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Shanghai Composite Rebounds From Drop Below 2,000; Brokers Rally

China’s Shanghai Index Falls Below 2,000; Heads for 2009 Low
Investors monitor stock prices at a securities exchange firm in Shanghai, China. Photographer: Qilai Shen/Bloomberg

China’s stocks climbed the most in three weeks, with the Shanghai Composite Index rebounding from a drop below the 2,000 level, on speculation the government will lower reserve-ratio requirements to boost investor confidence.

The Shanghai index jumped in the last hour of trade, adding 1.1 percent to 2,030.32 at the close. The index slid by as much as 0.7 percent to 1,995.17, the second time this week it fell below 2,000. The CSI 300 Index added 1.4 percent to 2,194.90. The Hang Seng China Enterprises Index rose 1.7 percent.

There is speculation “China’s central bank will cut the reserve-ratio requirement from Nov. 25,” Li Jun, a strategist at Central China Securities Co. in Shanghai, said in a phone interview. “There’s no basis for the speculation so we don’t know if it’s true. It could be a technical rebound as well.”

Sinolink Securities Co. led a rally for brokerages after the China Securities Journal said a new rule that lowers the benchmark for calculating risk capital reserves may free up 50 billion yuan ($8 billion) for the industry. China said it will waive some requirements for foreign investors to make it easier to bring money into and out of the country. Yanzhou Coal Mining Co. rose the most in a month, sending a measure of energy producers to the second-biggest advance among industry groups.

Calls to the central bank’s news department today seeking comment on the reserve-ratio speculation weren’t immediately answered. The People’s Bank of China will probably keep the reserve ratio for large lenders at 20 percent, based on the median estimate of economists in a Bloomberg News survey conducted Nov. 14-19. That compares with the half-point cut projected last month. The central bank has cut interest rates twice since early June and lowered reserve ratios three times from last November.

Financials Rally

A gauge of financial companies including banks and brokerages in the CSI 300 rose 1.8 percent, the most among 10 industry groups. Industrial Bank Co. added 1.6 percent to 12.50 yuan. Huaxia Bank Co. gained 1.8 percent to 8.48 yuan. Sinolink Securities, based in Chengdu, jumped 4 percent to 15.77 yuan. Hong Yuan Securities, based in Urumqi, surged 5.1 percent to 17.57 yuan.

A new rule for brokerages that lowers the benchmark for calculating risk capital reserves and net capital requirements may free up capital for the industry, the China Securities Journal reported, citing an unidentified China Securities Regulatory Commission official.

Yanzhou Coal led gains for producers of the fuel, rising 2.3 percent to 6.92 yuan. China Shenhua Energy Co., the largest coal producer, advanced 1.5 percent to 21.68 yuan.

The Shanghai Composite earlier slid as much as 0.7 percent to 1,995.17 on concern the government will resume share sales. China’s securities regulator will conduct its first review of a share-sale application in more than a month today.

Psychological Support

Trading volumes in the Shanghai Composite were 17 percent lower than the 30-day average, according to data compiled by Bloomberg. Thirty-day volatility in the Shanghai Composite was at 12.6, compared with this year’s average of 17.1.

The Shanghai index has slumped 7.7 percent this year amid concern the nation’s new leadership may slow efforts to reduce the government’s grip on the economy, which expanded at the slowest pace in more than three years last quarter. The Shanghai Composite is valued at 9.7 times reported earnings, according to data compiled by Bloomberg.

“The 2,000 level provides psychological support,” said Zhang Haidong, an analyst at Tebon Securities Co. in Shanghai.

The Shanghai gauge dropped to 1,995.72 on Nov. 19 before rallying in the final hour of trading to close 0.1 percent higher. The rebound may have been spurred by government-backed buying of stocks “but I don’t think anybody knows,” Richard Ross, a technical strategist at Auerbach Grayson said by phone in New York on that same day.

Targeting 1,700

Foreign investors will be exempt from needing regulatory pre-approval for opening bank accounts, remitting profits abroad and transferring money between different domestic accounts starting Dec. 17, the State Administration of Foreign Exchange said today on its website. The changes are aimed at “making it easier for investors,” SAFE said.

The Shanghai index first broke above 2,000 in July 2000 and almost tripled to 6,092.06 on Oct. 16, 2007, according to data compiled by Bloomberg dating to 1991. Demand for equities surged in that time amid average annual economic growth of 10.8 percent, luring Shanghai public offerings from Industrial & Commercial Bank of China Ltd. and PetroChina Co.

The index will likely fall to 1,700, a 15 percent drop from yesterday’s close, after it broke through a triangular consolidation trading pattern, according to Chart Partners.

The Shanghai measure’s slide below “big resistance” at 2,100 and the break of the triangle foreshadow a retreat to 1,700 in the “medium term” and possibly to 1,500, Thomas Schroeder, Bangkok-based managing director at Chart Partners, wrote in an e-mailed response to questions.

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