China Stocks Surge on Policy Optimism While Bond Yields Increase

China’s stocks advanced, capping the benchmark index’s biggest gain in a month, while borrowing costs rose amid speculation the government will unveil detailed changes in economic policy as soon as next week.

The Shanghai Composite Index climbed 1.7 percent to 2,135.83 at the close, erasing a weekly decline, as Citic Securities Co. and Haitong Securities Co. led a rally in brokerages. Yields on the nation’s 10-year notes increased eight basis points to 4.60 percent, the highest level since 2007, and the benchmark money-market rate rose the most in five months.

Optimism that the government will elaborate on plans to elevate the role of markets in the world’s second-largest economy has revived investor confidence, after the ruling Communist Party stopped short of unveiling detailed policy shifts on Nov. 12, according to Dragon Life Insurance Co. Bond yields increased as the central bank drained cash from the financial system and investors speculated the government will loosen its grip on interest rates.

“The market is expecting that some important decisions from the plenum will be implemented soon and some additional details to be announced will exceed market expectations,” said Wu Kan, a money manager at Dragon Life, which oversees about $3.3 billion. “Investors had overreacted by panic selling when the plenum concluded.”

Property Rights

A 20,000 word document approved at the plenum lays out 15 areas of reform and 60 “concrete tasks,” the Communist Party’s People’s Daily newspaper reported today. Speculation on the contents was fueled by photographs circulating online of portions of an unidentified document referring to topics such as requiring state-owned enterprises to pay larger dividends, encouraging more private investment in state projects, and offering farmers more property rights.

Policy changes may be announced over the next seven to 10 days, Jonathan Garner, the Hong Kong-based chief Asia and emerging-market strategist at Morgan Stanley, said in an interview from Singapore yesterday. Investors will regain some confidence in China’s structural reforms next week, Lu Ting, a Hong Kong-based economist at Bank of America Corp., wrote in an e-mailed note.

The nation will probably ease controls on interest rates and energy prices after policy makers assigned markets a “decisive” role in allocating resources this week, according to Wang Tao, the chief China economist at UBS AG who formerly worked at the International Monetary Fund.

Money Markets

The seven-day repurchase rate, a gauge of liquidity in the financial system, jumped 107 basis points to 5.30 percent, according to a fixing by the National Interbank Funding Center. Yuan forwards touched a one-month low as they headed for a weekly drop.

The People’s Bank of China’s money-market operations withdrew a net 15 billion yuan ($2.5 billion) in the last four days after draining 5 billion yuan last week, according to data compiled by Bloomberg. The monetary authority auctioned 30 billion yuan of the finance ministry’s three-month deposits to banks at a yield of 6 percent yesterday, the most since June and more than the Shanghai Interbank Offered Rate of 4.7 percent for similar-term funds.

Citic Securities and Haitong Securities, China’s biggest listed brokerages, jumped at least 6 percent after the Shanghai Securities News cited Xiao Gang, chairman of the securities regulator, as saying the capital markets will “usher in” new opportunities. BesTV New Media Co., which is forming a video-game venture with Microsoft Corp., surged 6.3 percent.

The CSI 300 Index advanced 2 percent to 2,350.73. The Hang Seng China Enterprises Index gained 2.8 percent. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.- listed Chinese companies, added 0.7 percent yesterday.

The Shanghai index climbed 1.3 percent this week, narrowing this year’s loss to 5.9 percent. Trading volumes in the index were 10 percent above the 30-day average today, according to data compiled by Bloomberg.

— With assistance by Shidong Zhang

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