China’s Stocks Climb Most in Three Weeks as Oil Refiners Rally

China’s stocks rose, with the benchmark index gaining the most in three weeks, as steelmakers and oil refiners jumped amid speculation more state-owned companies will announce share buybacks.

Baoshan Iron & Steel Co. climbed 10 percent after saying it plans to spend as much as 5 billion yuan ($787 million) purchasing its own shares. China Petroleum & Chemical Corp. surged 5.4 percent, the most since December 2009, and PetroChina Co. rallied 2.1 percent. The two refiners accounted for about 40 percent of today’s gain on the Shanghai Composite Index.

“More companies may follow Baoshan to buy back their shares as stock prices are so low,” Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai.

The Shanghai Composite Index rose 0.9 percent to 2,073.15 at the close, after falling yesterday to the lowest level since Feb. 2, 2009. The CSI 300 Index advanced 0.5 percent to 2,238.41. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong retreated 0.3 percent.

Baoshan Steel rallied 10 percent to 4.48 yuan after closing at its lowest level since 2006 yesterday. The company will buy back the shares at as much as 5 yuan a share, Baoshan said. The company reported second-quarter net income that was boosted by the sale of two unprofitable units.

Other steelmakers advanced. Wuhan Iron & Steel Co. rose 2.4 percent to 2.55 yuan. Angang Steel Co. climbed 2 percent to 3.62 yuan.

‘Obligation to Buy’

Publicly traded companies, especially those whose stock prices are below their book values, have an obligation to buy back their own shares, the China Securities Journal reported Aug. 2, citing an unidentified official at the China Securities Regulatory Commission.

China Petroleum, also known as Sinopec, rallied 5.4 percent to 6.23 yuan. PetroChina added 2.1 percent to 8.95 yuan after closing at its lowest level since November 2007 yesterday. PetroChina’s spokesman Mao Zefeng and Sinopec’s spokesman Lv Dapeng, both based in Beijing, couldn’t be reached after three calls to each of their office and mobile phones.

“There’s speculation that the parents of Sinopec and PetroChina may buy back shares of the two companies,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “The state share buy-back will boost sentiment in the short term and keep the index stabilizing at the current level.”

The Shanghai Composite slumped the most in six weeks yesterday after the statistics bureau said industrial companies’ profits fell by the most this year in July. The equity measure plunged 6.8 percent this quarter through yesterday, the worst performer among the world’s biggest stock indexes tracked by Bloomberg.

Stock Valuations

The Shanghai Composite is valued at 9.4 times estimated earnings for this year, the lowest level since January. The index has an average multiple of 17.4 since Bloomberg began compiling the data in 2006. The 14-day relative strength measure for the Shanghai Composite, measuring how rapidly prices have advanced or dropped during a specified time period, was at 29.2 yesterday. Readings below 30 are a buy signal to some traders.

Guangzhou Automobile Group Co. lost 0.8 percent to 6.19 yuan after saying first-half profit fell 14 percent.

A gauge tracking property stocks sank 0.6 percent, the only decline among the Shanghai Composite’s five industry groups and an eighth day of losses. said China may start a new property tax trial in early 2013.

Poly Real Estate, China’s second-largest developer by market value, retreated 1.9 percent to 9.24 yuan, its lowest close since March 29. China Vanke Co., the biggest, dropped 1 percent to 8 yuan.

Trade Volumes

Thirty-day volatility in the Shanghai Composite was at 12.4 today, compared with this year’s average of 17.2. About 5.4 billion shares changed hands in the gauge today, 31 percent lower than the daily average this year.

Chinese stocks fell for a third day in New York yesterday, led by state-owned companies, after industrial firms’ profits declined at a faster pace in July.

“Investors were looking for a recovery in earnings to take place in the second half, but they’re pushing that out one quarter or even two,” Colin Bell, director of Global Emerging Market Equities at Auerbach Grayson Co., said in a phone interview in New York. “There’s more uncertainty about the timing for a cyclical recovery, so expectations for a slight rebound in equities have been put off.”

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., slumped 1.5 percent to $33.51, extending its decline to a ninth day, the longest losing stretch since May.

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