China’s CSI 300 Stock Index Enters Bull Market After 20% Rally

China’s CSI 300 Index entered a bull market after rallying 20 percent from its 2012 low amid signs of an economic recovery in the world’s second-largest economy.

The gauge tracking 300 yuan-denominated A shares traded in Shanghai and Shenzhen gained 0.5 percent to 2,535.99 at the close, led by health-care and financial companies. The CSI 300 rebounded 20 percent since hitting a near four-year low on Dec. 3, while the Shanghai Composite Index climbed 17 percent. The Shanghai index added 0.4 percent to 2,285.36 at today’s close.

“The rally momentum hasn’t ended,” said Zhang Gang, a strategist at Central China Securities Holdings Co. in Shanghai. “Expectations for policy measures aren’t completely priced in. Investors are still waiting for the new government to act with policy initiatives. Economic data are showing steady gains.”

Chinese stocks have rallied in the past month on speculation increased spending on infrastructure will spur a rebound in the economy from a seven-quarter slowdown. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong rose 0.3 percent and is up 33 percent since reaching last year’s low on Sept. 5. A gain of 20 percent or more signals a bull market to some investors.

The nation’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 are scheduled to be released Jan. 18.

Urban Development

Li Keqiang, No 2 in the ruling Communist Party’s hierarchy, is championing urbanization as a new growth engine that will boost incomes and consumption. The focus on improving public transport comes as the government faces growing discontent over pollution that’s caused partly by surging car ownership.

Policy makers will support the development of environmentally friendly urban transport systems and offer tax breaks and fuel subsidies for mass transit vehicles, according to a statement by the State Council on Jan. 5.

The Shanghai Composite climbed 3.2 percent last year, as the government cut trading fees and dividend taxes for long-term investors while more than doubling the amount of shares overseas money managers can own to restore confidence as trading volumes sank to a four-year low last month.

The Chinese government is “doing all they can” to revive A-shares, Mark Mobius of Templeton Emerging Markets Group, said in an interview in Kuala Lumpur. That is giving “greater confidence” to retail investors, he said.

Trading Jumps

Trading volumes in the Shanghai Composite were 27 percent higher than the 30-day average, according to data compiled by Bloomberg. The index trades at 9.9 times estimated earnings, compared with the five-year average of 15.3, according to weekly Bloomberg data.

Beijing Tiantan Biological Products jumped 10 percent today on speculation medicine demand will increase after two women died from the H1N1 flu strain in Beijing and the government set targets for growth in the biomedical industry. Shanghai Pudong Development Bank Co. surged to a 7-month high after estimating higher net income.

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 cool inflation.

The Shanghai index posted its largest monthly gain since July 2009 last month after the government said it would spend more on urban development to drive economic growth.

Banks Rally

Shanghai Pudong Development Bank climbed 3 percent to 10.32 yuan. Its 2012 net income may be 34.2 billion yuan ($5.49 billion), according to statement to the Shanghai Stock Exchange. Industrial Bank Co. jumped 3.4 percent to 17.36 yuan. China Minsheng Banking Corp. surged 4.3 percent to 8.32 yuan.

Pudong Bank’s better-than-expected 25 percent profit growth “raises the curtain” for Chinese banks’ earnings reports, Ping An Securities said in a note today. “We expect more banks to post results that beat market expectations and dismiss concerns on profit growth and asset quality. Banking valuations will be repaired as fundamentals improve,” Ping An said.

A gauge of health-care stocks in the CSI 300 rose 2 percent, the most among 10 industry groups. Beijing Tiantan Biological Products surged 1.22 yuan to 13.41 yuan. Hualan Biological Engineering Inc. jumped 10 percent to 22.61 yuan.

The two women, aged 22 and 65, died amid the highest number of flu cases in China’s capital since 2008, Beijing News reported. Separately, the State Council said China is targeting annual output growth of more than 20 percent from 2013 to 2015 in the biomedical industry, according to a statement posted on the central government’s website yesterday.

SOE Reform

China’s new leaders need to push ahead with reform of state-owned companies to extend the biggest monthly gain for Chinese stocks in two years, according to the Shanghai government’s investment arm.

The new generation of Communist Party leaders headed by Xi Jinping needs to break the monopoly of government enterprises by introducing more competition and to ease financing for smaller companies to keep economic growth at about 7 percent to 8 percent over the next 10 years, Pang Yang, chief executive officer with the financial-service advisory unit of Shanghai Alliance Investment Ltd., said in an interview at a Bloomberg hedge-fund forum in Shanghai on Jan. 5.

GoerTek Inc., a supplier to Apple Inc., dropped 3.8 percent to 35.27 yuan. A gauge of technology shares in the CSI 300 slipped 0.4 percent today. Still, the technology measure trades at 22 times reported earnings, compared with 12.8 for the broader index.

The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, gained 0.4 percent in New York on Dec. 4.

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