China’s Stocks Advance for Biggest Two-Day Gain Since November

China’s stocks rose, sending the benchmark index to its biggest two-day gain since November, amid speculation the government will take further steps to bolster the economy after a manufacturing index unexpectedly fell.

Bank of Beijing Co. and Haitong Securities Co. jumped at least 1.9 percent to lead an advance for financial shares after regulators announced plans to allow companies to sell preferred shares. Poly Real Estate Group Co. rallied 3.5 percent for a two-day gain of 11 percent. Hebei Iron & Steel Co. and Tianjin Reality Development Group Co. soared 10 percent after the China Securities Journal reported the government plans trade zones for Beijing, Tianjin and Hebei province.

The Shanghai Composite Index advanced 0.9 percent to 2,066.28 at the close. Barclays Plc said the Chinese government may announce investment projects and reforms of state-owned companies as the slowdown in manufacturing threatens Premier Li Keqiang’s 7.5 percent economic growth target for this year.

“We look for the start of more central government-led projects, as well as more investment areas and the service sector being opened up to private capital,” Jian Chang, Barclays’ China economist, wrote in a report after the manufacturing data was released today. “The government needs to take quick action.”

HSBC Holdings Plc and Markit Economics today released a preliminary reading of its manufacturing index showing a drop to 48.1 in March. The report, known as the flash PMI, compared with the 48.7 median estimate of analysts surveyed by Bloomberg and February’s final 48.5 figure. Numbers below 50 signal contraction.

Trade Zones

The Hang Seng China Enterprises Index surged 2.8 percent, led by Yanzhou Coal Mining Co. and Great Wall Motor Co. The CSI 300 rose 0.8 percent to 2,176.55. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.-listed Chinese companies, added 1.1 percent on March 21.

The Shanghai Composite jumped 2.7 percent on March 21 amid speculation the government is loosening funding restrictions for developers and banks to support economic growth. The China Securities Regulatory Commission said after exchanges closed that companies can issue preferred shares.

“The market has interpreted the preferred-stock plan as good news as it can expand financing channels for particularly big companies,” said Wu Kan, a money manager at Dragon Life Insurance Co., which oversees about $3.3 billion. “A thematic play on regional free-trade zones is quite active as well and is helping to boost market sentiment.”

Preferred Shares

Bank of Beijing advanced 1.9 percent to 7.58 yuan. China Minsheng Banking Corp., the nation’s first privately owned bank, added 0.8 percent to 7.62 yuan. Haitong Securities, the second-biggest listed brokerage, climbed 2 percent to 9.54 yuan. Poly Real Estate, the second-largest developer by market value, rose 3.5 percent to 7.45 yuan.

Companies can issue preferred shares if they are included in the Shanghai Stock Exchange 50 A-Share Index, the CSRC said in a statement on its microblog account. Publicly traded companies can also issue the stock to pay for acquisitions and buy back shares, the regulator said.

The CSRC also said it will “appropriately” lower financial requirements on companies that aim for ChiNext listings to support innovative and growing firms.

China International Capital Corp. advised purchasing shares of “old economy” industries which have “extremely low” valuations over “new economy” industries that have high valuations and are heavily held by institutional investors, analysts Hanfeng Wang, Qiusuo Li and Yutong Hou wrote in a note.

CICC favors Chinese real estate, insurance, building material and steel companies as well as banks after the preferred-share plan was announced.

A measure of material companies in the CSI 300 jumped 1.6 percent, the biggest gain among 10 industry groups. Hebei Steel soared 10 percent in Shenzhen. China may announce a free-trade zone plan for Beijing, neighboring Tianjin and Hebei province soon, the China Securities Journal reported, citing unidentified people.