Chinese Stocks Rise to Seven-Year High on Manufacturing Data

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BYD Co.'s Assembly Plant
Employees install an engine on a BYD Co. S6 sport-utility vehicle (SUV) at the company's assembly plant in the Pingshan district of Shenzhen, China. BYD, the Chinese carmaker partially owned by Warren Buffett’s Berkshire Hathaway Inc., surged 10 percent in Shenzhen and 6.3 percent in Hong Kong. Photographer: Brent Lewin/Bloomberg

China’s benchmark stock index rose to the highest level since March 2008 after government data showed manufacturing unexpectedly expanding.

XJ Electric Co. and TBEA Co. rallied 10 percent to lead gains for industrial companies. The official Purchasing Managers’ Index climbed to 50.1 in March, exceeding the estimate of 49.7 and February’s 49.9, while HSBC Holdings Plc and Markit Economics’ manufacturing PMI surpassed analysts’ forecasts. China Construction Bank Corp. and China Life Insurance Co. paced gains for financial shares after the government announced plans to start an insurance system for bank deposits.

The Shanghai Composite Index rose 1.7 percent to 3,810.29 at the close, while Hong Kong’s Hang Seng China Enterprises Index added 1.6 percent. The rebound for the official factory gauge suggests stimulus efforts have started to bolster factories in the world’s second-largest economy.

“Certainly the PMI helped,” said Daphne Roth, head of Asian equity research at ABN Amro Bank NV in Singapore. “Capital market reform is ongoing and the government has the flexibility to boost the market. We still like China despite its outperformance. You can’t have the market going one way up and we will see volatility along the way.”

The CSI 300 Index advanced 1.8 percent. The Hang Seng Index added 0.7 percent. The Bloomberg China-US Equity Index was little changed on Tuesday. Trading volumes in Shanghai were 18 percent above the 30-day average for this time of day.

The Shanghai index rose 16 percent last quarter, adding to a world-beating 85 percent rally since the end of June, amid speculation of further monetary easing. Mainland investors opened about 4 million accounts to trade stocks last month.

Manufacturing Gauges

Gauges of telecom, technology and consumer-discretionary companies were the best performers in the CSI 300 with increases of at least 2.3 percent. BYD Co., the carmaker partially owned by Warren Buffett’s Berkshire Hathaway Inc., surged 10 percent in Shenzhen and rose 9.9 percent in Hong Kong. Apple Inc. supplier Han’s Laser Technology Industry Group Co. and China United Network Communications Ltd. both soared 10 percent.

The gain for the factory gauge reflected accelerated production activity after the Spring Festival holiday, while the government’s recent measures to help growth have boosted optimism, the statistics bureau and the China Federation of Logistics and Purchasing in Beijing said in a statement.

The central bank has cut interest rates twice since November and lowered lenders’ reserve-requirement ratios once to ensure economic growth meets this year’s target of 7 percent.

‘Flocking In’

China said an insurance system for bank deposits will start on May 1, a step toward scrapping remaining controls on interest rates and allowing lenders to fail in a more market-driven economy. Deposits and interest up to 500,000 yuan ($81,000) will be fully covered, the State Council said on Tuesday.

China Construction Bank rose 0.8 percent. Ping An Bank Co. climbed 1.3 percent. China Life Insurance, the biggest insurer, jumped 2 percent. Citic Securities Co. and Haitong Securities Co., the largest listed securities firms, climbed 3.4 percent and 5.9 percent respectively amid speculation increased stock turnover and margin trading will boost earnings.

The number of new equity accounts surged to a record during the two weeks ended March 27, five times the average of the past year, data from China Securities Depository and Clearing Co. showed on Tuesday. About 4 million were opened in March. More than two-thirds of new investors have never attended or graduated from high school, according to a survey by China’s Southwestern University of Finance and Economics.

Water Stocks

“The market will become more and more volatile as retail investors are flocking in,” said Yen Chiu, a Hong Kong-based trader at Shenwan Hongyuan Group Co. “Institutional clients are more cautious and some already started to take profits.”

The balance of margin trading in Shanghai approached the 1 trillion yuan level after surging to 992.1 billion yuan on Tuesday. The Shanghai gauge’s relative strength index climbed to 81 on Tuesday, the highest among major markets worldwide. Readings above 70 are a signal to some traders that shares are poised for a reversal.

Chongqing Three Gorges Water Conservancy & Electric Power Co. and Anhui Water Resources Development Co. both added 2.1 percent. China will boost investment on water-conservation projects as the country’s leaders seek to ensure safe supplies and reduce pollution, Vice Minister of Water Resources Jiao Yong said on Tuesday. Investment in 2015 will surpass last year’s total of about 488 billion yuan, Jiao said.

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