China Stocks Advance to Seven-Year High on Stimulus Speculation

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China Ocean Shipping Company
China Cosco, the world’s largest operator of dry-bulk ships, headed for the highest close since May 5. Photographer: Ramin Talaie/Bloomberg

China’s stocks rose to a seven-year high as a gauge of factory output showed production contracting for a third straight month, boosting speculation the government will escalate efforts to stimulate the economy.

China Cosco Holdings Co. and China Shipping Development Co. both jumped by the 10 percent daily limit after the two companies said they plan to form a venture in Singapore. Fiberhome Telecommunication Technologies Co. advanced 2.2 percent after the government said it will accelerate construction of a broadband network. Goldin Properties Holdings Ltd. and Goldin Financial Holdings Ltd., controlled by billionaire Pan Sutong, plunged by a record in Hong Kong.

The Shanghai Composite Index climbed 1.9 percent to 4,529.42 at the close, the highest level since February 2008. The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 49.1 for May, missing analysts’ estimates.

“The worse the data, the more speculation that more monetary stimulus will be coming,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “The market has a consensus that the economy won’t pick up any time soon so the impact of the economic data isn’t too big.”

The CSI 300 Index rose 1.8 percent. Hong Kong’s Hang Seng China Enterprises Index fell 0.7 percent, while the Hang Seng Index lost 0.2 percent. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.2 percent in New York on Wednesday.

Policy Easing

Trading volumes in the Shanghai Composite were 17 percent lower than the 30-day average. The index has surged 124 percent in the past 12 months amid speculation the government will extend interest-rate cuts and accelerate reforms of state-owned enterprises to bolster growth.

The measure is valued at 17.3 times projected 12-month earnings, compared with the five-year average multiple of 10.2, according to data compiled by Bloomberg.

The preliminary manufacturing index, known as the flash PMI, missed the median estimate of 49.3 in a Bloomberg survey. Numbers below 50 indicate contraction. Manufacturing output slipped to a 13-month low, the PMI report showed, while employment continued to shrink.

The government has escalated efforts to prevent a hard landing in the world’s second-biggest economy, adding fiscal loosening to monetary easing. In the latest moves, it relaxed financing rules for local governments in a bid to boost demand for credit, while three interest-rate cuts since November aim to lower borrowing costs.

Consumer Record

“The policy easing hasn’t shown its effect yet,” said Ding Shuang, Chief China economist at Standard Chartered Plc in Hong Kong, adding that he expects the economy to stabilize in the third quarter. “Credit supply has been sufficient, but demand has remained weak.”

China Cosco, the world’s largest operator of dry-bulk ships, closed at the highest level since May 5, while China Shipping, a unit of China’s second-biggest sea-cargo group, rose to its highest since April 30.

The two companies said they plan to set up a venture in Singapore, which will buy four ships from Vale SA for $445 million.

Goldin Plunge

In Hong Kong, there was no immediate explanation for the slump in Goldin stocks, which had surged more than 300 percent in 2015 before the rout. The tumble follows the mysterious 47 percent plunge in 24 minutes by Hanergy Think Film Power Group Ltd. on Wednesday, which erased $19 billion in market value before trading was suspended.

The CSI 300 consumer-staples index climbed 3.6 percent to an all-time high. Beijing Dabeinong Technology Group Co. surged by the 10 percent daily limit and Beingmate Baby & Child Food Co. added 5 percent.

China’s mutual funds have “just” started to become net buyers of stocks, the China Securities Journal reported, citing people from multiple larger fund firms. Some funds started to have more buyers than sellers “just a while ago” after facing pressure from selling orders during the bull market, according to the report.

Margin traders increased holdings of shares purchased with borrowed money for a seventh day on Wednesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising by 1.2 percent to a record 1.31 trillion yuan ($211.2 billion).

— With assistance by Shidong Zhang

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