China’s stocks rose the most in two months before a report that may show manufacturing expanded and as Market Studies LLC’s Tom DeMark said Shanghai’s equity index will rally as much as 28 percent by September.
China Citic Bank Corp. climbed by the 10 percent daily limit, leading a 4.7 percent surge in the gauge of financial companies on the CSI 300 Index. FAW Car Co. paced gains by automakers after Xinhua News Agency said the government ordered the company’s vehicles. DeMark said yesterday the Shanghai Composite Index will resume an advance after falling 8 percent from this year’s peak.
“Recent declines have already priced in investors’ more pessimistic view about economic growth,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Given that stocks are still not expensive, a rebound is justified.”
The Shanghai Composite climbed 2.7 percent to 2,317.38 at the close, its biggest gain since Jan. 14. Trading volumes on the index were 10 percent higher than the 30-day average, while 30-day volatility increased to the highest level since February 2012. The CSI 300 rose 3.4 percent to 2,610.17. The Hang Seng China Enterprises Index rallied 2.2 percent in Hong Kong after falling 12 percent from its Feb. 1 high through yesterday.
The Hang Seng Index added 1 percent. In a bull-case scenario, Hong Kong’s benchmark gauge will more than double from current levels by 2015 as global central banks maintain loose monetary policies and China’s economy grows, Morgan Stanley analysts led by Jonathan Garner wrote in a report yesterday.
The Shanghai Composite will resume the rally once it falls below 2,232 today or tomorrow, DeMark, who correctly predicted a retreat in the Chinese stock gauge last month, said by e-mail yesterday. We “are identifying a low-risk entry zone just beneath today’s low of the Shanghai Composite which should be a bottom prior to the resumption of the advance,” DeMark said.
Chinese stock indexes declined from their peaks for the year amid concern an economic recovery will falter as officials take steps to cool the property market and restrain inflation. Bank of America Corp. cut China’s 2013 growth forecast to 8 percent from 8.1 percent. The Shanghai gauge is valued at 9.5 times projected 12-month earnings, compared with the seven-year average of 15.8, according to data compiled by Bloomberg.
HSBC Holdings Plc and Markit Economics are due to release a preliminary manufacturing index for this month tomorrow. The gauge may rise to 50.8 from 50.4 in February, according to the median estimate of 11 analysts in a Bloomberg survey. A reading above 50 indicates expansion.
Citic Bank climbed to 5.16 yuan, its highest level since Feb. 4. Founder Securities Co., the Chinese partner of Credit Suisse Group AG’s investment banking venture, rallied 10 percent to 7.96 yuan, taking its gain this year to 81 percent. Hundred-day volatility in the CSI 300’s financial gauge was at 30.7, its highest since February 2010.
The banking regulator encouraged small banks to focus on branches’ loan-to-deposit ratios using the average daily level each month rather than a specific day, the 21st Century Business Herald reported, citing a person it didn’t identify. That may increase lending capacity, said Tan Hui, a Beijing-based analyst at Founder Securities.
Separately, securities firms will be able to set their own minimum-fund limits for investors to start short selling and margin trading, the China Securities Journal reported today, citing unidentified people from brokerages.
DeMark, the Paradise Valley, Arizona-based creator of indicators to show turning points in securities, said Feb. 6 that the measure would decline about 8 percent to within a range of 2,230 to 2,250 before rebounding. The index was down 8 percent from when he made the call to the March 18 close of 2,240.02.
DeMark who has spent more than 40 years developing market indicators, said Dec. 4 that the Shanghai Composite would climb as much as 48 percent to 2,900 within nine months. That advance will be achieved before September, he said by e-mail yesterday.
DeMark is chief executive officer of Market Studies, which makes money by charging traders for access to its indicators. The company also sells subscriptions to the indicators on the Bloomberg Professional service for $500 a month. Bloomberg LP, the parent of Bloomberg News, takes a percentage. DeMark has a similar arrangement with Thomson Reuters Corp. DeMark won’t say how many subscribers he has.
A gauge tracking consumer discretionary stocks jumped 3.3 percent, its biggest gain since Jan. 14. FAW Car rallied 10 percent to 8.34 yuan. Over 10 Chinese provinces and central government departments have procured “large batches” of China FAW Group Corp.’s Red Flag H7 cars.
Other automakers also advanced by the daily limit. Guangzhou Automobile Group Co. surged 10 percent to 6.14 yuan. Great Wall Motor Co. added 10 percent to 33.32 yuan.
“Domestic carmakers are going to benefit from government procurement,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages $120 million. “Today’s rally is also a re-rating of investors’ pessimistic view about auto sales outlooks. Things are actually not as bad as they expected.”
Today’s gains in stocks come after the Hang Seng China index tumbled 2.1 percent on March 18 as slowing growth and faster inflation spurred JPMorgan Chase & Co. to cut the nation’s shares to underweight. The decline dragged the index into a so-called correction after falling more than 10 percent since Feb. 1.