China’s stocks rose, capping a second week of gains for the benchmark index, as the prospect of more monetary stimulus overshadowed concern that a flood of new share sales will divert funds from existing equities.
A measure of real-estate shares in Shanghai climbed to a record, while China Vanke Co. advanced 1 percent in Shenzhen. Shanghai Waigaoqiao Free Trade Zone Development Co. rallied 10 percent after the Shanghai Securities News reported that the city will restructure more than 10 state-owned enterprises. Bright Dairy & Food Co. led gains for consumer-staples producers. Hong Kong Exchanges and Clearing Ltd. surged 3.6 percent amid optimism over the city’s stock link with Shenzhen.
The Shanghai Composite Index added 0.9 percent to 5,166.35 at the close, taking this week’s advance to 2.9 percent. Data this week showed parts of the economy stabilizing as factory output and credit growth accelerated in May, while exports and producer prices slid. The People’s Bank of China may cut banks’ reserve-requirement ratios as early as this weekend, according to China Merchants Bank Co.
“May’s macro data was generally better than April but wasn’t strong enough to confirm a firmer recovery,” said Clement Cheng, a Hong Kong-based trader at RBC Investment Management. “That’s how the market is expecting further monetary loosening to come.”
The CSI 300 Index increased 0.5 percent. Hong Kong’s Hang Seng China Enterprises Index added 1.8 percent, while the Hang Seng Index rose 1.2 percent.
The Shanghai gauge has surged 152 percent in the past year on a record jump in margin debt and bets the government will lower borrowing costs. The measure is valued at 19.4 times 12-month projected earnings, the highest level since December 2009, according to weekly data compiled by Bloomberg.
Margin traders increased holdings of shares purchased with borrowed money for a 14th day on Thursday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising to a record 1.44 trillion yuan ($232 billion).
Subscriptions for 25 A-share initial public offerings including Guotai Junan Securities Co. may tie up 6.68 trillion yuan of liquidity starting mid-June, according to the median estimate of six analysts surveyed by Bloomberg. Funds to be locked up may be the highest since January 2014 when China resumed IPO approvals, according to CICC and Guotai Junan.
Aggregate financing, which includes bank loans and off-balance credit, was 1.22 trillion yuan in May, the PBOC said after the market close on Thursday. That compares with the median estimate of 1.13 trillion yuan in a Bloomberg survey. New yuan loans were 900.8 billion yuan, compared with a survey forecast of 850 billion yuan.
Economic stabilization suggested by recent data may be too early to claim as investment demand remains weak, the Economic Information Daily said in a front-page commentary. The government may introduce more measures to stabilize growth, the newspaper said.
The PBOC may lower the amount banks must set aside as reserves by as much as 100 basis points this weekend to 17.5 percent, according to Liu Dongliang, an analyst at China Merchants Bank. That would be the third reduction this year. HSBC Holdings Plc predicts a 50-basis-point cut in the “coming weeks,” while Societe Generale AG said one more is needed before the end of June.
The Shanghai property index advanced 1 percent. Shanghai Jinqiao Export Processing Zone Development Co. jumped 10 percent. Shanghai Waigaoqiao Group may seek a listing through its Shanghai-listed unit, the Shanghai Securities News reported.
A measure of consumer-staples shares in the CSI 300 jumped 1.8 percent, the second most among 10 industry groups. Kweichow Moutai Co., the biggest producer of baijiu liquor, surged 2.3 percent. Bright Dairy jumped 10 percent for a third day.
A gauge of industrial companies, the best performer over the past year, extended this week’s loss to 2.4 percent. CRRC Corp., formed after merging rail companies CSR Corp. and China CNR Corp., slid 5.4 percent. The industrials sub-index has surged 241 percent over the past year and trades at 40 times reported earnings, compared with the five-year average of 16, according to data compiled by Bloomberg.
In Hong Kong, HKEx rose the most in more than two weeks. Lorraine Chan, a spokeswoman at HKEx, said the Shenzhen link will be announced after regulatory approval, declining to elaborate further.
There’s “talk about Shenzhen-Hong Kong stock connect being ready,” says Linus Yip, an analyst at First Shanghai Securities. “There’s speculative buying but the buying pressure isn’t too strong.” “In the afternoon trade HKEx took the lead helping to lift the market.”