China’s Stocks Rise Most in Nine Months as Banks Spearhead Rally

China’s stocks rose the most since December, led by financial companies, as investors speculated banks will be allowed to issue preferred shares to boost capital and data showed exports grew more than estimated.

Shanghai Pudong Development Bank jumped 10 percent while an index of financial companies surged 6.7 percent, the biggest gain among industry groups. Shanghai Pudong and Agricultural Bank of China Ltd. may participate in a trial allowing lenders to raise funds through preferred shares, Moneyweek reported. Cosco Shipping Co. and Shanghai International Port Group Co. soared more than 9 percent on prospects the Shanghai free-trade zone will help the city become a global trade and shipping hub.

The Shanghai Composite Index rose 3.4 percent to 2,212.52 at the close, the biggest gain since Dec. 14. The prospect of preferred share sales has eased concern that capital shortfalls at Chinese banks will curb lending and weaken the banking system, according to David Poh, the regional head of portfolio-management solutions at Societe Generale SA’s private bank. Exports climbed 7.2 percent last month, compared with the 5.5 percent median estimate in a Bloomberg survey.

“When the company takes back money by issuing shares, the health of the balance sheet of these banks becomes stronger,” Poh said. The prospect of preference shares makes banking stocks look more attractive as investments, he said.

Banks Rally

The CSI 300 Index advanced 3.5 percent to 2,440.61, while the Hang Seng China Enterprises Index climbed 1.5 percent. The Bloomberg China-US Equity Index added 0.7 percent in New York. Trading volumes on the Shanghai index were 93 percent higher than the 30-day average, according to data compiled by Bloomberg.

The Shanghai index has risen 13 percent since reaching this year’s low on June 27, as reports ranging from industrial production to money supply signaled the economy is stabilizing. China’s official manufacturing gauge jumped to a 16-month high in August, while a measure from HSBC Holdings Plc and Markit Economics showed the largest gain since 2010.

A gauge of financial companies in the CSI 300 surged 6.7 percent, the biggest gain since June 11. Shanghai Pudong jumped by the daily limit to 10.53 yuan. Agricultural Bank of China Ltd. rose 10 percent to 2.72 yuan. Industrial Bank Ltd. advanced 10 percent to 12.55 yuan. China Construction Bank Corp. added 5.4 percent to 4.53 yuan.

Trade Data

“When the overall capital of the bank rises, it means the probability of going default is lower,” said Poh. “Everyone is so afraid they don’t have enough capital.”

Default risk is rising in the world’s second-largest economy. Bad loans at China’s lenders have climbed for seven straight quarters, the longest streak in at least nine years.

Ping An Bank Co. gained 10 percent to 12.13 yuan. The lender is selling about 1.32 billion shares at 11.17 yuan each to Ping An Insurance Group Co. in a private placement. The subscription price is about 1.3 percent higher than Ping An Bank’s Sept. 5 closing price. The sale adds to a round of fundraising by Chinese lenders, which have announced equity and bond sales this year seeking as much as 327 billion yuan as capital rules tighten.

China’s imports rose a less-than-estimated 7 percent from a year earlier, leaving a trade surplus of more than $28 billion, the General Administration of Customs said in Beijing yesterday. Exports to the U.S., China’s biggest market, and the EU, its second-largest, rose for a second month in August after a four-month drop, yesterday’s data showed.

Subdued Inflation

Inflation stayed subdued in August, while the decline in factory-gate prices eased, National Bureau of Statistics data released today in Beijing showed.

The consumer price index rose 2.6 percent from a year earlier, the bureau said. That matches the 2.6 percent median estimate of 46 analysts surveyed by Bloomberg. Producer prices fell 1.6 percent from a year earlier. The median projection of 40 analysts was for a decline of 1.7 percent.

“Investors are getting more confident about the economic data,” said Mao Sheng, an analyst for Huaxi Securities Co. in Chengdu. “Stocks will be steadily rising for the rest of the year.”

The economy will maintain sustained, healthy growth, Premier Li Keqiang wrote in a commentary published in the Financial Times. The country will stay on the path of reform and it cannot afford to continue with the old model of high consumption and high investment, according to the report.

August industrial output, retail sales and January-August fixed-asset investment will be released tomorrow that will give a clearer picture of the extent of an economic rebound that started in July. The People’s Bank of China will also give lending, money supply and aggregate financing numbers this week.

PetroChina Rises

The Shanghai index is valued at 8.9 times its projected 12-month earnings, the highest since June 11, according to data compiled by Bloomberg. The measure rallied 2 percent last week as airlines, banks and shipping companies gained on speculation Shanghai’s free-trade zone will lure more business into the nation’s commercial hub. The trade zone will move Shanghai closer to becoming a global financial, trade and shipping hub, Barclays Plc economists Jian Chang and Joey Chew wrote in a report dated Sept. 6.

Cosco Shipping, a unit of China’s biggest shipping group, climbed 9.9 percent to 3.98 yuan. Shanghai International Port (Group) Co. soared 10 percent to 6.62 yuan.

PetroChina Co., the biggest oil company, gained 2 percent to 8.05 yuan in Shanghai and 0.5 percent in Hong Kong.

China Business News reported today that five executives including managers from PetroChina and its parent China National Petroleum Corp. had been summoned by the authorities. They included Sun Longde, a PetroChina vice president who had replaced another official under investigation, and Wang Guoliang, CNPC’s chief financial officer. The report about PetroChina is “inconsistent with the truth” and Sun and Wang are handling their responsibilities as usual, the company said in an e-mailed statement today.

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