China’s Stocks Rise, Capping Biggest Quarterly Loss This Year

Chinese stocks rose, narrowing the benchmark index’s steepest quarterly loss this year, as a cash shortage in the banking system eased before next week’s holiday.

The Shanghai Composite Index climbed 1.5 percent to 2,086.17 at the close, capping a 2.9 percent gain for the week. The Shanghai index jumped 2.6 percent yesterday, the most in three weeks, on the prospect regulators would announce measures to spur equities including halting initial public offerings. After the market closed, the China Securities Regulatory Commission issued information-security rules. China’s money-market rate headed for the biggest weekly drop in almost a year.

“The market is a bit disappointed that there was no market-boosting measures from regulators,” said Wu Kan, fund manager at Dazhong Insurance Co. in Shanghai, which oversees $285 million. “But such expectations are still quite high as the market is at a very low level and a further drop can trigger bailouts. The market could fluctuate around current levels.”

The CSI 300 Index gained 1.8 percent to 2,293.11 today, led by consumer discretionary and material stocks. JiuGuiJiu Co. climbed 3.5 percent, pacing gains among liquor makers, after saying profit may jump. SAIC Motor Corp., China’s largest carmaker, advanced the most in four months after Daiwa Securities Group Inc. said falling industry inventories point to improving conditions. CSR Corp., the biggest train maker, gained 5.7 percent after the China Securities Journal said the railway ministry may restart tenders for train cars.

About 7.9 billion shares changed hands on the Shanghai gauge today, 2.6 percent higher than the daily average this year. The nation’s markets will be shut all of next week for the National Day and mid-autumn holidays. The Hang Seng China Enterprises Index added 0.8 percent today. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, rose 2.2 percent in New York yesterday.

IPO Speculation

China’s stocks surged in the afternoon yesterday 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.

The Shanghai Composite lost 6.3 percent this quarter, the most since the three months ended December, on concern a slowdown in the world’s second-largest economy is deepening. The gauge is valued at 9.7 times estimated earnings, compared with the average of 17.9 since Bloomberg began compiling the weekly data in 2006.

Easing Liquidity

China’s stocks will still rise even after prices fell to the lowest level since 2009 this week and analysts forecast a prolonged slump, Jim O’Neill, chairman of Goldman Sachs Asset Management, said at a press conference in Singapore today. The market is the most attractive among the four BRIC nations, he said, referring to Brazil, Russia, India and China.

The CSRC is studying lowering the tax burden for investing in securities, the China Securities Journal reported today, citing an unidentified official from the commission. The commission is also studying improving the pegging between listed companies’ dividends and refinancing, it said.

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.

The seven-day repurchase rate, which measures interbank funding availability, slid 163 basis points this week to 2.80 percent in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. That’s the biggest decline since the five-day period ended Oct. 15.

Yuan Gains

The People’s Bank of China injected a net 365 billion yuan ($58 billion) via reverse-repurchase operations and bill redemptions this week, the most since Bloomberg started compiling the data in 2008.

The yuan climbed to its strongest level since 1993 on speculation China will step up efforts to arrest a slowdown in the world’s second-largest economy. The People’s Bank of China strengthened the reference rate by 0.08 percent today, the most since Aug. 22, fixing it at 6.3410 per dollar.

China is scheduled to release its manufacturing purchasing managers index for this month on Oct. 1, with economists surveyed by Bloomberg News predicting a reading of 50, the level that divides contraction from expansion. It was at 49.2 in August. A similar private index from HSBC Holdings Plc and Markit Economics is due for release tomorrow.

The data may increase pressure on Premier Wen Jiabao to try to boost growth ahead of the transfer of power to a new Communist Party leadership that begins later this year.

Consumer Stocks

JiuGuiJiu jumped 3.5 percent to 54.70 yuan after the liquor maker said net income may jump between 400 percent and 447 percent in the first nine months this year. The stock has more than doubled this year.

Wuliangye Yibin Co., China’s second-biggest maker of white liquor by market value, added 1.8 percent to 33.90 yuan. Luzhou Laojiao Co., a sprits producer in southwest province of Sichuan, rose 2.7 percent to 38.50 yuan.

SAIC Motor gained 4.7 percent to 13.54 yuan, its biggest gain since May 28. FAW Car Co., which makes passenger cars in China with Volkswagen AG, increased 3.7 percent to 6.82 yuan. Jiangling Motors Corp., a partner of Ford Motor Co. rose 3.6 percent to 14.39 yuan.

Property Concern

Data from the China Automobile Dealers Association show August inventory levels fell to 1.65 months from 1.7 months in July, Jeff Chung, an analyst at Daiwa Securities wrote in a report dated yesterday. Inventory declines will reduce the downside risk and boost the second-half earnings outlook for automakers and dealers, according to the report.

CSR added 5.7 percent to 4.11 yuan. China CNR Corp., the nation’s second-biggest train maker, gained 3.4 percent to 3.64 yuan. The railway ministry may tender for 15,000 train cars for transporting goods and 1,200 carriages, the China Securities Journal reported, without saying where it got the information.

The risk of a rebound in property prices may help explain why the government is holding back from easing monetary policy to counter a deepening economic slowdown, according to an academic adviser to the central bank.

That concern is “a big restraint,” Chen Yulu, president of Beijing’s Renmin University, said in Beijing yesterday. Further cuts in reserve requirements or interest rates depend on how much external demand worsens, Chen said.

The government has refrained from easing since interest-rate cuts in June and July and a reduction in banks’ reserve requirements in May.

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