Chinese Stocks Rise to Seven-Year High as Industrial Shares Gain

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Chinese stocks rose the most in three months, led by nuclear-related and consumer-staples companies, amid speculation the government will take more measures to bolster economic growth.

The Shanghai Composite Index rallied 2.7 percent to a seven-year high of 4,194.82 at the close. Premier Li Keqiang said this week that the government would take more targeted measures to boost the economy. Dongfang Electric Corp. paced gains for industrial shares after the State Council approved the construction of a nuclear reactor in coastal areas. Liquor makers Kweichow Moutai Co. and Wuliangye Yibin Co. soared more than 9 percent. PetroChina Co. jumped 4.3 percent.

The Shanghai gauge fell 1.2 percent on Wednesday after data showed after data showed the economy expanded at the slowest quarterly pace in six years. The index has jumped 76 percent in the past six months, the most among 92 benchmark indexes globally, on speculation the central bank will extend cuts in interest rates and reserve-requirement ratios.

“It’s a bull market, so every time there’s a decline, it’ll lure fresh funds waiting for bargains,” said Wei Wei, an analyst at West China Securities Co. in Shanghai.

The CSI 300 Index climbed 3 percent. Hong Kong’s Hang Seng China Enterprises Index added 1.7 percent, while the Hang Seng Index rose 0.4 percent. Contracts on the small-cap CSI 500 Index and the large-cap SSE 50 Index started trading Thursday.

Nuclear Stocks

Gauges of consumer staples, industrial companies and energy producers rose more than 3 percent on the CSI 300.

Nuclear power equipment makers Shanghai Electric Group Co. and Sichuan Danfu Compressor Co. both surged 10 percent. The State Council approved the construction of the Hualong-1 nuclear reactor, according to a statement on the government’s website. Trainmakers China CNR Corp. and CSR Corp. jumped 10 percent.

Moutai surged the most since November 2008. The biggest maker of baijiu liquor, which is scheduled to report 2014 earnings April 21, expects growth to continue to moderate from the pace of past years and plans to counter the slowdown by focusing on mass-market consumers, according to a statement.

PetroChina, the nation’s biggest oil company, rallied to the highest level since Jan. 26. West Texas Intermediate for May delivery was at $56.11 a barrel in electronic trading in New York. The contract rose $3.10 to $56.39 on Wednesday, the highest close since December.

Betting against China’s most expensive stocks just got a whole lot easier. Futures on the CSI 500 started trading on Thursday, giving investors a cheaper way to wager on declines in shares valued at more than twice the level of the Shanghai Composite.

Smallcap Valuations

Bocom International Holdings Co., China International Capital Corp. and Deutsche Bank AG say the new futures will probably weigh on smaller stocks as investors bet valuation premiums over larger companies will narrow.

“Interest should be high,” Hao Hong, the chief China strategist at Bocom International in Hong Kong, said in e-mailed comments on Wednesday. “It’s a way to lock in gains from high-valuation stocks, as many of these stocks do not have liquidity when there is a selling stampede.”

The Shanghai index is valued at 16.1 times 12-month projected earnings, the highest since April 2010 and above its five-year average multiple of 10.2, according to data compiled by Bloomberg. The MSCI Emerging Markets Index trades at 12.5 times. Trading volumes in the Shanghai index were 17 percent higher than the 30-day average Thursday, according to data compiled by Bloomberg.

Investors, especially new investors, should “fully evaluate risk in stock market investment” and be cautious, China Securities Regulatory Commission Chairman Xiao Gang said today, according to speech on the CSRC’s website.

Margin traders increased holdings of shares purchased with borrowed money on Wednesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising by 1.2 percent to a record 1.15 trillion yuan ($185 billion).

— With assistance by Shidong Zhang

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