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Shanghai Composite Enters Bull Market on Economic Growth

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Shanghai’s Stock Index Enters Bull Market on Economic Outlook
Investors monitor stock prices at a securities exchange firm in Shanghai. Photographer: Qilai Shen/Bloomberg

Jan. 29 (Bloomberg) -- China’s stocks rose, sending the benchmark index into a bull market, on optimism over the outlook for the nation’s economy. Financial and energy shares led gains.

The Shanghai Composite Index climbed 0.5 percent to 2,358.98 at the close, extending its advance since Dec. 3 to 20 percent, a threshold signaling a bull market to some investors. Haitong Securities Co., the second-biggest listed brokerage jumped 7.3 percent, leading a rally for financial shares. Shanxi Lu’an Environmental Energy Development Co. surged 3.1 percent as oil traded near the highest level in four months in New York.

Chinese stocks have rallied since approaching a four-year low last month on signs of an economic recovery and a government pledge to bolster urban development. A government report showed yesterday industrial companies’ profits jumped 17.3 percent last month. A preliminary reading for a Purchasing Managers’ Index last week showed manufacturing expanded at the fastest rate in two years.

“The economic is recovering and this is the year of reforms by new leaders, so there are a lot of expectations,” Deng Wenyuan, an analyst at Soochow Securities Co., said by phone from Suzhou, near Shanghai. “We are expecting urbanization to pick up pace and there are hopes for more liquidity in the stock market. This rally should continue.”

The CSI 300 Index advanced 0.9 percent to 2,675.87 today and is up 27 percent since Dec. 3. The Hang Seng China Enterprises Index slid 0.3 percent today. The Bloomberg China-US 55 Index increased 0.1 percent in New York yesterday.

The Shanghai Composite exited its longest-ever bear market today. A 756-day stretch without a 20 percent gain from Nov. 8, 2010, through Dec. 3 is the longest on record, according to data compiled by Bloomberg and Birinyi Associates Inc. The gauge fell 38 percent during the period.

Financials Rally

The Shanghai index surged 15 percent last month, the most since July 2009, after the government said it would spend more on urban development to drive economic growth. Li Keqiang, due to replace Wen Jiabao as premier in March, is championing urbanization as a new growth engine that will boost incomes and consumption.

The Shanghai measure is trading at 13 times reported earnings, the highest level since May. Average trading volumes in the index were 13 percent higher than the 30-day average today. Its 30-day volatility was at 17.8 yesterday, compared with last year’s average of 17.1.

A gauge of financial stocks including banks, brokerages, insurers and developers rose 1.7 percent today, the most among 10 industry groups. The sub-index has rallied 38 percent since Dec. 3, the biggest gain among the groups.

IPO Outlook

Citic Securities Co., the largest-listed brokerage, jumped 4.3 percent to 14.96 yuan today. Haitong Securities Co., the second-biggest, rose 7.3 percent to 11.81 yuan for a two-day gain of 16 percent. Brokerages rallied yesterday after regulators announced an expansion in the number of stocks available for short selling and margin trading.

China may let individual investors in Taiwan invest in Chinese stocks and bonds, Taiwan’s Economic Daily News reported today, citing Guo Shuqing, chairman of the China Securities Regulatory Commission. The CSRC has expanded foreign investor quotas to buy stocks, cut trading fees and pushed companies to increase dividends since Guo became chairman in 2011.

China won’t review or approve applications for IPOs in the first half of this year, the Economic Information Daily reported today, citing an unidentified person close to the securities regulator. The number of companies awaiting approval for IPOs in China swelled to more than 800 in December as regulators held back from reviewing new applications on concern a flood of shares may further weigh on equities.

Coal Stocks

“With regards to IPOs, officials have time and again stressed they are controlling IPO applications as a way of reassuring investors,” Liu Guangming, an analyst at Dongxing Securities Co., said today from Beijing. “As the Chinese New Year approaches, a lot of investors will leave the market and liquidity will tighten. Economic data has improved so in the long term, the market will still head upwards though the pace of gains won’t be as fast.”

The market will be closed for a week from Feb. 11 for the Lunar New Year holidays.

Shanxi Lu’an jumped for a second day, gaining 3.1 percent to 22.56 yuan. Yanzhou Coal Mining Co. added 1.4 percent to 18.23 yuan. Oil traded near the highest level in four months in New York. Rising oil prices boost demand for alternative energy such as coal.

The iShares FTSE China 25 Index Fund, the largest Chinese exchange-traded fund in the U.S., slipped 0.3 percent to $40.96 yesterday, extending last week’s 1.4 percent decline.

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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