Chinese Stocks Rise After GDP Report as Brokers Rally
China’s stocks rose, extending last week’s gains, after the nation’s economy grew in line with analysts’ forecasts and the government widened foreign investor access to its markets.
Citic Securities Co. (600030) and Haitong Securities Co. climbed 4 percent after regulators almost doubled qualified foreign institutional investment quotas to $150 billion. Chongqing Changan Automobile Co. jumped 1.9 percent after profit more than doubled. China’s economy grew 7.5 percent in the second quarter, easing concerns that growth would fall below official forecasts after Finance Minister Lou Jiwei said last week that 6.5 percent expansion wouldn’t be a “big problem.”
“The market has factored in a reasonably negative outlook for the economy and this number, if people believe it, eases the worries a little bit,” said Howard Wang, who oversees $9 billion for JPMorgan Asset Management in Hong Kong. The GDP data show “the economy is not sliding inexorably into recession, but rather, finding itself in a slower growth phase.”
The Shanghai Composite Index (SHCOMP) rose 1 percent to 2,059.39 at the close, adding to last week’s gain of 1.6 percent. The CSI 300 Index climbed 1.4 percent to 2,307.30 and the Hang Seng China Enterprises Index (HSCEI) slipped less than 0.1 percent. The Bloomberg China-US 55 Index fell 1.4 percent on July 12.
Trading volumes in the Shanghai Composite were 6.2 percent higher than the 30-day average, according to data compiled by Bloomberg. The index has dropped 9.2 percent this year as data from industrial production to exports pointed to a slowdown in the economy and as money-market rates reached record highs last month. The measure trades at 8.4 times 12-month projected profit after valuations fell in June to the lowest level in at least five years, Bloomberg data show.
A measure of financial stocks in the CSI 300 including brokerages and banks rose 1.5 percent. Citic Securities, the biggest-listed brokerage, rallied 4 percent to 10.96 yuan. Haitong Securities, the second largest, advanced 4 percent to 10.78 yuan. China Citic Bank Corp. advanced 4.3 percent to 3.91 yuan. Industrial Bank Co. gained 1.9 percent to 10.26 yuan.
China last increased QFII limits in April 2012 by boosting it to $80 billion from $30 billion. Foreign investors have only fulfilled $43 billion of the $80 billion quotas since China started to allow overseas investment through the QFII program in 2002, according to regulators. They account for 1.6 percent of China’s A-share stock market.
“QFII is a piece of good news and it shows the regulator wants more capital inflows to support the market,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “The market is concerned that the government will now sacrifice short-term growth to alter the structure of the economy. However, that’s the price China needs to pay for long-term sustainable growth.”
China’s economic growth slowed as gains in factory output weakened, and is at risk of weakening further as the government reins in credit expansion to reduce the danger of a financial crisis. Comments by Premier Li Keqiang last week that growth should remain above a certain unspecified floor and Lou’s remarks added to confusion about where the government’s tolerance would end.
While the 7.5 percent growth in the second-quarter gross domestic product was lower than the 7.7 percent expansion in the previous quarter, it matched the median estimate in a Bloomberg News survey of 45 analysts. The government in March set a 2013 growth target of 7.5 percent.
“Given the higher probability that the GDP data would miss estimates, the markets are showing some relief,” said Gavin Parry, managing director of Hong Kong-based brokerage Parry International Trading Ltd.
Goldman Sachs Group Inc., HSBC Holdings Plc and Barclays Plc last month reduced their China growth estimates for this year to 7.4 percent, which would be the weakest pace since 1990. Nomura Holdings Inc. today cut its forecast for 2014 growth to 6.9 percent from 7.5 percent.
Among other data today from the National Bureau of Statistics, industrial production rose 8.9 percent in June from a year earlier, compared with the 9.1 percent median forecast of 44 economists. Retail sales in June jumped 13.3 percent after a 12.9 percent increase in May. The median forecast was for an increase of 12.9 percent. Home sales transaction values climbed 24 percent in June, the biggest monthly gain this year.
A gauge of consumer-discretionary companies rose 1.9 percent. Changan Auto climbed 1.9 percent to 9.55 yuan. FAW Car Co. (000800), which makes cars in China with Volkswagen AG, jumped 4.3 percent to 13.65 yuan. The company said it estimated first-half net income of as much as 750 million yuan ($122.2 million), compared with a net loss of 61.4 million yuan in the same period last year.
China’s 20-year economic boom has boosted the wealth of its 1.3 billion citizens at the fastest pace worldwide and spawned some of the biggest companies in history. Foreigners earned less than 1 percent a year investing in Chinese stocks, a sixth of what they would have made owning U.S. Treasury bills.
The MSCI China Index has gained about 14 percent, including dividends, since Tsingtao Brewery Co. (168) became the first mainland company to sell H shares to international investors in Hong Kong in July 1993. That compares with a 452 percent return in the Standard & Poor’s 500 Index, 322 percent in the MSCI Emerging Markets Index and 86 percent from Treasuries. Only the MSCI Japan Index had a weaker performance among the 10 largest markets, losing about 1 percent.
“H-share companies have to create value for shareholders,” said Victoria Mio, chief investment officer for China at Robeco Hong Kong Ltd., whose parent company oversees about $247 billion.
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