China's Stocks Rally Most in Four Weeks on Earnings, Fed Outlook

  • Energy, metal shares climb as Yellen cautions on higher rates
  • Bocom posts unexpected increase in profit; ICBC, CCB to report

China’s stocks rallied the most in four weeks after Bank of Communications Co. and China Petroleum & Chemical Corp. posted better-than-expected earnings and concern about capital outflows eased after the yuan gained and the Federal Reserve voiced caution about raising interest rates.

The Shanghai Composite Index rose 2.8 percent to surpass the 3,000 level at the close, led by technology and commodity companies. Bocom climbed for the first time in 10 days after the lender posted an unexpected profit. Sinopec jumped to a four-month high in Hong Kong as profit from oil refining helped offset lower crude prices. The small-cap ChiNext index surged 4.5 percent. The yuan appreciated the most in two weeks against the dollar in Shanghai.

The outlook for earnings growth is improving as the nation’s economy shows signs of stabilizing, according to China International Capital Corp., which raised its 2016 profit forecasts this week. A report over the weekend showed industrial profits surged 4.8 percent in the first two months of the year, while manufacturing data on Friday will probably show improvement. Fed Chair Janet Yellen said it’s appropriate for U.S. central bankers to “proceed cautiously” in raising rates amid deteriorating world growth.

“The market is reacting to Yellen’s dovish speech.” said Clement Cheng, a Hong Kong-based trader at RBC Investment Management Co. “The dollar weakened, pushing gold and energy shares higher. Banks are also strong after seeing Bocom keeping its dividend payout stable.”

The Shanghai Composite rose for the first time in three days to close at 3,000.65, the first time it ended above 3,000 in a week. Even with a 12 percent rebound in March, the index is still the world’s worst performer among global benchmark measures with a 15 percent loss.

The CSI 300 Index climbed 2.6 percent. The Hang Seng China Enterprises Index in Hong Kong capped its biggest gain in almost a month, adding 2.9 percent. The Hang Seng Index increased 2.2 percent.

Bocom gained 2.2 percent. China’s fifth-largest lender reported net income rose 1.4 percent to 14.5 billion yuan ($2.2 billion) in the final quarter of 2015, exceeding the 13.4 billion yuan average estimate. Bocom is the first among China’s five biggest banks to report earnings. Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. rose at least 1.7 percent before they announce earnings later on Wednesday.

Stabilizing Economy

CICC increased its 2016 profit growth forecasts for A-share companies to 5.1 percent from the previous estimate of 4 percent. Significant industrial profit growth is an “encouraging sign” as A and H share non-financial earnings may improve in the first quarter due to their close correlation with the industrial data, Deutsche Bank AG strategists led by Yuliang Chang wrote in a note.

China’s economy is showing signs of stabilizing even as it undergoes a major transformation that won’t be easy in the near term, Premier Li Keqiang said last week at the Boao Forum. Yellen mentioned China’s slowdown as a risk during her speech in New York Tuesday. The official manufacturing purchasing managers index probably rose to 49.3 from the previous month’s level of 49, according to the median estimate of economists surveyed by Bloomberg. A figure below 50 signals contraction.

Yuan Rebound

“A delay in U.S. rate hikes will also give China’s central bank more leeway to loosen its monetary policy and spur hopes for further cuts in rates and banks’ reserve requirements,” said Zhang Gang, a strategist at Central China Securities Co.

The yuan strengthened 0.46 percent to 6.4767 a dollar in Shanghai. With today’s increase, the Chinese currency swung to a gain for the year. Concerns that a weaker yuan will spur capital outflows have contributed to this year’s slide for Chinese stocks.

“Yuan devaluation concerns are dissipating,” said Hao Hong, chief China strategist at Bocom International Holdings Co. in Hong Kong. “In a rally, higher beta names tend to rally harder. Stocks started to rebound after the twin sessions were out of the way,” he said, referring to this month’s annual legislative meetings.

Gauges of technology, energy and material companies in the CSI 300 jumped at least 3 percent for the best performance among 10 industry groups. Sinopec surged 4.2 percent after reporting net income of 32.4 billion yuan. That compares with a 29.97 billion yuan mean of 19 analyst estimates. PetroChina Co. advanced 2.5 percent. Anhui Conch Cement Co. led gains for material shares, rallying 6 percent. Han’s Laser Technology Industry Group Co. jumped 7.8 percent, the most since October.

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