China’s stocks rose the most in a week, led by financial and material companies. Technology and small-company shares slumped on speculation this year’s rallies were excessive.
China Vanke Co., the largest developer, surged 4.8 percent. Citic Securities Co., the biggest-listed brokerage, jumped 3 percent. Anhui Conch Cement Co. led a rally for material producers. Sanan Optoelectronics Co. retreated 5.1 percent, paring this month’s gain to 42 percent. Nationz Technologies Inc. dragged down a gauge of small companies in the ChiNext index with a 2.9 percent slump.
“There’s rotation into financial stocks from small-cap stocks, which have gained a lot,” said Qian Qimin, an analyst at Shenyin & Wanguo Securities Co. in Shanghai.
The Shanghai Composite Index advanced for a third day, rising 1.2 percent to 2,321.32 at the close. The CSI 300 Index climbed 1.7 percent to 2,644.36. The Hang Seng China Enterprises Index rose 1.5 percent. The ChiNext index slid 2.8 percent, paring this year’s rally to 48 percent. U.S. markets were closed for a holiday yesterday.
The Shanghai index has rebounded 6.8 percent from this year’s low set on May 2 after interest-rate cuts by central banks around the world spurred capital inflows and Chinese policymakers accelerated reforms of the economy by allowing private investment in industries such as telecommunications.
The Shanghai index trades at 9.5 times 12-month estimated earnings, compared with a seven-year average of 15.7 times, according to data compiled by Bloomberg. Trading volumes were 41 percent above the 30-day average, while 30-day volatility was at 16.3, compared with this year’s average of 19.5, data compiled by Bloomberg show.
A measure of property companies in the Shanghai index rallied 2.9 percent, the most among the five industry groups. It trades at 8.1 times estimated profit, compared with the five-year average of 14.3. China Vanke surged 4.8 percent to 12.36 yuan. Poly Real Estate Group Co., the second-biggest developer, advanced 3.3 percent to 12.64 yuan.
The government’s plan to expand property trials has been delayed, Morgan Stanley analysts led by Brian Leung wrote in a report today. The government is targeting “more comprehensive” market-based methods, they wrote. China will widen the tax trials, the State Council said in a statement posted on the central government’s website on May 24. Shanghai and Chongqing have already started experimenting with property taxes.
“The impact of the tax won’t be big as it will only likely be in several cities with limited tax rates,” Johnson Hu, a Hong Kong-based property analyst at CIMB-GK Securities Research, said in a phone interview today.
A gauge of financial stocks including developers and brokerages in the CSI 300 rose 2.9 percent. Still, the measure is up 7 percent this year, compared with gains of more than 30 percent for telecom and technology stocks. Citic Securities rose 3 percent to 13.25 yuan, while Haitong Securities Co., the second-biggest brokerage, added 4.8 percent to 12.02 yuan.
The China Association for Public Companies has submitted a proposal on improving tax policies for listed companies involving stamp and dividend taxes, the Securities Daily reported, citing the association.
Baoji Titanium Industry Co. soared 10 percent to 17.42 yuan, the biggest gain among companies in the materials gauge. Anhui Conch, the nation’s largest producer of the construction material, jumped 3.3 percent to 17.47 yuan.
A measure of technology companies in the CSI 300 dropped 2.3 percent. The sub-index’s valuations reached 16-month highs in the past two weeks, while the price-earnings ratio for the ChiNext index of start-ups trades at a two-year high of 56, according to data compiled by Bloomberg.
Small-company stocks “had gained a lot this year, so there’s a risk of a bubble,” Deng Wenyuan, an analyst at Soochow Securities Co., said by phone.
Sanan Optoelectronics retreated 5.1 percent to 19.95 yuan. Goertek Inc., an Apple Inc. supplier, slid 7.3 percent to 36.90 yuan, trimming this month’s gain to 35 percent. Nationz Technologies Inc. slid 2.9 percent to 16.93 yuan.