China’s Stocks Rise to One-Month High on New Year Sales Optimism

China’s stocks rose to the highest level in a month after the government extended subsidies for automakers and analysts said consumer spending during the lunar New Year holidays will support economic growth.

BYD Co., the automaker backed by Warren Buffett’s Berkshire Hathaway Inc., soared 10 percent in Shenzhen after the government said it will continue incentives on electric vehicles beyond 2015 to help lower emissions. FAW Car Co. surged the most since August after January vehicle sales jumped 50 percent. Qingdao Haier Co. and Gree Electric Appliances Inc. climbed at least 2.8 percent. Jiangxi Copper Co. and China Shipbuilding Industry Co. led gains for material and industrial stocks.

The Shanghai Composite Index rose for a second day after the weeklong holiday, adding 2 percent to 2,086.07 at the close, the highest level since Jan. 2. The gauge has rallied 4.8 percent since its price-to-earnings ratio fell to a record on Jan. 20. Holiday consumption figures released on Feb. 6 may ease concern that China’s economy is headed for a hard landing, as a surge in tourism spending offset a slowdown in luxury purchases, according to Bank of America Corp.

“The market has stabilized,” Zhang Haidong, an analyst at Tebon Securities Co., said by phone in Shanghai. “February is also the season where company report earnings and investors are placing their bets on companies that are expected to do well. Investors have gotten more positive.”

Lunar Sales

The CSI 300 Index advanced 2.5 percent to 2,267.53, with six of the 10 industry groups gaining more than 2 percent. Trading volumes in the Shanghai gauge were 66 percent above the 30-day average, according to data compiled by Bloomberg. The Bloomberg China-US Equity Index added 1.6 percent on Feb. 7.

China’s retail and catering sales rose to 610.7 billion yuan ($101 billion) during the 7-day Lunar New Year holidays, 13.3 percent higher than during the same holiday last year, the official Xinhua News Agency reported on Feb. 6, citing the Ministry of Commerce. Retail sales climbed 14.7 percent in 2013, according to previously released figures.

While Credit Suisse Group AG said that the retail sales showed consumption was weak, Bank of America said this year’s spending was below last year’s levels because of distortions caused by a change in the holiday schedule. Tourism, online shopping and entertainment industries prospered during the holidays, while luxury gift sales fell, Barclays Plc said.

Automakers Rally

“Holiday spending suggests robust consumption growth,” Lu Ting, economist at Bank of America, wrote in a note dated Feb. 7. The data are “suggesting demand of the 1.4 billion consumers remained healthy even though luxury spending was hit further by an escalation of the new government’s frugality campaign.”

A gauge of consumer-discretionary stocks in the CSI 300 surged 3.3 percent, the most since October. Qingdao Haier, China’s biggest refrigerator maker, climbed 4 percent to 22.35 yuan, while Gree Electric advanced 2.8 percent to 29.56 yuan.

FAW and BYD jumped by the daily limit of 10 percent as China will give more subsidies for electric vehicles than previously announced as part of government plans to tackle pollution. SAIC Motor Corp., the biggest automaker, added 4.1 percent to 13.48 yuan.

Subsidies for 2014 will be cut by 5 percent, instead of the previously announced 10 percent, and decreased by 10 percent in 2015, instead of 20 percent, the finance ministry said in a joint statement with the National Development and Reform Commission, technology and industry ministries.

H Shares

Government agency data showed air passenger trips jumped 19 percent during the holiday that started Jan. 31. Road traffic increased 5 percent, according to a Xinhua News Agency report Feb. 7, as 433 million people, more than the entire population of the U.S., traveled during the break.

Shanghai Jinjiang paced gains for hotels, climbing 3.9 percent to 15.10 yuan. Jiangxi Copper led a rally for material producers, rising 2.8 percent to 13.73 yuan. China Shipbuilding added 4.3 percent to 5.63 yuan.

The Hang Seng China Enterprises Index added 0.1 percent today, paring this year’s loss to 10.8 percent. Hong Kong-listed Chinese stocks are oversold and any further losses will be muted, China International Capital Corp. analysts led by Hanfeng Wang wrote in a report.

The Shanghai measure slid 3.9 percent in January, capping the biggest January drop in four years, amid concern slowing economic growth will hurt earnings and new initial public offerings will divert funds. It’s valued at 7.8 times projected earnings for the next 12 months, compared with the five-year average of 12.3 times, Bloomberg data showed.

China’s central bank signaled volatility in money-market interest rates will persist and borrowing costs will rise, underscoring the risk of defaults that could weigh on confidence and drag down growth. One-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repurchase rate, added five basis points to 4.85 percent.

Share Sales

China Wafer Level CSP Co. jumped 44 percent from its IPO price in Shanghai today. Foshan Haitian Flavouring & Food Co. will start trading its shares in Shanghai tomorrow.

Chinese stocks rose on Feb. 7, buoyed by a rebound in global equities and a perception that last month’s slump was excessive, said Zhang Gang, a strategist at Central China Securities in Shanghai. The Standard & Poor’s 500 Index climbed 1.3 percent on Feb. 7, capping its best two-day rally since October.

“U.S. stocks rallied on Friday and that has helped sentiment too, knowing the rout is not persisting,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Moreover, we are at a low entry point, so some investors may take advantage of it.”

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