China Stocks Jump Most in Three Weeks

China Stocks Rise for First Time in 3 Days
Investors monitor stock prices at a securities exchange firm on 2010's last day of trading, in Shanghai, China. Photographer: Qilai Shen/Bloomberg

China’s stocks jumped the most in three weeks on speculation the government will announce measures to bolster the equities market after the Shanghai Composite Index fell below the 2,000 level yesterday.

The Shanghai Composite rose 2.6 percent to 2,056.32 at the close. It pared a rally of as much as 3.2 percent after a person with direct knowledge of the situation said the China Securities Regulatory Commission will hold a regular press briefing at 4 p.m. and has no plans to announce a halt on initial public offerings. The CSI 300 Index added 3.1 percent to 2,251.72.

China’s stocks surged in the afternoon after the Shanghai Securities News, operated by the Xinhua News Agency, said there was speculation the CSRC would announce 10 measures to boost equities while Zheshang Securities Co. said there was market talk the regulator might suspend IPOs. Citic Securities Co. and China Shenhua Energy Co. led a rally for brokerages and energy producers. China’s markets will be shut next week for holidays.

“Stocks are up because of the speculation that there’s an announcement about IPO reform later at 4 p.m.,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Even if it is true, it will be a short-term rally because the main issue is economic growth. After reaching new lows yesterday, investors are also finding excuses to buy today and make quick profit before the last day of trading tomorrow.”

The Shanghai index briefly fell below the 2,000 level for the first time in three years yesterday, when trading volume plunged 35 percent from the daily average this year. China’s stocks have fallen because of “low” investor confidence, share oversupply and concerns about corporate governance, Dennis Lim, who helps manage $48 billion of emerging-market funds at Templeton Asset Management Ltd., said yesterday.

IPO Sales

“There’s speculation that the securities regulator may do something to reform IPO sales and suspend IPO sales for a while,” said Wang Weijun, a strategist at Zheshang Securities in Shanghai.

After the market close, the China Securities Journal reported the CSRC issued information security rules for the securities and futures industry. There’s definitely no halting of IPOs, the 21st Century Business Herald reported on its website, citing an unidentified official from the CSRC.

So far this year, the CSRC has expedited approvals of foreign investors, cut stock-trading fees by 25 percent and allowed individual investors to advise on pricing IPO shares as part of efforts to boost the market.

Citic Securities, China’s biggest listed brokerage, jumped 4.9 percent to 11.54 yuan. Haitong Securities Co., the second largest, climbed 6.3 percent to 9.42 yuan. GF Securities Co., the third biggest, gained 6.4 percent to 13.40 yuan.

Cyclicals Rebound

Investors should increase their stock holdings as market-boosting measures may be introduced should the Shanghai index stay below 2,000, Ling Peng, a strategist at Shenyin & Wanguo Securities Co., said in a note today. The index may end higher in October, he said, recommending brokerage, insurance and cyclical stocks.

Anhui Conch Cement Co., the nation’s biggest cement maker, gained 3.2 percent to 15.71 yuan. Zoomlion Heavy Industry Science and Technology Co., China’s second-biggest maker of construction equipment, added 4 percent to 8.43 yuan. China Shenhua, the nation’s largest coal producer, rallied 3.7 percent to 22.51 yuan.

The time for a rebound in stocks is coming as the September-to-November period is the traditional peak season for production, Zhang Yidong, an analyst at Industrial Securities, wrote in a report dated yesterday. Industrial Securities was ranked No. 1 for the equity strategy research by the New Fortune magazine last year.

Smallcap Rally

Downstream demand is improving as cement, steel, iron ore and coal prices have started to stabilize and rebound, and liquidity may improve next month, according to the report.

The People’s Bank of China added a record net 365 billion yuan ($57.9 billion) to the financial system this week as cash demand rises before a weeklong holiday starting Oct. 1.

Beijing Toread Outdoor Products Co. rose 5 percent to 17.16 yuan, pacing an advance for companies in the smallcap ChiNext index, after the China Securities Journal said major stockholders offered to extend the period for when they must hold shares to ease oversupply.

Major shareholders of 32 ChiNext companies have offered to extend the lockups on the holdings, the China Securities Journal reported today, citing statements. The extension covers 2.78 billion shares worth about 38.4 billion yuan and major holders either promised not to cut stake this year or offered to extend the lockups, it said.

The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong added 1.3 percent today. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, fell 0.6 percent in New York yesterday.

Poor Sentiment

The Shanghai Composite has lost 7.6 percent this quarter, the most in a year, and is the worst performer among global markets after Cyprus and Mongolia. It’s valued at 9.5 times estimated earnings, compared with the average of 17.9 since Bloomberg began compiling the weekly data in 2006.

China’s dispute with Japan over contested islands in the East China Sea, the effect of Europe’s debt crisis on China exports and policy uncertainty before a change of leadership later this year have also hurt investor sentiment. A report today showed Chinese industrial companies’ profits dropped for a fifth month in August.

Net income for Chinese industrial companies fell 6.2 percent from a year earlier to 381.2 billion yuan, the National Bureau of Statistics said today in Beijing. That compares with a 5.4 percent decline in July and a 1.7 percent slide in June.

Today’s report may increase pressure on Premier Wen Jiabao to step up easing measures as risks grow that annual expansion in the world’s second-biggest economy will be the weakest in 22 years. The People’s Bank of China has cut rates twice since early June and lowered lenders’ reserve requirement ratios three times from last November.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE