China’s Stocks Advance, Extending Biggest Rally in Three Years

China’s stocks extended the benchmark index’s biggest rally in three years as a government plan to boost urbanization spurred gains in commodity producers. Health-care companies fell the most in three months.

Yanzhou Coal Mining Co. and Jiangxi Copper Co. climbed at least 2.7 percent. Zoomlion Heavy Industry Science & Technology Co. advanced to a two-month high after its Hong Kong-traded shares were upgraded at Credit Suisse Group AG. Kangmei Pharmaceutical Co. plunged 10 percent. China will increase urbanization next year to boost domestic consumption, an annual economic conference concluded over the weekend.

The Shanghai Composite Index added 0.5 percent to 2,160.34 at the close. The gauge jumped 4.3 percent on Dec. 14, the most since October 2009, amid speculation state-backed institutions were buying shares as a manufacturing survey added to optimism the world’s second-largest economy will rebound. The CSI 300 Index climbed 0.5 percent to 2,366.70.

“Coal and material producers are rising because investors expect demand to surge,” Xue Mingjie, an analyst at Rising Securities in Shanghai, said by phone today. “The weekend conference by the leaders re-emphasized urbanization.”

The Hang Seng China Enterprises Index dropped 0.1 percent in Hong Kong from a nine-month high.

Gauges tracking energy and materials producers gained at least 1.1 percent. Yanzhou Coal advanced 2.7 percent to 17.53 yuan. Jiangxi Copper climbed 3.5 percent to 22.85 yuan, the highest close since Sept. 14.

Cyclical Stocks

“Urbanization is a historic task with the country’s modernization drive, and a main driver to boost domestic consumption,” the China Daily reported today, citing an official statement from the conference, which sets the tone for economic policies the following year.

Investors should buy cyclical stocks such as cement and property as those industries are key to the government’s plans for urbanization, Hao Hong, Hong Kong-based China strategist at Bank of Communications Co., wrote in a report today.

China’s leaders also vowed to target “sustained and healthy development” as they maintain a “prudent” monetary policy and “proactive” fiscal stance, the Xinhua News Agency said. There was no mention of seeking “relatively fast” growth, a policy in place since 2006.

The Shanghai Composite has rebounded 10 percent since slumping to an almost-four year low on Dec. 3. The gains have pared this year’s drop to 1.8 percent, which would be a third straight annual loss. The measure trades at 11.9 times reported earnings after valuations fell to 10.8 this month, the lowest level since at least 1997, data compiled by Bloomberg show.

Sovereign Wealth

Trading volumes on the Shanghai Composite today were double the 30-day average for this year.

Speculation on Dec. 14 that large institutions were buying shares followed data showing the number of stock-trading accounts containing funds declined to the lowest in two years.

China removed a $1 billion ceiling on investments by overseas sovereign wealth funds and central banks in its capital markets, acccording to revised regulations posted Dec. 14 on the State Administration of Foreign Exchange’s website. The regulator kept the overall quota for qualified foreign institutional investors at $80 billion. Approved quotas for QFII funds total $36.04 billion, or less than 2 percent of stock-market value.

Zoomlion Heavy added 0.5 percent to 8.94 yuan. Yang Y. Song, analyst at Credit Suisse, said the stock was the top pick in China’s construction industry.

Drugmakers Slump

A gauge of health-care companies sank 2.4 percent, its biggest loss since Sept. 20. Kangmei Pharmaceutical dropped by the 10 percent daily limit to 13.79 yuan. Shijiazhuang Yiling Pharmaceutical Co. retreated 3.1 percent to 21.80 yuan.

“We may see some profit taking along the way but the overall sentiment has improved,” Zhang Lei, an analyst with Minsheng Securities Co., said by phone from Beijing. “The rally looks likely to stay.”

Separately, China Securities Regulatory Commission Chairman Guo Shuqing said China will deepen reforms of listing methods and study ways to clear the pipeline for initial public offerings, the Shanghai Securities News reported.

Some 462 companies were awaiting IPO approval as of Dec. 13, according to the CSRC’s website.

The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S gained 1.4 percent on Dec. 14. The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., surged 1.8 percent to a nine-month high of $39.34, extending gains last week to 2.4 percent.

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