CSI 300 Nears Bull Market After ADR Jump: China Overnight

Chinese shares listed overseas rallied over the three-day break in mainland trading, boosting prospects the CSI 300 Index will enter a bull market amid signs Asia’s largest economy is recovering.

The Hang Seng China Enterprises Index has climbed 4.8 percent in Hong Kong during the past two days, while the Bloomberg China-US Equity Index of the most-traded Chinese shares in New York rose 2.2 percent, as data from manufacturing to service-sector growth signaled the economy is rebounding from its seven-quarter slowdown. Insurers led the Hang Seng advance after the regulator said they can set up mutual funds, while solar stocks jumped in New York amid the U.S. budget deal.

The CSI 300, a gauge of 300 yuan-denominated A shares listed in Shanghai and Shenzhen that resumes trading today, has soared 19.6 percent since reaching a three-year low Dec. 3, on speculation spending on infrastructure will stoke a recovery in the world’s second-biggest economy. Chinese manufacturing expanded for a third month in December, data released Jan. 1 showed, and the deal forged over the U.S. budget also boosted the outlook for the nation’s exports.

“The Chinese economy is in the process of turning the corner, and its equities had some positive contagion because of the U.S. tax deal,” Timothy Ghriskey, chief investment officer at Solaris Group LLC, which manages about $2 billion, said by phone yesterday in New York. “The outlook for Chinese equities is improving. Our best guess is the domestic markets will move higher when they reopen.”

Coal Stocks

The Hang Seng China Enterprises gauge rose for a sixth trading day yesterday, adding 0.8 percent, while the China-US measure dropped 0.6 percent in New York, slipping for the first day this year. An advance of 20 percent or more from a low signals a bull market to some investors, while a decline of that magnitude signals a bear market.

Yanzhou Coal Mining Co., China’s fourth-largest producer of the fuel, has climbed 10 percent in the past two days in Hong Kong, the biggest jump among stocks listed on the Hang Seng, as China canceled temporary price intervention measures on thermal coal. Yanzhou’s American depositary receipts have increased 7.3 percent in the same period, while China Coal Energy Co. added 6.2 percent in Hong Kong over the past two trading days.

Chinese insurers on the Hong Kong gauge have surged since Dec. 30, when the nation’s securities regulator said they will be allowed to set up mutual funds. New China Life Insurance Co. and China Pacific Insurance (Group) Co. advanced more than 9 percent over the past two days, while PICC Property and Casualty Co. Ltd., Ping An Insurance (Group) Co., and China Life Insurance Co. also gained.

Soaring Valuation

The CSI 300’s last bull-market rally began in July 2010 and lasted until November that year with the stock gauge jumping 41 percent. The index entered a bear market in August 2011 as the government raised interest rates and ordered banks to set aside more funds as deposit reserves to slow inflation.

Companies on the CSI 300 trade at an average 12.1 times estimated earnings, the highest valuation in 13 months, data compiled by Bloomberg show. That compares with a multiple of 9 for the Hang Seng China Enterprises Index and 13.7 for the China-US measure of U.S.-traded companies, the data show.

In the U.S., Chinese solar makers led gainers on the China-US index, after HSBC Holdings Plc said in a report that China will become the world’s largest solar market in 2013.

LDK Solar Co., the second-largest maker of wafers globally, surged 33 percent over the past two days after slumping 66 percent in 2012. LDK’s ADRs jumped 22 percent yesterday to $1.92, the highest price since July 6. Trina Solar Ltd., China’s third-largest solar maker, jumped 18 percent to $5.29 yesterday, the highest price since July 27.

GDP Data

China Lodging Group Ltd., which runs the nation’s fourth-largest economy hotel chain, dropped 4.9 percent yesterday, bringing its two-day slump to 5.9 percent and leading the China-US measure’s decline. East Leader International Ltd. sold 100,000 ADRs in the hotel chain Dec. 21 for $1.53 million, a regulatory filing released Jan. 2 showed. The company also reduced holdings in November and August, according to the document.

China’s gross domestic product probably expanded 7.8 percent in the fourth quarter from a year earlier, from a three-year low of 7.4 percent in the previous three months, according to the median estimate of 34 economists surveyed by Bloomberg last month. The GDP data is scheduled to be released Jan. 18.

In China, “you’ve avoided the hard landing, there’s not much inflation and earnings will probably rebound,” Geoffrey Dennis, a New York-based global emerging-markets strategist at Citigroup Inc. said by phone yesterday.

The iShares FTSE China 25 Index Fund, the largest Chinese exchange-traded fund in the U.S., declined 0.6 percent to $41.59 in New York yesterday, after climbing 3.5 percent Jan. 2. The Standard & Poor’s 500 Index fell 0.2 percent to 1,459.37.

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