Most Chinese stocks rose, led by drugmakers and consumer-staples producers, on speculation their earnings will be most resilient to the economic slowdown.
Beijing Tongrentang Co. led a gauge of health-care companies to the second-biggest gain among the CSI 300 Index’s industry groups after China International Capital Corp. said drugmakers may rise in the fourth quarter amid stable earnings growth. ZTE Corp., China’s second-biggest phone-equipment maker, plunged 4.2 percent after the maker of telephone equipment said it probably posted a loss for the third quarter.
“Third-quarter earnings for Chinese-listed companies will be disappointing and they won’t improve unless there’s more policy loosening,” said Wei Wei, an analyst at West China Securities Co. “Defensive stocks are good options to hedge against risks. The index will trade in a range.”
The Shanghai Composite Index rose 0.1 point to 2,098.81 at the close. About seven stocks rose for every five that fell. The CSI 300 Index added 0.1 percent to 2,298.16. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong slipped 0.2 percent. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, climbed 1.1 percent in New York yesterday.
Chinese stocks fell yesterday as reports on producer prices and new yuan lending overshadowed data showing exports and money supply rising more than estimated in September.
The Shanghai Composite has rebounded 4.7 percent since reaching a three-year low on Sept. 26 on expectations regulators will introduce measures to stabilize the market ahead of a once-in-a-decade power transition of the Communist Party in November. The gauge is valued at 9.8 times estimated earnings, compared with the 17.9 average since Bloomberg began compiling the weekly data in 2006.
China’s National Bureau of Statistics is scheduled to release third-quarter gross domestic product data on Oct. 18. The economy probably expanded 7.4 percent, the slowest pace in more than three years, according to the median estimate of 43 analysts surveyed by Bloomberg. September data for industrial production, fixed-asset investment and retail sales are also due on the same day.
Billionaire investor George Soros said China’s growth is slowing because household spending as a percentage of the world’s second largest economy is waning.
“The growth model which has worked is running out of steam because consumption as a percentage of GDP has fallen” to one-third of output from half, Soros said at a National Association for Business Economics conference in New York yesterday. Central bankers “will have to modify the growth model and somehow allow the household sector to have a bigger share of the total.”
Measures of consumer staples and health-care stocks in the CSI 300 advanced 1.5 percent and 1.2 percent respectively today, the biggest two gainers among the 10 industry groups.
Beijing Tongrentang, which makes traditional Chinese medicine, added 1.7 percent to 17.98 yuan. Zhejiang Hisun Pharmaceutical Co. advanced 2.5 percent to 16.56 yuan. Huadong Medicine Co. climbed 0.8 percent to 36.01 yuan.
Pharmaceutical stocks, which are valued at 24 times earnings for the past 12 months, are at “reasonable” levels and stable expectations about earnings will help their performance in the fourth quarter, Sun Liang, Qiang Jing and Zhou Feng, analysts at CICC, wrote in a report today.
China’s consumer stocks may offer a “positive surprise” for investors as the government seeks to rebalance its economy away from investment and towards consumption, Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said on Bloomberg Television today.
Anhui Gujing Distillery Co., a white liquor maker, jumped 6.6 percent to 40.20 yuan, extending yesterday’s 4.5 percent gain. The company said yesterday net income for the first three quarters probably surged as much as 60 percent on higher sales.
Kweichow Moutai Co., China’s biggest producer of baijiu liquor by market value, added 1.7 percent to 249.81 yuan. Wuliangye Yibin Co., the second largest, climbed 1.1 percent to 35.05 yuan.
U.S. retail sales rose 1.1 percent in September following a revised 1.2 percent increase in August, the best back-to-back showing since late 2010, Commerce Department figures showed in Washington. The median forecast of 77 economists surveyed by Bloomberg called for a 0.8 percent increase. The Federal Reserve Bank of New York’s general economic index rose to minus 6.2 from minus 10.4 in September, which was the lowest reading since April 2009.
“Good economic data from the U.S. will help to stabilize the global growth outlook,” said Wei of West China Securities.
The U.S. is China’s second-largest export market, making up about 17 percent of the nation’s overseas sales, according to Shenyin & Wanguo Securities Co.
Thirty-day volatility in the Shanghai Composite was at 19.6 today, compared with this year’s average of 17.1. About 5.7 billion shares changed hands in the gauge, 26 percent lower than the daily average in 2012.
ZTE tumbled 4.2 percent to 9.05 yuan. The stock plunged by the 10 percent daily limit yesterday after the company said it may post a loss of as much as 2 billion yuan ($319.1 million) in the third quarter.
ZTE will “strive” to reduce losses in the fourth quarter and raise operational efficiency, the China Securities Journal reported today, citing the company.