China’s Stocks Rise Most in Three Weeks as NPC Ends, Banks Rally

China’s stocks rose, sending the benchmark index to its biggest gain in three weeks, amid speculation the securities regulator will allow listed companies to sell preferred shares for the first time.

Agricultural Bank of China Ltd. and Shanghai Pudong Development Bank Co. surged more than 3 percent on media reports that banks may be the first batch of companies to take part in a preferred-stock trial. Liquor maker Kweichow Moutai Co. rallied 4 percent after Shenyin & Wanguo Securities Co. targeted a stock price that’s more than 20 percent above current levels.

The Shanghai Composite Index climbed 1.1 percent to 2,019.11 at the close, the most since Feb. 19. Premier Li Keqiang said at the end of the National People Congress that there’s some flexibility around the nation’s target of 7.5 percent growth this year. Li’s comments came before a report that showed industrial production missed estimates.

“Given the recent bad economic data, people are still hoping Li will mention some reforms that may boost the economy and the market,” said Mao Sheng, an analyst for Huaxi Securities Co. in Chengdu. “Bank stocks have a big weighting on the index so they are pulling the gauge higher. The valuations of the banks have dropped so much so people are buying them again and the preferred-stock reports mean debt problems would be lessened.”

The CSI 300 Index rose 1.2 percent to 2,140.33. The Hang Seng China Enterprises Index, also known as the H-share index, dropped 0.5 percent. It slid 1.6 percent yesterday, bringing losses since a Dec. 2 peak to 19 percent and nearing what some traders consider a bear market. The Bloomberg China-US Equity Index dropped 0.4 percent yesterday.

Economic Data

Trading volumes in the Shanghai index were 10 percent lower than the 30-day average, according to data compiled by Blooomberg. The measure has fallen 4.6 percent this year amid concerns there will be more bond defaults after a solar company failed to make debt interest payments and growth in shadow banking is creating risks to the financial system.

China’s industrial-output, investment and retail-sales growth cooled more than estimated in the first two months of the year, signaling a slowdown in the economy as leaders seek to sustain 7.5 percent expansion.

Factory production rose 8.6 percent in the January-February period from a year earlier, the National Bureau of Statistics said, compared with the 9.5 percent median projection of analysts surveyed by Bloomberg News. Retail sales advanced 11.8 percent, while fixed-asset investment excluding rural households was up 17.9 percent.

Growth Pessmism

“Given the poor data, we must admit that growth is still lingering at the bottom level,” said Wu Kan, a money manager at Dragon Life Insurance Co., which oversees about $3.3 billion. “Since it’s an important year for reforms this year, the government may sacrifice some degree of growth.”

Official data over the weekend showed the steepest slide in exports since 2009 and the slowest inflation in 13 months, highlighting the challenges for Premier Li in achieving the economic-growth target.

“Since we say the GDP growth target is about 7.5 percent, ‘about’ means it has a certain degree of flexibility,” Li said, adding that the government’s key concerns are jobs and livelihoods. “A bit higher or a bit lower, we have a level of tolerance here.”

The government will curb demand for housing among investors and will regulate the housing market “differently in different cities,” Li said. China must ensure that financial risks don’t threaten the entire system even as some defaults are unavoidable, he said.

Banks Advance

A gauge of financial companies in the CSI 300 gained 1.2 percent today, paring this year’s loss to 9.5 percent, the third-worst performer among 10 industry groups. Banks had seven of the 10 biggest gains in the Shanghai index. Agricultural Bank, which trades at a record low of 4.2 times projected 12-month earnings according to data compiled by Bloomberg, gained 3.1 percent to 2.36 yuan. Pudong Bank jumped 3.3 percent to 8.84 yuan, paring losses over the past year to 14 percent.

Banks may become the first companies to participate in the preferred-stock trial, Reuters reported yesterday, citing three unidentified people. The China Securities Regulatory Commission has held meetings with banks on allowing them to sell preferred shares, with Pudong Bank and Agricultural Bank likely to be the first to do so, Money Week reported in September.

MSCI Inclusion

Allowing lenders to sell preferred shares would give them a new way to meet long-term fundraising requirements. Owners of these shares have priority over common equity shareholders in receiving the company’s profits and remaining assets, according to the CSRC.

A measure of consumer-staples producers in the CSI 300 advanced 3.4 percent, the biggest gain among the industry groups. Kweichow Moutai rose 4 percent to 164.87 yuan. Moutai’s sales may increase in 2014, analysts led by Zhao Jinhou at Shenyin & Wanguo wrote in a report yesterday.

MSCI Inc.’s proposal to include mainland-traded shares in its emerging-market indexes may lure $4.4 billion in funds, with China Merchants Bank Co. and Agricultural Bank of China Ltd. among the top beneficiaries.

The estimate of inflows into A shares by analysts at Goldman Sachs Group Inc. compares with the $52 billion of approved quotas through China’s Qualified Foreign Institutional Investors program. China Merchants Bank, AgBank and Ping An Insurance Group Co. would probably receive the most inflows under MSCI’s proposal, Societe Generale SA wrote in a report.

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