes action in order to strengthen their economies” around the world, including China, he said.

Rare Earth

Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., China’s biggest producer of rare earth, advanced 2.4 percent to 37.61 yuan. The State Bureau of Material Reserve under the National Development and Reform Commission may start stockpiles of 18,000 tons of light rare earths early next month, the Economic Information Daily reported, citing an unidentified person.

Haitong Securities Co., the country’s second-largest listed brokerage by market value, advanced 0.7 percent to 8.58 yuan. Hong Yuan Securities Co. increased 1.6 percent to 16.86 yuan.

China may no longer require approvals to start asset management businesses, China Securities Regulatory Commission said in a statement yesterday. Asset management units may be allowed to trade on margin and short sell, as well as invest in banks’ wealth management products, it said.

Property Stocks

A gauge of property stocks in the Shanghai Composite slipped 0.2 percent, the only industry group to decline. Poly Real Estate Group Co., the second-biggest developer, dropped 0.8 percent to 9.41 yuan after first-half net income slid 10.2 percent to 2.51 billion yuan. China Vanke Co., the largest developer, retreated 0.4 percent to 8.11 yuan.

Vice Premier Li Keqiang called for local governments to continue curbs on property speculation, the official Xinhua News Agency quoted him as saying yesterday. The construction of low-cost housing must continue to curb excessively high home prices, Li said.

The Shanghai Composite is valued at 9.5 times estimated profit, compared with the 17.5 average since Bloomberg began compiling the data in 2006. Thirty-day volatility on the Shanghai gauge was at 12.2 yesterday, compared with this year’s average of 18.6. About 5.9 billion shares changed hands in the gauge, 26.5 percent lower than the average volume this year.