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China’s Stocks Rise for Third Week on Gain in Industrial Output

Aug. 9 (Bloomberg) -- China’s stocks rose, capping a third week of gains for the benchmark index, as material producers advanced after industrial output exceeded economists’ estimates.

Jiangxi Copper Co. and Aluminum Corp. of China Ltd., the nation’s biggest producers of copper and aluminum, climbed at least 2.5 percent. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., the largest producer of rare earth, jumped 10 percent on speculation a government crackdown on illegal mining of rare earth will boost prices. Leshi Internet Information & Technology Co. retreated 2.9 percent, dragging down the ChiNext index of small companies to the lowest level in a week.

The Shanghai Composite Index added 0.4 percent to 2,052.24 at the close. Industrial output rose 9.7 percent in July, compared with the 8.9 percent median estimate in a Bloomberg News survey of economists. The ChiNext slumped 1.1 percent after valuations reached the highest levels in two years.

“The industrial output data boosted optimism the economy is stabilizing but whether that’s only temporary remains to be seen,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “The decline in small-caps hurt sentiment a lot as they are among the best performers this year. The correction has just started because valuations are too high.”

The Shanghai index rose 1.1 percent this week. The CSI 300 Index advanced 0.4 percent to 2,286.01 today. The Hang Seng China Enterprises Index added 1.2 percent. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 2.1 percent in New York yesterday.

Inflation Data

Data released earlier today showed the consumer price index rose 2.7 percent in July from a year earlier. That was less than the 2.8 percent median estimate in a Bloomberg News survey and the government’s full-year target of 3.5 percent. Producer prices fell 2.3 percent, versus the median estimate for a 2.1 percent drop.

A measure of material stocks in the CSI 300 advanced 3.1 percent, the most among the 10 industry groups. Jiangxi Copper gained 3.9 percent to 17.16 yuan. Aluminum Corp. of China, the listed unit of nation’s biggest maker of the lightweight metal, added 2.5 percent to 3.25 yuan.

The advance in industrial production compared with an 8.9 percent increase in June. Retail sales gained 13.2 percent, the National Bureau of Statistics said today. That compared with the median projection for a 13.5 percent advance. Fixed-asset investment in the first seven months of the year increased 20.1 percent, the bureau said.

GDP Upgrade

The acceleration in factory output may bolster confidence that China will avoid a deeper economic slowdown after larger-than-forecast rebounds in exports and imports and improvement in gauges of manufacturing and service industries. Stronger production will help Premier Li Keqiang meet this year’s 7.5 percent expansion target after growth moderated for two quarters.

“By considering the rebounding official PMI and trade data as well as the subdued inflation readings in July, we expect today’s data will have quite positive impact on commodities, commodity-related currencies and some Chinese stocks,” Bank of America Corp. economist Lu Ting wrote in a note to clients. “Many Street economists will likely to revise up their overly pessimistic third-quarter GDP growth forecasts soon.”

Baotou Rare-Earth, China’s biggest producer of rare earth, surged by the daily maximum to 28.16 yuan, the highest close since May 29. China Minmetals Rare Earth jumped 9.3 percent to 26.21 yuan.

Rare Earth

Rare earth prices may continue to rebound as demand and supply of rare earth improves and after China’s crackdown on illegal mining expands nationwide, Ye Peipei, an analyst at Shenyin & Wanguo Securities Co., wrote in a report today.

China asked local governments to curb illegal exploration of rare earth, the Ministry of Industry and Information Technology said in a statement on Aug. 7.

The ChiNext index fell 1.1 percent. The gauge had jumped as much as 70 percent this year through Aug. 6 and traded at 46 times estimated earnings this week, the highest level since December 2010, according to data compiled by Bloomberg.

Leshi Internet, an Internet video company, lost 2.9 percent to 27.48 yuan. Wuhu Token Science Co., a touch-screen maker, slumped 4.5 percent to 19.79 yuan. Beijing SuperMap Software Co. lost 3.9 percent to 13.50 yuan.

Trading in the Shanghai Composite was 0.9 percent above the 30-day average, according to data compiled by Bloomberg. The index is valued at 8.3 times 12-month projected earnings, compared with the five-year average of 12.7 times, data showed. The stocks measure has slumped 9.6 percent this year.

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net

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