China Stocks Jump Most in Two Months as Data Fuel Stimulus Bets

China's Economy: Is More Weakness Ahead?
  • China GDP growth, industrial output miss analysts' estimates
  • Shanghai margin debt falls to lowest level since October

Chinese stocks jumped the most in two months as weaker-than-estimated economic data fueled speculation of increased stimulus and industrial shares rallied on prospects of state-fund buying.

The Shanghai Composite Index rose 3.2 percent to 3,007.74 at the close, its biggest gain since Nov. 4. China Railway Group Ltd. and Power Construction Corp. of China both surged by the daily limit. Data on Tuesday showed China’s economic growth missed analysts’ estimates last quarter, while industrial production, retail sales and fixed-asset investment all slowed at the end of the year. The government may further ease monetary policy such as cutting interest rates or lenders’ reserve-requirement ratios, according to Northeast Securities Co. and Central China Securities Co.

"There’s a possibility of a cut in banks’ reserve-requirement ratios,” said Shen Zhengyang, a Shanghai-based analyst at Northeast Securities. "Railway and infrastructure companies are the main fulcrum for China to stabilize economic growth.”

China’s stocks have rebounded after entering a bear market on Friday amid concerns about the government’s ability to manage its economy and financial markets. Tuesday’s data showed the economy is growing at two speeds, with old rust-belt industries from steel to cement in decline while consumption, services and technology do better. The slowdown may spur the government to add to six interest-rate cuts since late 2014 and increase fiscal spending.

A gauge of industrial companies in the CSI 300 rose 4.7 percent, the most among the 10 industry groups. China Railway Group and Power Construction both surged 10 percent.

China officially launched the $100-billion Asian Infrastructure Investment Bank on Saturday with an opening ceremony attended by President Xi Jinping. The bank will boost infrastructure investment in Asia and improve integration, he said.

Reorient Financial Markets Ltd. said government-led funds may have entered to bolster the market, which was a typical occurrence on large down days during last year’s $5 trillion rout and has been more sporadic amid the bear-market slump. The Shanghai Composite is the world’s worst-performing major global index this year out of the 93 tracked by Bloomberg with a 15 percent decline.

“The national team may be stepping in to boost confidence,” said Steve Wang, research director and economist at Reorient Financial in Hong Kong.

Monetary Speculation

Gross domestic product rose 6.8 percent in the fourth quarter, less than the forecast for 6.9 percent growth. For the full year, GDP increased 6.9 percent -- the least since 1990 -- in line with the government’s target of about 7 percent. Industrial production rose 5.9 percent in December, compared with the 6 percent estimate of analysts. Retail sales increased 11.1 percent, compared with the 11.3 percent forecast. Fixed-asset investment excluding rural areas expanded 10 percent last year, the weakest pace since 2000.

“The stock market jumped partly because of speculation China will introduce incentives such as interest-rate cuts or RRR cuts soon after it released GDP data this morning,” said Zhang Gang, analyst at Central China Securities in Shanghai.

The Hang Seng China Enterprises Index rose 3 percent in Hong Kong, while the Hang Seng Index advanced 2.1 percent. Trading volumes in Shanghai were 6 percent below the 30-day average.

Traders reduced holdings of shares purchased with borrowed money for a 12th straight day on Monday, cutting the outstanding balance of margin debt on the Shanghai stock exchange to 584 billion yuan ($88.8 billion), a four-month low.

China’s securities regulator denied a Reuters report that its Chairman Xiao Gang offered to resign. Reuters reported that the chairman of the China Securities Regulatory Commission submitted his resignation last week, citing unidentified people. It wasn’t clear whether the government had accepted his offer, the news agency said.