Airlines Steer Rebound on Manufacturing Pickup: China Overnight

The benchmark index of Chinese equities in New York rebounded from the biggest drop in a month as signs of improved manufacturing sentiment stoked gains in air carriers and infrastructure stocks.

The Bloomberg China-US Equity Index of the most-traded Chinese companies in the U.S. climbed 0.4 percent to 95.76 yesterday, after tumbling 1.3 percent on Oct. 23. China Southern Airlines Co. traded at its smallest discount to Hong Kong in four days and China Eastern Airlines Corp. jumped after UOB-Kay Hian Holdings Ltd. said carriers will report “stellar” profits. Huaneng Power International Inc. soared to a three-year high as BNP Paribas SA classed it a top pick. Social network website Renren Inc. gained as Facebook Inc. surged 19 percent.

Chinese stocks in New York are poised for their third monthly advance as data signals the seven-quarter slowdown in the world’s second-largest economy may be abating. A preliminary reading of a purchasing managers’ index released yesterday by HSBC Holdings Plc and Markit Economics indicated fewer Chinese manufacturers are seeing deteriorating conditions in the sector than in the past two months. The measure follows government reports last week showing industrial production rebounded in September and retail sales surged.

“Improvement in the PMI index is pointing toward a recovery,” Morgan Harting, who helps manage about $100 million in emerging-market assets at AllianceBernstein Investments Inc., said by phone yesterday in New York. “Companies with more cyclicality to their business, that are more sensitive to changes in expectations about the economic cycle, tend to have the most potential for appreciation.”

China ETF Gains

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., climbed 0.6 percent to $37.20, after dropping the most since September on Oct. 23. The Standard & Poor’s 500 Index slumped 0.3 percent to 1,408.75 as the Federal Reserve’s call for moderate growth offset improvement signs in Chinese factory output and America’s housing market.

The Shanghai Composite Index of domestic shares was little changed yesterday at 2,115.99, after falling 0.9 percent the day before. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong sank 1 percent to 10,638.73, the biggest slump in two weeks. The market there was closed on Oct. 23 for a holiday.

HSBC’S PMI preliminary reading of 49.1, should it be confirmed, would compare with a final number of 47.9 in September, and improve for a second month after the gauge dropped to the lowest level since March 2009 in August. The recovery was probably helped by strength in export growth and rising fixed-asset investment, analysts Yu Song and Yin Zhang at Beijing Gao Hua Securities Co., Goldman Sachs Group Inc.’s China partner, wrote in a report yesterday.

Airline Profits

China Southern, Asia’s largest airline by passenger numbers, surged 3.6 percent to $23.99 in New York, the biggest one-day gain in two weeks. The American depositary receipts traded at a 0.8 percent discount to Hong Kong stock, the least since Oct. 18. Each ADR represents 50 underlying shares in the Guangzhou-based company.

Shanghai-based China Eastern, the nation’s second-largest carrier, climbed 2.9 percent to a two-month high of $17.30.

The airlines will show substantial profit improvements on rising traffic, lower fuel costs and appreciation in the Chinese yuan, UOB-Kay Hian analysts said in the note yesterday. China Southern, which is scheduled to post third-quarter results tomorrow, may say net income increased 24 times from the previous three months, according to the UOB-Kay report. China Eastern is scheduled to release earnings on Oct. 30.

‘Meaningfully Outperforming’

Government data released since Oct. 13 has shown China’s overseas shipments grew a better-than-estimated 9.9 percent last month from a year earlier, and that investment expansion exceeded the median projection of analysts, rising 20.5 percent in the first three quarters. Retail sales advanced 14.2 percent in September, the most since March, while industrial output grew

9.2 percent from a three-year low of 8.9 percent in August.

“China is meaningfully outperforming the broad emerging market so far this year,” Harting at AllianceBernstein said. The MSCI China Index has advanced 11.5 percent in 2012, compared with an 8.5 percent gain in the MSCI gauge for emerging-market equities.

ADRs of Huaneng Power, China’s largest electricity producer, climbed 2.5 percent to $30.88, the highest level since August 2009. The stock was mentioned as a top pick at BNP Paribas after the utility company said third-quarter net income surged 757 percent from a year earlier, in an Oct. 23 statement.

Renren, the Beijing-based owner of a real-name networking website, climbed for a third day, adding 2 percent for a one-week high of $3.56 in the U.S.

Youku Tudou

Facebook, based in Menlo Park, California, jumped 19 percent yesterday after reporting a 32 percent increase in sales to $1.26 billion last quarter, exceeding the $1.23 billion average estimate of 34 analysts surveyed by Bloomberg.

Youku Tudou Inc., which owns the most popular video websites in China, advanced 2.2 percent to $20.31, the steepest rally in a week.

China Mobile Ltd., the nation’s largest wireless carrier, surged 3.4 percent to $56.56 in New York, rising the most since March 9. SWS Research Co. analyst Jim Tang raised his recommendation on the company to neutral from underperform yesterday, lifting the price target for its Hong Kong stock to HK$83, or $10.70. Each ADR represents five Hong Kong shares.

Twelve-month non-deliverable forwards on China’s yuan strengthened 0.1 percent to 6.3670 per dollar in New York, after the currency traded unchanged at 6.2480 against the greenback in Shanghai yesterday.

The 30-day volatility in the Bloomberg China-US gauge fell to 16.4 yesterday from 17.5 on Oct. 23, and compares with this year’s average of 23.1. The Bloomberg Chinese Reverse Mergers Index, which tracks a basket of companies that gained U.S. listings after buying firms that already trade, retreated 0.2 percent to 71.53.

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