Chinese Stocks Rally as Shenzhen Completes Best Week Since 2008

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China’s stocks rose, with the Shenzhen Composite Index capping its biggest weekly gain since 2008, as investors speculated the government will boost technology spending and brokerages rallied after Guotai Junan Securities Co. said it plans an initial public offering.

Leshi Internet Information & Technology (Beijing) Co., which has the biggest weighting in the ChiNext index in Shenzhen, jumped 10 percent. Guotai Junan International Holdings Ltd., a unit of Guotai Junan, surged 9.6 percent to a record in Hong Kong. Huatai Securities Co. jumped 4.4 percent in Shanghai after people with knowledge of the matter said the brokerage is poised to raise $4.5 billion from a first-time share sale in Hong Kong. Guosen Securities Co. rose 7 percent in Shenzhen.

The Shenzhen Composite added 1 percent to 2,740.92 at the close. It advanced 12 percent this week for the biggest weekly gain since November 2008. The Shanghai Composite Index climbed 2.8 percent to 4,657.60. Technology companies rallied this week after the State Council announced its “Made in China 2025” plan aimed at making selective manufacturing industries more global competitive.

“Shenzhen has lots of smaller companies, which investors believe represent a part of China’s new economy,” said Wu Kan, a money manager at Dragon Life Insurance Co. in Shanghai, which oversees about $3.3 billion. “That’s why Shenzhen’s stocks are performing better. The IPO news on Guotai Junan has stimulated the brokerage sector.”

The CSI 300 Index rose 2.3 percent. Hong Kong’s Hang Seng China Enterprises Index jumped 2.2 percent to the highest level since May 4, and the Hang Seng Index gained 1.7 percent. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.-listed Chinese companies, added 1.6 percent in New York on Thursday.

Shenzhen Rally

The Shenzhen index has jumped 166 percent in the past year, outpacing rallies in Shanghai and Hong Kong. Investors have piled into the private companies that dominate that city’s bourse after the government pledged to support developing industries, including technology and health care.

The ChiNext index slipped from a record with a 0.3 percent decline. Its 14-day relative strength gauge, measuring how rapidly prices have advanced or dropped during a specified time period, was at 80.1 on Friday, above the 70 level for an 11th day. Readings above 70 indicate a price may be poised to fall.

The 2025 plan “indicates the Chinese government’s strong intention to learn from the German growth model with solid world-class manufacturing industries, though never easy to replicate,” Jason Sun and Minggao Shen, Citigroup Inc. analysts wrote in a report dated May 19.

Brokerages Surge

The Shenzhen Composite is valued at 36.5 times projected 12-month earnings, compared with 17.7 for the Shanghai Composite, according to data compiled by Bloomberg. Shenzhen’s stocks look overvalued and may tumble 15 percent in coming weeks, Stephen Sheung, head of investment strategy at Sun Hung Kai Securities Ltd. in Hong Kong, said on Bloomberg Television.

The Shanghai index advanced 8.1 percent this week, the biggest gain since the week ended Dec. 5, after weak manufacturing data spurred speculation the government may escalate measures to stimulate the economy.

Trading volumes in the Shanghai Composite were 18 percent above the 30-day average for this time of day. The index has surged 130 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.

A sub-index tracking financial stocks advanced 3.1 percent. Citic Securities Co. added 2.5 percent. Sealand Securities Co. soared 10 percent to a record close.

Guotai Junan plans to sell as many as 1.53 billion IPO shares through the Shanghai Stock Exchange, according to a pre-IPO prospectus. Shenzhen Energy Group Co. and Dazhong Transportation (Group) Co., which own shares in Guotai Junan Securities, both jumped 10 percent.

Margin traders increased holdings of shares purchased with borrowed money for an eighth day on Thursday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising by 0.9 percent to a record 1.32 trillion yuan ($213 billion).

— With assistance by Shidong Zhang

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