China’s stocks rose in volatile trade as power producers surged on prospects industry deregulation will boost earnings and Bank of Communications Co. paced gains for lenders after the government allowed mixed-ownership reform.
GD Power Development Co. led an advance for utilities with a 10 percent jump. The Securities Times reported GD Power may become the first company to get a license to sell electricity to end-users. Bank of Communications Ltd. climbed in Shanghai and Hong Kong after the lender said it will explore adding private capital and giving strategic investors a more effective role.
The Shanghai Composite Index rose 1.7 percent to 4,967.90 at the close, halting a two-day, 5.4 percent slump. The benchmark gauge had fallen as much as 2.5 percent amid concern investors were pulling funds to partake in new share sales before rebounding on signs the government is accelerating reform of state-owned enterprises to bolster an economy that grew last year at the slowest pace since 1990.
“After the recent correction, which has affected almost all sectors, investors might be starting to look for stocks that over-corrected,” said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co. “The overall trend remains positive as local investors seem to continue to be confident in the stock market.”
The ChiNext index of smaller companies jumped 4.2 percent after slumping 7.9 percent over the past two days. The CSI 300 Index gained 1.5 percent. Hong Kong’s Hang Seng China Enterprises Index added 1.2 percent, while the Hang Seng Index rose 0.7 percent.
The Shanghai Composite has jumped 140 percent in the past 12 months through Tuesday, the most among benchmark global indexes tracked by Bloomberg, as novice investors piled into stocks on bets gains will continue. Record margin debt has fueled the advance.
Gauges of utility and technology stocks in the CSI 300 rose at least 3.3 percent, the best performers among 10 industry groups. Huaneng Power International Inc., the listed unit of China’s largest power group, jumped 9 percent, while Huadian Power International Corp. surged by the 10 percent daily limit. Currently, only grid operators are allowed to sell power directly to end-users. East Money Information Co. led a rally in the ChiNext, soaring 10 percent.
Bank of Communications, part-owned by HSBC Holdings Plc, gained 0.8 percent in Shanghai and climbed 1.7 percent in Hong Kong. The State Council approved the bank’s plan to introduce private capital, according to a statement to the Hong Kong and Shanghai stock exchanges on Tuesday. The government will remain Bocom’s controlling shareholder and the bank will explore employee share ownership and deepen salary reforms, it said.
Stocks fell earlier on speculation new share sales will sap liquidity and the government will curb margin-lending growth.
Subscriptions for 25 upcoming initial public offerings including Guotai Junan may tie up 6.68 trillion yuan ($1.08 trillion) of liquidity starting Wednesday, according to the median estimate of six analysts surveyed by Bloomberg. The funds lock-up may be the highest since January 2014 when China resumed IPO approvals, according to China International Capital Corp. and Guotai Junan.
Chinese brokerages are required to meet the 100 percent requirement for liquidity-covered ratios and net stable funding ratios by end-June, Caixin reported, citing guidelines by the securities industry association. The requirement could substantially curb the margin lending and short selling businesses of smaller brokerages, Caixin cited an unidentified brokerage employee as saying.
Margin traders increased holdings of shares purchased with borrowed money on Tuesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising by 0.2 percent to a record 1.46 trillion yuan.
A market crash may come within six months, Bocom International Holdings Co. said Tuesday, citing an analysis of global bubbles over 800 years that shows the speed of gains in China mirroring past market peaks.
Macquarie Investment Management, whose Asian stock fund is outperforming 97 percent of peers in 2015, has already eliminated exposure to mainland shares after turning bearish for the first time in seven years. The government may engineer a correction if valuations rise much further, according to CLSA Ltd.
— With assistance by Shidong Zhang