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China’s Stocks Post First Gain in Three Days as Auto Shares Rise

China’s stocks rose for the first time in three days as rallies for technology and auto companies overshadowed concern new share offerings will divert funds from existing equities.

Han’s Laser Technology Co., a supplier to Apple Inc., jumped 4.9 percent as people with knowledge of the matter said the U.S. company’s suppliers are preparing to manufacture the largest-ever iPad. Shenzhen Auto Electric Power Plant Co. climbed 1.9 percent, while BYD Co. advanced 4.6 percent in Hong Kong on optimism government support to build more charging facilities will spur demand for electric vehicles. Agricultural Bank of China Ltd. slipped after posting slowing profit growth.

The Shanghai Composite Index added 0.1 percent to 2,209.47 at the close. The gauge dropped the most in two weeks yesterday amid concern new initial public offerings may divert funds from existing equities. Ten companies are marketing their IPOs this week, freezing about 800 billion yuan ($130 billion), the Shanghai Securities News reported. Of the 10, four announced plans to raise almost 4 billion yuan in their IPOs in Shanghai.

“The market will have relatively big pressure this week as the IPO share sales will drain capital from the market,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “The market is still in a correction mode though we’ll see some mild rebounds after sell-offs.”

The CSI 300 Index climbed 0.2 percent to 2,327.60. The Hang Seng China Enterprises Index slid 0.5 percent at 3:38 p.m. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.2 percent yesterday.

Shenzhen Link

The Shanghai Composite has rebounded 11 percent since mid-March on prospects China will reduce government ownership of state-owned enterprises and a link between exchanges in Hong Kong and Shanghai will fuel inflows.

Investors are underestimating the longer-term impact of the bourses link, said Chen Li, China equity strategist at UBS AG, in a note before a briefing in Shanghai. The A-share holdings of overseas investors may increase to 10 percent of the total market capitalization of free-floating A shares, he said.

A link connecting bourses in Hong Kong and Shenzhen has been submitted for approval, Caixin reported yesterday on its microblog, citing Xiao Zhijia, a deputy director at the Shenzhen Municipal Government Financial Services Office. The link would be positive for Shenzhen stocks though it is unlikely to boost shares by the same magnitude as the Shanghai-HK connect, said Wu Kan, fund manager at Dragon Life Insurance Co.

Electric Cars

China is considering providing as much as 100 billion yuan ($16 billion) in funding to build more electric-car charging facilities, according to two people familiar with the matter. Support for the electric-car industry forms part of Premier Li Keqiang’s push to rein in pollution in China, the world’s biggest carbon emitter, while moving forward at the same time with goals of urbanizing the country.

BYD, the electric-car maker partially owned by Warren Buffett’s Berkshire Hathaway Inc., gained 2 percent in Shenzhen. Kandi Technologies Group Inc. a maker of alternative-energy cars, rose 4.5 percent in New York yesterday.

Apple’s suppliers are preparing to manufacture the company’s largest-ever iPad, with production scheduled to commence by the first quarter of next year, according to people with knowledge of the matter. Han’s Laser rose to a record high.

The Shanghai Composite is valued at 8.1 times 12-month projected earnings, compared with the five-year average multiple of 11.1, according to data compiled by Bloomberg. Trading volumes in the index were 24 percent below the 30-day average today.

Buy Bonds

China’s benchmark money-market rate rose for the first time in almost a week as IPOs and month-end demand reduced the cash supply. The seven-day repo rate, a gauge of funding availability between banks, rose 13 basis points to 3.42 percent, according to a fixing published at 11 a.m. in Shanghai by the National Interbank Funding Center.

Investors’ rush into Chinese IPOs, which have rallied an average 94 percent from their issue price this year, or seven times more than the global average, contrasts with lackluster demand among local investors to participate in the broader stock market. Traders have liquidated about 1.3 million mainland equity accounts since the end of March, leaving the number of funded accounts at a four-year low.

Investors should buy bonds over stocks given signs of slowing Chinese economic growth, Hao Hong, Hong Kong-based chief China strategist at Bocom International Holdings Co., wrote in a note. Slow growth signs include electricity consumption and weak bank lending due to slumping deposits, he wrote.

Agricultural Bank declined 0.4 percent. The lender boosted provisions for potential soured credit by 56 percent to 15.6 billion yuan in the three months ended June 30 from a year earlier. Net income rose 12 percent, the weakest pace in five quarters, to 50.6 billion yuan.

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