China’s Banks Rally Most Since March 2009 on Li Growth Comments

China’s financial companies rallied the most in four years on speculation the government will take more steps to ease a credit crunch and prevent economic growth from slowing below official targets.

A gauge of banks, brokerages, insurers and developers in the CSI 300 Index gained the most since March 2009, when a global financial crisis roiled markets. Industrial Bank Co., partly owned by an HSBC Holdings Plc unit, and Ping An Bank Co., a unit of the second-largest insurer, jumped 10 percent. China Life Insurance Co., the biggest insurer, and Citic Securities Co., the largest brokerage, gained at least 6.5 percent.

Premier Li Keqiang said in a July 9 speech that economic growth and employment must stay above a certain floor, the official Xinhua News Agency reported. Li is feeling more pressure as economic data continue to weaken and risks to the 7.5 percent growth target increase, Zhang Zhiwei, chief China economist at Nomura International (HK) Ltd., wrote today.

“Banks are rallying on hopes that Premier Li’s comments will help to ease the liquidity shortage and the government will take measures to support the weak economy,” Tang Yayun, a Shanghai-based analyst at Northeast Securities, said by phone.

The statistics bureau is scheduled to publish data on second-quarter economic growth on July 15. Growth may have slowed to 7.5 percent from 7.7 percent in the first three months, according to the median estimate of 34 economists in a Bloomberg survey.

Li Comments

As long as the “economic growth rate, employment and other indicators don’t slip below our lower limit and inflation doesn’t exceed our upper limit,” China will “focus on adjusting the structure, promoting reform and pushing forward economic transformation and upgrading,” Li said July 9 at a meeting in Guangxi province, the official Xinhua News Agency reported. He didn’t elaborate on the limits.

The financial sub-index has fallen 6.3 percent this year, dragged down as its 52 companies sank to an average price ratio of 6.7 times estimated earnings on July 9, the lowest level dating back to at least 2007, when Bloomberg started tracking the data. Chinese bank stocks plunged last month as surging money-market rates signaled a cash crunch was worsening.

The seven-day repurchase rate, which measures interbank funding availability, surged to a record 10.8 percent on June 20, and averaged 4.49 percent last quarter, the highest since the National Interbank Funding Center started compiling the data in 2003.