China Stocks Rise as Health Care Rally Counters Trade-Zone Drop

China’s stocks rose, heading for a third straight monthly advance, as gains by drugmakers and technology companies countered losses in companies linked to the Shanghai free-trade zone.

Shanghai Fosun Pharmaceutical (Group) Co. and Yunnan Baiyao Group Co. led a gauge of health-care stocks to the biggest increase among industry groups. Shanghai International Port (Group) Co. and Shanghai Material Trading Co. tumbled for a second day after more than doubling this quarter. China’s State Council issued a plan for the Shanghai free-trade zone today. Growth in industrial companies’ profits accelerated to 24.2 percent in August, the statistics bureau said today.

“The framework plan for the Shanghai free-trade zone hasn’t exceeded market expectations, and related shares are expensive,” Li Jun, a strategist at Central China Securities Co. in Shanghai, said today. “The market isn’t too excited and we need to wait for September data to further gauge the strength of the economic recovery.”

The Shanghai Composite Index rose 0.2 percent to 2,160.03 at the close. The index has climbed 2.9 percent this month. Companies with the word Shanghai in their names have led an 11 percent advance in the gauge since June 27 on speculation they will benefit from the government’s plan to reduce regulation in the city’s new free-trade area. The measure has risen 9.1 percent this quarter, poised for the biggest increase since the three months ended September 2010.

Free-Trade Zone

China will allow trial convertibility of the yuan under the capital account in the Shanghai free-trade zone, according to a statement posted on the government website today. Authorities will also allow “interest-rate liberalization, and cross-border use of the currency, as long as the risk is controlled,” it said.

Chinese lenders will be able to conduct offshore business and qualified foreign financial institutions can set up banks, according to the statement, which didn’t give a timetable for the plans. The 11-square-mile zone on the outskirts of Shanghai is set to open in two days.

The CSI 300 Index added 0.4 percent to 2,394.97, while the Hang Seng China Enterprises Index slid 0.6 percent. The Bloomberg China-US Equity Index, a measure of the most-traded U.S.-listed Chinese companies, increased 0.5 percent in New York yesterday.

China’s local markets will be shut Oct. 1-7 for National Day holidays.

Industrial Profits

Growth in August industrial profits quickened from 11.6 percent in July, according to the National Bureau of Statistics today. Earnings accelerated because of last year’s low base, quicker production growth, improving sales and declining costs, He Ping, an official at the bureau, wrote in an analysis of the data posted on the agency’s website today.

Trading volumes in the Shanghai Composite were 28 percent lower than the 30-day average today, according to data compiled by Bloomberg. The index is trading at 8.6 times projected earnings for the next 12 months, compared with the five-year average of 12.6 times.

A measure of pharmaceutical stocks in the CSI 300 advanced 1.4 percent, the most among 10 industry groups. Shanghai Fosun Pharmaceutical climbed 4.2 percent to 13.78 yuan, the highest close since Dec. 24, 2010. Yunnan Baiyao, a manufacturer of traditional Chinese medicines, added 3.1 percent to 117.25 yuan, a record close.

Zone Regulations

Shanghai International Port tumbled 9.6 percent to 5.64 yuan, the lowest level since Sept. 5. The stock traded at 27.5 times 12-month projected earnings on Sept. 25, the highest level since April 2010, according to data compiled by Bloomberg. Shanghai Material Trading lost 10 percent to 14.18 yuan. Both stocks slumped by the 10 percent daily limit yesterday.

Shanghai will release regulations for its new free-trade zone in the first quarter, the Shanghai Evening Post reported, citing Ding Wei, director of the Legislative Affairs Office of Shanghai Municipal People’s Congress.

Chongqing Brewery Co. slid 4.6 percent to 16.15 yuan, the biggest decline since June 24, as the stock resumed trading today after being suspended since Sept. 13. The company said it may scrap its Hepatitis B vaccine research because of “large risks and uncertainties.”

E-Commerce China Dangdang Inc. and Inc. led gains in Chinese equities traded in New York yesterday after Credit Suisse Group AG recommended buying the shares. Credit Suisse started coverage of Dangdang and Sohu with the equivalent of a buy rating.

“As the Internet becomes much more engaged in daily consumer life, value creation from Internet-based businesses is taking a more important role in the overall economy,” Dick Wei, an analyst at Credit Suisse in Hong Kong, wrote in an e-mailed report.

— With assistance by Shidong Zhang

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