China Stocks Rise Most in Two Months as Money Rates Extend Drop

China’s stocks rallied, spurring the biggest gain for the benchmark index in two months, after the nation’s money-market rates extended declines and Anhui Yingliu Electromechanical Co. soared in its Shanghai debut.

Ping An Bank Co. and Poly Real Estate Group Co. rose more than 3 percent to lead gains for financial companies. Liquor maker Kweichow Moutai Co. climbed the most in 15 months on speculation of increased demand during the Chinese New Year holidays. Jiangxi Copper Co. led a rally for metal producers before tomorrow’s manufacturing report. Anhui Yingliu jumped 34 percent after seven of eight companies that listed yesterday in China posted gains of at least 45 percent.

The Shanghai Composite Index rallied 2.2 percent to 2,051.75 by the close, the biggest gain since Nov. 18, as volumes jumped to one-month highs. Money-market rates slid for a second day after the central bank added more than $42 billion to the financial system to meet Lunar New Year money demand. The nation’s markets are closed from Jan. 31 to Feb. 6.

The government “has eased liquidity,” said Zhang Yanbing, analyst at Zheshang Securities Co. in Shanghai. “We expect most IPOs to be trading already and the impact from the diversion of funds has been alleviated. With the correction done, I expect this rebound to continue until after the Chinese New Year.”

The CSI 300 Index surged 2.6 percent to 2,243.80. The ChiNext index rose 1.8 percent to a record. The Hang Seng China Enterprises Index advanced 1.2 percent. The Bloomberg China-US Index added 0.4 percent yesterday.

Banks, Moutai

The Shanghai Composite has fallen 3 percent this year on concern that the resumption of initial public offerings will divert funds, while slowing economic growth and rising borrowing costs would hurt profits. The measure trades at 7.7 times 12-month projected earnings, near the lowest level since Bloomberg began compiling weekly data in 2005.

Ping An Bank surged 3.8 percent to 11.79 yuan. Huaxia Bank Co. climbed 2.3 percent to 8.15 yuan. China Vanke Co., the biggest developer, rallied 5.5 percent to 7.62 yuan. Poly Real Estate, the second largest, soared 7.3 percent to 8.09 yuan.

The benchmark seven-day repurchase rate, a gauge of interbank funding availability, fell 19 basis points to 5.25 percent as of 3:23 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. It plunged 104 basis points yesterday.

Manufacturing Data

A gauge of consumer-staples producers in the CSI 300 rose 3 percent, the most since October. Kweichow Moutai jumped 5.7 percent to 133.17 yuan, extending gains to 12 percent this week. Moutai Group targets 2014 sales of 45 billion yuan, the National Business Daily said Jan. 20, citing Chairman Yuan Renguo.

“With the Chinese New Year coming soon, Moutai sales is expected to go up,” Zhang said.

Angang Steel Co. rose 6.2 percent in Hong Kong and 3.4 percent in Shanghai. The company said it expects net income of 770 million yuan in 2013, compared with a net loss in 2012.

HSBC Holdings Plc and Markit Economics are scheduled to release their preliminary Purchasing Managers’ Index for January tomorrow. The so-called Flash PMI will probably show a gain to 50.3 percent this month, compared with 50.5 in December, according to economists surveyed by Bloomberg.

Jiangxi Copper, the biggest producer of the metal, rallied 2.5 percent to 13.55 yuan. Aluminum Corp. of China Ltd., known as Chalco, climbed 2.8 percent to 3.30 yuan.

Anhui Yingliu jumped 34 percent to 11.10 yuan. Zhejiang Wolwo Bio-Pharmaceutical Co. gained 10 percent after surging 45 percent in its debut yesterday.

IPO Outlook

Fifty-two companies have been approved by the securities regulator to sell shares after the end of a year-long IPO freeze. China will release a draft of its IPO registration rules as early as June and adopt the system in 2015, China Business News reported, citing an unidentified person close to the China Securities Regulatory Commission.

Efforts by regulators to crack down on overvalued IPOs and improve corporate disclosures are failing to boost confidence among individual investors. The number of Chinese stock accounts containing funds shrank to a three-year low of 53.7 million on Jan. 17, a drop of 3.6 million from the June 2011 peak, data compiled by Bloomberg show.

While Societe Generale SA says bearish sentiment is a buy signal, Asian Capital Holdings Ltd. and Calibre Asset Management Ltd. predict it will weigh on stocks in a market where individuals account for more than 80 percent of trading volume.

“When the issue is launched in the market, it’s set at a peak,” Ronald Wan, chief China adviser at Asian Capital in Hong Kong, said by phone on Jan. 20. “If the situation doesn’t change, it’s bad for the IPO market.”

Trading volumes in the Shanghai index were 29 percent above the 30-day average for this time of day. Swings in the index increased when it traded near the 2,000 level in the middle of 2013. The measure plunged 5.8 percent to fall below that level on June 24 before rallying 5.5 percent over two days in mid-July to rise above 2,000.

“The fact that it was able to hold above 2,000 is a good sign,” said Jackson Wong, vice president of Tanrich Securities in Hong Kong. “It’s been a technical rebound the past few days after the PBOC showed a willingness to provide liquidity.”

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