China’s Stocks Rise Most in Three Months on Trade-Zone Expansion

Tianjin Port
A Chinese flag flies on a vessel moving past shipping containers being unloaded at a Tianjin Port Group Co. dock in Tianjin, China. Tianjin Port Co. surged 5.2 percent, leading a rally for port operators after the official Xinhua News Agency cited Xi as saying Shanghai’s free-trade zone can be replicated in other places. Photographer: Nelson Ching/Bloomberg

China’s stocks rose, sending the benchmark index to the biggest gain in three months, after industrial profits increased and President Xi Jinping signaled a nationwide expansion of free-trade zones.

Tianjin Port Co. surged 8.4 percent, leading a rally for port operators after the Xinhua News Agency cited Xi as saying Shanghai’s free-trade zone can be replicated in other places. Shipbuilder China CSSC Holdings Ltd. paced gains for industrial companies after data showed their profits grew 0.4 percent last month, compared with a drop in August. Poly Real Estate Group Co. surged 3.5 percent after third-quarter profit jumped.

The Shanghai Composite Index halted a five-day losing streak, rebounding 2.1 percent to 2,337.87 at the close, while Hong Kong’s Hang Seng China Enterprises Index surged 2.3 percent. Stocks extended gains in the afternoon on speculation the government is accelerating stimulus to support the economy.

“Stocks have been oversold in the past few days and we are back to an upward trend,” said Zhang Haidong, analyst at Tebon Securities Co. in Shanghai. “The concerns about the delay of the stock connect have been priced in.”

The Shanghai gauge has fallen 2.2 percent from this year’s peak on Oct. 9 amid uncertainty over a start date for an exchange link with Hong Kong. The measure rallied 15 percent in the third quarter, wiping out the year’s losses, as funds flowed into Chinese equities in anticipation of the link.

The CSI 300 Index added 2 percent, with nine out of 10 industry groups gaining at least 1.4 percent. Hong Kong’s Hang Seng Index rose 1.6 percent. Stocks added to gains in the afternoon on speculation the People’s Bank of China is taking more steps to reduce borrowing costs.

PBOC Speculation

“There’s talk that the central bank is going to release more liquidity to improve the economic situation, resulting in the afternoon’s surge,” said Zhang Limin, an investment adviser at China Securities Co. The central bank injected about 200 billion yuan ($32.7 billion) into some national and regional lenders, a government official familiar with the matter said on Oct. 17.

Commercial banks were asked to lower lending rates in order to obtain liquidity support from the PBOC, Australia & New Zealand Banking Group Ltd. economists Li-Gang Liu and Hao Zhou wrote in a note today, citing an unidentified local media report. The market has called this operation, with lending going to selected industries such as agriculture and high-end equipment, a Medium-Term Lending Facility, they wrote.

A gauge of industrial companies in the CSI 300 surged 3.4 percent, the most among 10 groups, led by rail and shipping shares. Data from the statistics bureau showed profit at industrial companies grew to 563.4 billion yuan ($92.2 billion) in September from a 0.6 percent drop in August. For the first nine months of the year, profits climbed 7.9 percent.

Ports, Shippers

China Railway Group Ltd. jumped more than 6 percent in Shanghai and Hong Kong. Government officials involved said the State Council has ordered the merger of trainmakers China Northern Locomotive & Rolling Stock Industry Group Corp. and CSR Group into one company. CNR and CSR remain suspended from trading.

Tianjin Port soared 8.4 percent. Ningbo Port Co. advanced 3.1 percent. China CSSC rallied 9.5 percent. The experience gained at Shanghai’s free-trade zone can be used for more places as soon as possible, Xi was cited as saying at a meeting of the leading group for overall reform. The State Council may approve trade zones in Guangdong, Fujian and Tianjin within this year, Reuters reported, citing two people close to authorities it didn’t identify.

Rising Volatility

The Shanghai trade area, which celebrated its one-year anniversary last month, started as a testing ground for liberalizing interest rates and boosting the yuan’s role in global transactions. In July, Shanghai said it would allow foreign companies registered in the zone to invest in more industries, including technology for oil exploration, motorcycle production and property.

A measure of property stocks in Shanghai jumped 3 percent, the most among five industry groups. Poly Real Estate, the second-biggest developer, posted its biggest gain since July 24 after third-quarter net income surged to 2.26 billion yuan from the previous year’s 1.21 billion yuan.

In Hong Kong, retailer Belle International Holdings Ltd. soared 9.9 percent after reporting a first-half net income of 2.08 billion yuan, compared with 1.93 billion yuan in the same period last year.

Option wagers on Hong Kong stocks rose to the highest level this year as regulators’ silence over the timing of an exchange link with Shanghai prompted traders to prepare for rising volatility. The number of outstanding contracts on the Hang Seng Index climbed to 337,540 yesterday, the most since December 2013, while trading of puts and calls on Hong Kong Exchanges & Clearing Ltd. was 54 percent higher than this month’s average.

“In the shorter term, we believe that newsflow surrounding the launch of the program, as well as volatility surrounding the early days of trading once the program begins, may spark a pick up in shorter-term volatility,” said William Stephens, Asia Head of Synthetic Equity and Derivatives Research at Deutsche Bank AG in Hong Kong.

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