China Stocks Post First 2-Day Gain in Month on PetroChina Rally

China’s stocks rose for a second day, completing its first back-to-back gain in a month, after technical indicators signaled equities were oversold and money-market rates slumped.

PetroChina Co. advanced 1.1 percent, gaining for a third day after the biggest energy producer slid to a record low last week. Jiangxi Copper Co., the largest producer of the metal, surged the most in a month. Apple Inc. supplier Goertek Inc. and drugmaker Yunnan Baiyao Group Co. led gains for technology and health-care stocks. SAIC Motor Corp. and Angang Steel Co. slid after two gauges of Chinese manufacturing dropped in June.

The Shanghai Composite Index advanced 0.8 percent to 1,995.24 at the close, adding to a 1.5 percent gain on June 28. The index dropped 4.5 percent last week, the biggest loss since February. The Shanghai gauge trades at 8.2 times 12-month projected profit, rebounding from 7.99 on June 23, the cheapest level in at least five years.

“After a big slide last week, stocks could see a rebound as investors return to bargain hunt,” Zhang Haidong, an analyst at Tebon Securities Co., said by phone from Shanghai. Manufacturing reports “show that the economy is still frail and data should remain weak in the third quarter. Any upside is limited as liquidity should remain tight for the rest of the year.”

The Shanghai measure slumped 14 percent last month, capping the biggest monthly loss since August 2009, amid concern higher costs for capital will curb economic growth as money-market rates jumped to records. The index’s 14-day relative strength index, measuring how rapidly prices have advanced or dropped during a specified time period, was at 27.3 today. Readings below 30 indicate it may be poised to rise.

PetroChina Gains

The CSI 300 Index gained 0.6 percent to 2,213.32 today, while Hong Kong’s markets were shut for a holiday. The ChiNext Index surged 4.4 percent. The Bloomberg China-US 55 Index rose 0.8 percent on June 28.

PetroChina advanced 1.1 percent to 7.69 yuan. The stock declined 3.4 percent last week, the biggest five-day loss since Feb. 22. PetroChina’s American depositary receipts soared 6.8 percent on June 28, paring the second-quarter decline to 16 percent. The ADRs traded 4.2 percent above its Hong Kong-traded stock, the widest premium since January 2012.

Jiangxi Copper increased 1.8 percent to 16.03 yuan. Copper for delivery in three months on the London Metal Exchange climbed as much as 1 percent to $6,820 a metric ton in Shanghai.

Technology stocks rose the most among 10 industry groups on the CSI 300, followed by drugmakers. Goertek jumped 4.6 percent to 37.97 yuan. Software maker Neusoft Corp. advanced 2.2 percent to 8.32 yuan. Yunnan Baiyao surged 4.7 percent to 87.99 yuan.

Manufacturing Slowdown

Money-market rates dropped the most in a week today on signs policy makers used targeted cash injections to ease the worst cash squeeze on record. The one-day repurchase rate, which measures interbank funding availability, fell 0.50 percentage point to 4.46 percent, according to a weighted average compiled by the National Interbank Funding Center. The seven-day repo rate slid 74 basis points to 5.42 percent.

Angang Steel declined 1.2 percent to 2.59 yuan. Baoshan Iron & Steel Co. retreated 0.5 percent to 3.91 yuan. SAIC Motor, the biggest Chinese automaker, slid 0.7 percent to 13.12 yuan.

An official Purchasing Managers’ Index dropped to 50.1 from 50.8, the National Bureau of Statistics and China Federation of Logistics and Purchasing said. The data matched the median forecast of 33 analysts in a Bloomberg News. A private PMI from HSBC Holdings Plc and Markit Economics was 48.2, the weakest since September. Readings above 50 signal expansion.

Tolerating Slowdown

Weaker gains in manufacturing and a cash squeeze in the banking system add to odds that Li Keqiang will become the first premier to miss an annual growth target since the Asian financial crisis in 1998. In the latest signal that policy makers will tolerate slower expansion, President Xi Jinping said local officials shouldn’t be judged solely on their record in boosting gross domestic product.

The Communist Party should instead place more importance on achievements in improving people’s livelihood, social development and environmental quality when evaluating the performance of officials, the Xinhua News Agency reported June 29, citing Xi at a meeting on the eve of the 92nd anniversary of the party’s founding.

“Although new leaders have no intention to achieve a higher GDP growth, the current growth rate is quite close to the floor that new leaders have indicated to tolerate,” Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong, said in a note today. The lower official PMI “could worsen concerns that the liquidity squeeze in June will hit economic growth,” Lu wrote.

Credit Crunch

Central bank governor Zhou Xiaochuan said the country’s worst cash crunch in at least a decade is a reminder to lenders that they need to adjust their “asset businesses,” China Business News reported today.

Commercial banks need to correct a tendency of boosting loan growth ahead of half-year performance reviews because it runs counter to the central bank’s policy goals, Zhou told the Shanghai-based newspaper in an interview.

The Shanghai Composite may rise to 2,050 before meeting resistance, analysts led by Hou Zhenhai at China International Captial Corp., wrote in a report dated today. CICC recommended selling cyclical and financial stocks as they rebound.

Trading volumes in the Shanghai index were 24 percent lower than the 30-day average today, while the 30-day volatility was at 22.9, compared with the four-month high of 28 reached on June 28, according to data compiled by Bloomberg.

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