China Stocks Rebound in Late Trading on State-Buying Speculation

  • S&P cuts China's credit-rating outlook to negative from stable
  • Hang Seng China index declines after entering bull market

China’s stocks rebounded in late trading as an unexpected jump in an official factory gauge increased optimism about the economy and speculation grew that state-backed funds intervened to support the market after Standard & Poor’s cut the nation’s credit-rating outlook.

The Shanghai Composite Index swung to gains in the last 30 minutes of trading, rising 0.2 percent and erasing a loss of as much as 1.6 percent. Investors rotated out of consumer, technology and so-called new economy stocks and into energy and material companies after data showed the manufacturing purchasing managers’ index climbed to 50.2 in March. Hong Kong’s Hang Seng China Enterprises Index slumped the most in a week after entering a bull market on Thursday. S&P reduced China’s outlook to negative from stable.

The Shanghai gauge posted its biggest monthly gain in almost a year in March, spurred by signs of state-fund buying during the National People’s Congress and data showing the nation’s economy and the currency may be stabilizing. The manufacturing data follow a report over the weekend that showed industrial profits halted a seven-month losing streak.

“There’s some chatter that the national team entered the stock market again, pushing up the Shanghai Composite,” said Yen Chiu, a Hong Kong-based trader at China Securities International Finance Holding Co.

Manufacturing Data

The Shanghai Composite closed at 3,009.53. The index struggled to stay above 3,000 after closing above that level for the first time in two months on March 21. Trading volumes were 5.7 percent below the 30-day average. China’s financial markets are shut Monday for a holiday.

The CSI 300 Index advanced 0.1 percent. The H-shares gauge slid 1.8 percent, while the Hang Seng Index decreased 1.3 percent.

The PMI beat the median estimate of 49.4 and matched its highest level since November 2014. The non-manufacturing PMI rose to 53.8 from 52.7 in February. A separate, private PMI reading from Caixin Media and Markit Economics rose to 49.7 in March to the highest level since February 2015. As with the official measure, readings above 50 signal improving conditions.

“The PMI data suggests an improving economic outlook and is an encouraging sign to the market even as caution remains after S&P’s outlook cut,” said Castor Pang, head of research at Core-Pacific Yamaichi Hong Kong. “The Shanghai Composite is still finding it hard to decisively break through strong resistance at 3,000.”

S&P Cut

A downgrade could follow if S&P sees a higher likelihood that China seeks to stabilize growth at or above 6.5 percent by increasing credit at a “significantly faster rate” than nominal GDP growth. Ratings could stabilize if credit growth is moderated to levels in line with economic expansion, S&P said.

S&P’s cut may not have much of an impact on the markets as it comes at a time when the nation’s stocks are rallying and the currency is stabilizing, according to Sinopac Securities (Asia) Ltd. The offshore yuan posted the strongest quarterly performance in more than four years.

Gauges of energy and material shares in the CSI 300 rose at least 1 percent for the steepest gains among 10 industry groups. Sinopec Shanghai Petrochemical Co. jumped 8.8 percent. Wuhan Iron & Steel Co. paced an advance for metal companies, increasing 3.8 percent. Aluminum Corp. of China Ltd. added 2.3 percent.

Industrial & Commercial Bank of China Ltd. and PetroChina Co., long considered targets of government buying during down days because of their large index weightings, both erased earlier losses.

Liquor companies led declines among consumer-staples shares, with Kweichow Moutai Co. sliding 1 percent. East Money Information Co. fell 2.9 percent, paring a month-long rally to 25 percent. Technology and consumer companies were the best performing industry groups in March.

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