China’s stocks rose, sending the benchmark index to its biggest gain in a week, as renewed economic optimism overshadowed concern that new equity sales will divert funds from existing shares.
Liquor maker Kweichow Moutai Co. jumped the most in almost three months as consumer-staples producers rallied the most among industry groups. Sichuan Swellfun Co. surged 10 percent. BYD Co., the automaker partially owned by Warren Buffett’s Berkshire Hathaway Inc., rose 4.3 percent in Hong Kong.
The Shanghai Composite Index added 0.5 percent to 2,033.93 at the close. A preliminary report from HSBC Holdings Plc and Markit Economics yesterday showed an unexpected expansion in manufacturing. An improving economic outlook is bolstering the outlook for stocks in the second half, Zhang Yanbing, an analyst at Zheshang Securities Co., said in Shanghai.
“It looks like we will get some good data next month,” Zhang said. “Along with small stimulus from the government, it won’t be a problem for the index to hit 2,500 by the end of the year. The index is trading in a very tight range now because it’s still impacted by new share sales.”
The Hang Seng China Enterprises Index rebounded 0.6 percent at 3:07 p.m., after slumping 1.9 percent yesterday. The CSI 300 Index added 0.5 percent at the close. The Bloomberg China-US Equity Index declined 0.9 percent yesterday. Trading volumes in the Shanghai index were 7 percent below the 30-day average, according to data compiled by Bloomberg.
‘Tug of War’
A measure of consumer-staples shares in the CSI 300 surged 1.7 percent for the steepest gain since April 8. Kweichow Moutai, the biggest maker of baijiu liquor, rose 4.6 percent. Sichuan Swellfun Co., part-owned by Diageo Plc, jumped by the daily limit. BYD led gains for automakers, posting its biggest advance in a month.
The Shanghai index has fallen 3.9 percent this year on concerns falling property prices will slow the economy. The measure has been stuck in range trade of about 200 points in the first half because of a “tug-of-war” between concerns about an economic slowdown and expectations of policy easing, China International Capital Corp. strategists led by Hanfeng Wang wrote in a report today.
Chinese stocks will do better in the second half as policy easing may improve liquidity and stabilize growth expectations, Wang wrote. The brokerage targeted gains of up to 20 percent for 2014, with large-company shares outperforming smallcaps. The ChiNext index of small-cap shares has gained 5 percent this year, compared with an 8 percent loss for the CSI 300.
CICC’s market forecast contrasts with Bocom International Holdings Co. strategist Hao Hong, who expects the Shanghai Composite to continue trading in a range of 1,900 to 2,100 in the second half. Fidelity Worldwide Investment’s Catherine Yeung sees Chinese equities remaining “directionless,” with no particular catalyst to drive shares higher.
The Chinese economy will probably “muddle its way through” for the rest of year, Yeung, investment director for equities at Fidelity Worldwide, said in a phone interview.