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China’s Stocks Rise to Three-Month High on Shanghai Trade Zone

Securities Firm in Shanghai
Customers look at an electronic stock board at a securities firm in Shanghai. Photographer: Tomohiro Ohsumi/Bloomberg

China’s benchmark stock index rose to an 11-week high, led by companies linked to Shanghai’s free-trade zone, after the central bank said it plans to implement reform measures for the area within three months.

Shanghai Waigaoqiao Free Trade Zone Development Co. jumped by the daily limit of 10 percent, while Shanghai-based China Eastern Airlines Co. climbed 5.9 percent. Cosco Shipping Co. surged 10 percent on speculation the government will provide more support to the industry. Huaxia Bank Ltd. paced gains for lenders as money-market rates slid.

The Shanghai Composite Index rose 1.3 percent to 2,251.76 at the close, the highest since Sept. 12. Shanghai-based companies have led the index’s 15 percent rally from a four-year low in June as the government approved the zone as part of a wider package of economic reforms announced last month. Chinese leaders are expected to provide more details on new economic policies and unveil growth targets at a conference this month.

“Market sentiment is good,” Du Liang, an analyst from Shanxi Securities Ltd. said by phone. “Today, there’s the free trade zone news and that may become a catalyst to buy. At the end of the year, we may worry about tight liquidity but the government has been in the market whenever money rates rise. Stocks are likely to rally.”

The CSI 300 Index advanced 1.3 percent to 2,475.14 today, while the Hang Seng China Enterprises Index dropped 0.5 percent. The Bloomberg China-US Equity Index fell 0.4 percent yesterday.

Trade Zone

The Shanghai branch of the People’s Bank of China aims to implement most of the goals set out for the city’s free-trade zone in three months, Deputy Director Zhang Xin said, according to a statement on its website yesterday. A draft plan for the zone seen by Bloomberg News in September showed plans to liberalize 19 industries from banking to shipping and allow freer convertibility of the yuan.

A gauge of property companies in the Shanghai index rose 4.1 percent today, the most among five industry groups. Shanghai Lujiazui Finance & Trade Zone Development Co. surged 10 percent to 19.20 yuan, adding to a 61 percent gain this year. Shanghai Waigaoqiao Free Trade Zone added 3.47 yuan to 38.15 yuan, capping a 297 percent rally in 2013.

A measure of industrial companies in the CSI 300 rose 1.9 percent, the third-steepest gain among 10 groups. China Eastern, the second-largest domestic carrier, jumped 5.9 percent to 3.07 yuan. Goldman Sachs Group Inc. said in September that the nation’s biggest domestic airlines such as China Eastern would rally as Shanghai opened the trade zone.

Banks Gain

Cosco Shipping, a unit of China’s biggest shipping group, jumped 10 percent to 4.15 yuan. China Shipping Development Co. surged 10 percent to 5.05 yuan. China will promote construction of “maritime power,” the official Xinhua News Agency reported, citing a Politburo meeting yesterday.

Huaxia Bank paced gains for lenders, surging 2 percent to 8.79 yuan. Shanghai Pudong Development Bank Co. rose 1.4 percent to 10.40 yuan.

The seven-day repurchase rate, a gauge of funding availability in the banking system, fell for a fourth day, dropping five basis points to 4.57 percent, according to a weighted average compiled by the National Interbank Funding Center.

The Shanghai index is valued at 8.8 times projected 12-month earnings, while the MSCI Emerging Markets Index has a multiple of 10.5, according to data compiled by Bloomberg. Trading volumes in the Shanghai index were 43 percent above the 30-day average for this time of day, while 100-day volatility fell to the lowest level in a year yesterday.

Growth Targets

“Big-caps’ low valuations are attractive to investors,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “The market is also expecting good policies” from this month’s Central Economic Working Conference, where the government may release details on its reform plans, he said.

China may set its 2014 gross domestic product growth target at 7 percent, down from 7.5 percent this year, the Economic Information Daily said yesterday, citing research groups. Economists estimate growth in gross domestic product will slow to 7.5 percent next year from 7.6 percent this year, according to the median projection in Bloomberg News surveys last month.

HSBC Holdings Plc and Markit Economics’ services Purchasing Managers’ Index had a reading of 52.5 for last month, compared with 52.6 in October. A number more than 50 indicates an expansion. The official non-manufacturing PMI was 56 last month, compared with 56.3 in October, according to a report yesterday.

“While the overall situation is good, the environment for economic and social development next year is not optimistic,” President Xi Jinping said at a symposium on Nov. 22, according a report from Xinhua yesterday. Xi’s comments about economic development, which echoed past statements by party officials, may reflect efforts to tamp expectations for growth in 2014.

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