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China’s Stocks Rise to Eight-Month High as Chalco Rallies

China’s stocks rose to an eight-month high, led by financial and commodity shares, on speculation the government is accelerating state-owned enterprise reform and relaxing rules to help brokerages free up capital for expansion.

China Everbright Bank Co. gained 4.5 percent and Everbright Securities Co. climbed 3.3 percent on plans for their parent company to become a joint stock company. Citic Securities Co. and Haitong Securities Co., the largest-listed brokerages, soared more than 4 percent. The China Securities Regulatory Commission plans to lower some risk-management requirements on brokerages, the China Securities Journal reported. Aluminum Corp. of China Ltd. and China Shenhua Energy Co. led rallies for metal and coal producers with gains of at least 2.6 percent.

The Shanghai Composite Index rose 1.7 percent to close at 2,223.33, the highest level since Dec. 10, while the CSI 300 Index advanced 2 percent. China plans to revamp the ownership of China Everbright Group Ltd. in the latest shake up of state businesses. Communist Party leaders had pledged to give markets a “decisive” role in the world’s second-biggest economy.

“Everbright is one good example of SOE reform taking place and any news about speeding up of these reforms will boost the market,” said Mao Sheng, an analyst for Huaxi Securities Co. in Chengdu. “The market is in an upward trend even though we might see the occasional correction.”

The Hang Seng China Enterprises Index added 1.4 percent at 3:12 p.m. local time. Trading volumes in the Shanghai index were 43 percent above the 30-day average, according to data compiled by Bloomberg.

Monetary Easing

The Shanghai index has rebounded 12 percent from this year’s low in January amid signs of monetary easing, along with accelerated government spending and gains in manufacturing industries. Data last week showed a Purchasing Managers’ Index rose to 51.7 in July from 51 the previous month, beating the 51.4 estimate of analysts polled by Bloomberg.

China’s central bank presided over a bigger-than-estimated surge in new credit in June and has cut reserve requirements for some lenders, while local media reported the PBOC set up a 1 trillion yuan ($162 billion) lending facility with the China Development Bank to fund housing projects.

The People’s Bank of China warned that the country’s credit and money supply have increased rapidly and indicated that it will refrain from broader monetary easing to support growth.

“The total debt level has been rising relatively quickly,” the PBOC said in its second-quarter monetary policy report on Aug. 1. “Our existing money supply and credit are already relatively large and their growth is also high.”

SOE Reform

The non-manufacturing Purchasing Managers’ Index was 54.2 in July, compared with 55.0 in June, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. A reading over 50 indicates expansion.

Gauges of material and energy stocks in the CSI 300 jumped 3.1 percent and 2.2 percent respectively. Shenhua Energy, the biggest coal producer, gained for the ninth time in 10 days, adding 2.6 percent. The stock has rebounded 25 percent from this year’s low on March 11.

“On the back of recovering market sentiment, coal stocks have rebounded 20 to 30 percent since recent lows in March but given the fragile fundamentals, we remain cautious in the medium term and still rank Shenhua relatively higher,” China International Capital Corp. analysts led by Hongyu Cai wrote in a note dated today. Consensus first-half earnings estimates for coal companies may be too high, they said.

Chalco, the biggest aluminum producer, surged 5.6 percent, while Baoshan Iron & Steel Co., the largest-listed steelmaker, added 4.5 percent.

Brokerages Rally

As the ruling Communist Party pledges a bigger role for markets in the economy, state businesses such as Everbright and Citic Group -- China’s first state-owned investment corporation -- are getting ownership makeovers.

“Using Citic’s experience as a guide, we expect Everbright Group will start the process of listing once the ownership revamp is complete,” Li Yamin, a Shanghai-based analyst at Ping An Securities Co., wrote in a note today.

The Ministry of Finance and Central Huijin Investment Ltd., the sovereign investor that controls China’s largest banks, will inject assets in the proposed restructuring of China Everbright Group Ltd., a Beijing company with $420 billion of assets from banking and broking to tourism.

Bank of Communications Co. said last week it’s studying plans to deepen its mixed-ownership structure, a move that may introduce more private and foreign investment into the state-controlled bank.

A gauge of financial companies in the CSI 300 rose 2.4 percent. At least eight of the 10 best performers were brokerages, with Haitong Securities Co. and Founder Securities Co. surging more than 4 percent. Citic Securities and Haitong Securities were the biggest gainers in the H-shares gauge, adding at least 5.9 percent.

The CSRC plans to lower some risk management requirements on brokerages, the China Securities Journal reported, without citing anyone. The net capital-net assets ratio requirement may be cut to 20 percent from 40 percent, it said.

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