China Stocks Lead Asian Markets Higher; AgBank to Price $20.1 Billion IPO
China’s stocks rose, with the Shanghai Composite Index leading Asian equity markets higher, as investors speculated recent losses were excessive. Agricultural Bank of China Ltd. is preparing to sell shares in what may be the world’s biggest initial public offering.
The Shanghai Composite, Asia’s worst performing index in the first half, rose 1.9 percent, led by Jiangxi Copper Co. and Aluminum Corp. of China Ltd. Joincare Pharmaceutical Group Industry Co. paced gains by drugmakers, China’s worst performers in the past month.
Equities are trading at their lowest levels relative to earnings in 18 months after the Shanghai index slumped 26 percent this year on concern government efforts to curb inflation and property speculation will slow the economy. The rebound is a boost for Agricultural Bank, which is seeking $20.1 billion selling stock in Shanghai and Hong Kong and may price its shares today.
“Stocks have dropped to a level where valuations are attractive to bargain hunters, who expect the government to ease tightening policies to counter an economic slowdown,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. “We estimate that the IPO price of Agricultural Bank will be at about a 10 percent discount to prices of listed big banks. That’ll leave room for a possible first-day gain.”
The Shanghai Composite, the bigger of China’s two exchanges, advanced 45.48 to close at 2,409.42, the most since June 21. The CSI 300 Index added 2 percent to 2,562.90. The measure tracks yuan-denominated stocks, known as A shares, in Shanghai and Shenzhen.
Declines have sent the CSI 300’s valuation to 14 times this year’s earnings, down from a high of 22 times in January, according to data tracked by Bloomberg.
Jiangxi Copper, China’s largest producer of the metal, rose 2.9 percent to 22.97 yuan, ending a 10-day, 22 percent plunge. Shanxi Coal International Energy Group Co. surged 5.6 percent to 17.50 yuan after losing half its value this year. China Cosco Holdings Co., the world’s biggest operator of dry-bulk ships, added 2.6 percent to 8.56 yuan, climbing from the lowest since January 2009.
The price-earnings multiple for A shares is 1.2 standard deviation below the 10-year average, while the two-year compound earnings growth rate is “among the highest in history,” according to UBS AG.
Around 54 percent of A share companies’ first-half guidance indicate year-on-year net income growth of more than 50 percent, UBS’s Hong Kong-based strategist John Tang wrote in a report today.
Stocks have slumped this year as authorities intensified a crackdown on property speculation after announcing the economy expanded at an 11.9 percent annual pace in the first quarter, the most since 2007.
Kenneth Rogoff, the Harvard University professor, said China’s property market is beginning a “collapse” that will hit the nation’s banking system.
As China’s economy develops, “especially at the speed it’s growing, it’s going to have bumps,” Rogoff, former chief economist of the International Monetary Fund, said in an interview with Bloomberg Television in Hong Kong.
Aluminum Corp. of China, the nation’s biggest maker of the lightweight metal and also called Chalco, added 1.8 percent to 8.74 yuan. The company said it extended the deadline for a planned private placement of A shares by a year. Chalco said April 15 that it won regulatory approval to sell as many as 1 billion A shares.
“The current market conditions are not favorable for the share sale and the company will seek bank loans,” Shen Hui, a spokeswoman, said by phone from Beijing today.
Equity market declines aren’t stopping Agricultural Bank for pushing ahead with its listing. Chairman Xiang Junbo is taking his bank public after almost 50 companies worldwide shelved IPOs in the past three months amid concern that the end of government stimulus and widening budget gaps from Greece to Spain will curb the global economic recovery, data compiled by Bloomberg show.
Beijing-based Agricultural Bank expects to set a final IPO price tomorrow. The company is selling 22.2 billion shares in Shanghai at 2.52 yuan to 2.68 yuan each, implying a price-to- book ratio of 1.56 to 1.65 times for that tranche, according to Hong Yuan Securities Co.
The bank is offering 25.4 billion shares in Hong Kong at HK$2.88 to HK$3.48 apiece, representing 1.55 to 1.79 times 2010 book value as estimated by the IPO’s underwriters.
China’s biggest banks announced as much as $54.5 billion in fundraising after extending record loans last year.
Joincare Pharmaceutical climbed 4.1 percent to 7.16 yuan. Yunnan Baiyao Group Co., a manufacturer of traditional Chinese medicines, added 4 percent to 64 yuan.
An index tracking Chinese health-care stocks jumped 3.2 percent, the biggest gain since May 24 and the most among the 10 industry groups on the CSI 300. The health-care index is the worst performer in the past month, falling 17 percent.
The 14-day relative strength measure for the Shanghai Composite, measuring how rapidly prices have advanced or dropped during a specified time period, was at 26.8 yesterday. Readings below 30 indicate it may be poised to rise.
Credit Suisse Group AG said Chinese stocks will be “range- bound” because a shift to increased reliance on consumption to drive the nation’s economic growth will benefit companies that have a “very marginal index weighting,” according to a report by analysts Vincent Chan and Peggy Chan.
Sichuan Road & Bridge Co. rose by the 10 percent daily limit to 8.12 yuan after the nation’s top economic planning agency said 682 billion yuan ($101 billion) will be invested in the western region this year. Sichuan Expressway Co. gained 2.6 percent to 6.69 yuan.
Chongqing Brewery Co. rose 2.8 percent to 33.77 yuan. The company said its shareholders approved plans for its parent to sell a 12.25 percent stake to Carlsberg A/S, making it the biggest shareholder.
The following companies were among the most active in China’s markets. Stock symbols are in brackets after companies’ names.
CSG Holding Co. (000012 CH), a Chinese glassmaker, surged by the 10 percent daily to 9.76 yuan after forecasting first- half profit surged by between 137 percent and 149 percent from a year earlier.
Nanzhi Co. (600163 CH), a paper manufacturer, added 2.2 percent to 4.19 yuan. The company expects to make a profit in the first half instead of the loss it had predicted earlier in its first quarter report.
Xinjiang Tiankang Animal Science Bio-Technology Co. (002100 CH) advanced 5.4 percent to 19.24 yuan. The Ministry of Agriculture granted approval to produce pig foot and mouth disease vaccine.