Chinese Stocks Climb After Valuations Drop to Six-Month Low

China’s stocks rose for the first time in nine days after valuations for the benchmark index dropped to a six-month low and U.S. retail sales beat forecasts.

Sanan Optoelectronics Co. jumped 7.3 percent, leading a measure of technology shares to its biggest advance among industry groups. China State Construction Engineering Corp., the largest housing contractor, advanced 2.3 percent after the value of new contracts climbed in the first five months of the year.

The Shanghai Composite Index added 0.6 percent to 2,162.04 at the close, halting an eight-day, 7.6 percent loss. It traded at 8.8 times 12-month estimated earnings yesterday, the lowest since Dec. 6, data compiled by Bloomberg showed. The index dropped 2.2 percent this week, capping a second week of losses. The CSI 300 Index rose 0.7 percent to 2,416.77.

“The market is expected to rebound after the recent sell-off and some technical indicators show it’s oversold,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “We are not optimistic in the medium term as liquidity is still tight and economic fundamentals are pretty weak.”

The 14-day relative strength measure for the Shanghai index, measuring how rapidly prices have advanced or dropped during a specified time period, was at 28.5 yesterday. Readings below 30 indicate it may be poised to rise.

The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong slipped 0.2 percent, slumping for a 12th day in the longest string of declines since at least July 1993, according to data compiled by Bloomberg.

Economic Data

Stocks tumbled yesterday after a three-day holiday as government reports showed industrial production and exports trailed economists’ estimates in May and on speculation the Federal Reserve will scale back bond purchases. The Shanghai index has fallen 11 percent from this year’s high on Feb. 6 on concern economic growth is slowing and amid speculation regulators will resume initial public offerings after halting them since October.

Trading volumes in the Shanghai Composite were 22 percent lower than the 30-day average, while its 30-day volatility was at 15.9, compared with this year’s average of 19.1, according to data compiled by Bloomberg.

A gauge of information technology stocks climbed 3.7 percent, the biggest gain among the CSI 300’s 10 sub-indexes. It has advanced 28 percent this year, the most among the industry groups.

Debt Sale

Sanan Optoelectronics, China’s biggest producer of light-emitting diode chips, surged 7.3 percent to 21.12 yuan, rebounding from a 4 percent decline yesterday. NavInfo Co., a maker of electronic maps, climbed by the 10 percent daily limit to 14.87 yuan. Zhejiang Dahua Technology Co., a manufacturer of video surveillance equipment, gained 4.8 percent to 40.40 yuan.

China State Construction Engineering added 2.3 percent to 3.57 yuan after it said new contract values rose 19 percent from a year earlier in the first five months of the year.

The nation’s Finance Ministry failed to sell all of the debt offered at an auction for the first time in 23 months owing to a cash squeeze, according to two traders at finance companies that participate in the sales.

The ministry sold 9.53 billion yuan ($1.55 billion) of 273-day bills, less than the 15 billion yuan target, they said. The seven-day repurchase rate, which measures interbank funding availability, has more than doubled in the past month to 6.81 percent, as banks hoard cash to meet quarter-end capital requirements.

The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.8 percent in New York yesterday as better-than forecast U.S. economic data outweighed concern that a slowdown in Asia’s biggest economy will deepen.

Retail Sales

Retail sales in the U.S., China’s largest export market last year, rose 0.6 percent last month, the biggest increase in three months, Commerce Department figures showed yesterday. That compared with a 0.4 percent median forecast of economists surveyed by Bloomberg.

“The U.S. economic recovery is good news for China as well as the global economy,” Tan Chiheng, an analyst at Granite Point Capital Inc. in Boston, which invests in Chinese equities, said in a telephone interview.

Foreign holdings of yuan-denominated shares may reach 4 percent in 2016, up from the current 1.5 percent, as the pace of capital market liberalization accelerates, according to a Deutsche Bank AG report dated June 12. The shares will be included in one or more major global benchmarks in the next two or three years, the report said.