China’s Stocks Extend Bull-Market Rally as Property Shares Gain

Chinese stocks rose, led by property companies and brokerages, as the Shanghai Composite Index extended its bull-market rally.

Gemdale Corp. led a gauge of property developers to a 21-month high as Fitch Ratings said Chinese homebuilding volumes will rise this year. China Merchants Securities Co. led brokerages higher after Taiwan’s securities regulator said the island will double the limit on mainland Chinese institutions’ securities investments. China Resources Sanjiu Medical & Pharmaceutical Co. paced declines among health-care shares as technical indicators signaled the stocks are overbought.

The Shanghai Composite rose 1 percent to 2,382.48, its highest close since May 30. The index has climbed 22 percent since Dec. 3, signaling a bull market to some investors. The CSI 300 Index climbed 0.5 percent to 2,688.71, taking its surge since Dec. 3 to 28 percent. Hong Kong’s Hang Seng China Enterprises Index gained 0.9 percent.

“The rally will remain strong as the local economy has shown evidence that it’s growing steadily,” Zhang Haidong, an analyst at Tebon Securities Co., said by phone from Shanghai. “We have risen a lot so there is a requirement for a correction. But this year, we are bound to gain.”

The Shanghai gauge is valued at 13.1 times reported profit, the highest level since March 13, after it exited its longest-ever bear market yesterday. A 756-day stretch without a 20 percent gain from Nov. 8, 2010 through Dec. 3 is the longest on record, according to data compiled by Bloomberg and Birinyi Associates Inc. The gauge fell 38 percent during the period.

Higher Volumes

The Shanghai Composite has risen from a four-year low last month on signs of an economic recovery and a government pledge to bolster urban development. A government report showed on Jan. 27 industrial companies’ profits jumped 17.3 percent in December. A preliminary reading for a Purchasing Managers’ Index last week showed manufacturing expanded at the fastest rate in two years.

Average trading volumes in the Shanghai index were 17 percent higher than the 30-day average. Its 30-day volatility was at 17.6, compared with last year’s average of 17.1.

Gemdale surged 9.8 percent to 7.84 yuan, while China Vanke Co. added 3.8 percent to 12.67 yuan. A gauge of developers in the Shanghai Composite Index rose 2.1 percent to the highest level since April 18, 2011. Homebuilding volumes will rise this year, Fitch Ratings said in a statement yesterday, citing improved funding to developers and increased regulatory certainty.

China Merchants added 3.8 percent to 12.77 yuan. Huatai Securities Co. gained 3 percent to 10.48 yuan. Taiwan’s securities regulator said yesterday the island will double the limit on mainland Chinese institutions’ securities investments in Taiwanese markets to $1 billion.

Boosting Confidence

The comments came after a meeting yesterday between China Securities Regulatory Commission Chairman Guo Shuqing and Taiwan’s top market regulator, Chen Yuh-chang, in Taipei.

China may relax asset requirements for Taiwan brokerages seeking quotas under the Qualified Foreign Institutional Investment program, Tong Daochi, the CSRC’s director general of international affairs, told reporters in Taipei yesterday. Funds from outside China invest in the country’s capital markets through the QFII program.

“Policies such as planning to allow more Taiwan brokerages into the market are a boost to sentiment,” Tebon’s Zhang said. “It shows the market reforms are materializing.”

Chongqing Changan Automobile Co. jumped 2.8 percent to 8.50 yuan, the highest close since Nov. 23, 2009. The company sees its 2012 net income rising between 45 percent and 65 percent, according to a statement to the exchange.

Drug Stocks

A gauge of CSI 300 health-care stocks dropped 0.5 percent, the most among 10 industry groups. The index’s 14-day relative strength index, which measures how rapidly prices have advanced or declined in that time period, was at 72.18 yesterday. Some analysts see a reading of more than 70 as a signal to sell. Sanjiu Medical dropped 2.2 percent to 28.28 yuan.

In U.S. stock trading, the Standard & Poor’s 500 Index climbed 0.5 percent to a five-year high as companies including Pfizer Inc. reported earnings that beat analysts’ projections.

The iShares FTSE China 25 Index Fund, the largest Chinese ETF in the U.S., gained 1.4 percent to $41.55 in New York, the steepest advance in almost four weeks.

The rally in the Shanghai market “should be more supportive for shares listed in the U.S.,” Charlie Awdry, a portfolio manager for Henderson Global Investors’ 500 million pound ($787.8 million) China Opportunities Fund, said by phone yesterday from London. “If you look at the data, the Chinese economy is performing a little more robustly. If positive sentiment spreads, that would be good news.”

Before it's here, it's on the Bloomberg Terminal.