China H-Shares Advance, Capping Best Week Since November

Chinese shares rose, with a gauge of mainland stocks traded in Hong Kong capping its biggest weekly gain in four months, as higher profits at automakers and banks eased concern earnings growth is slowing.

Brilliance China Automotive Holdings Ltd., the local partner of Bayerische Motoren Werke AG, jumped 7.1 percent after reporting a 47 percent increase in full-year profit. Industrial & Commercial Bank of China Ltd. advanced 2.2 percent as net income climbed. Tencent Holdings Ltd. rebounded 2.6 percent from yesterday’s 5.9 percent drop. Huayi Brothers Media Corp. dragged down small-company stocks in Shenzhen, losing 3.8 percent.

The Hang Seng China Enterprises Index, also known as the H-share index, jumped 1.3 percent to 10,001.82, closing above 10,000 for the first time since Feb. 19. The gauge rose 6.1 percent for the week, the most since China unveiled a sweeping reform package in November. The Hang Seng Index rose 1.1 percent to 22,065.53. The Shanghai Composite Index slid 0.2 percent.

“Money is rotating to big-cap stocks,” said Wu Kan, a money manager at Dragon Life Insurance Co. in Shanghai, which oversees about $3.3 billion. “Thanks to low valuations, it’s easy to trigger a rebound in the shares once there’s something exceeding expectations like earnings.”

The H-share gauge has rebounded 8.7 percent since entering a bear market with 20 percent loss from a December peak on March 20. The gains have come as weaker economic data fueled optimism the government would act to stabilize growth.

Stimulus Speculation

Premier Li Keqiang said he was confident of keeping economic growth in a “reasonable range.” The nation can’t ignore “difficulties and risks” from increasing downward pressure, according to comments posted on China’s central government website. The official expansion target for this year is 7.5 percent, although investment banks including Goldman Sachs Group Inc. and UBS AG have projected lower growth.

Li’s speech is another sign that the pace of policy easing may accelerate, Zhang Zhiwei, Nomura Holdings Inc.’s Hong Kong-based chief China economist, wrote in a note dated today. China will relax both monetary and fiscal policies in the second quarter, the analyst said, with a rising likelihood for an interest-rate cut.

The H-shares index, down 7.5 percent this year, trades at 6.9 times estimated earnings, compared with 10 for the Hang Seng Index, 7.9 for the Shanghai Composite and 15.8 for the Standard & Poor’s 500 Index.

Short Sellers

The rebound in Chinese equities is failing to scare off short sellers. Short interest hit a record 29 percent of shares outstanding on March 24 before slipping back on March 26 to match its level before stocks began rallying, Markit data show.

Short interest in Anhui Conch Cement Co., China’s biggest producer of the building material by market value, climbed to 25 percent of shares outstanding as of March 25, within 1 percentage point of a record and the highest on the H-share index, Markit data shows. The stock has rallied 9.1 percent since March 20 through yesterday and is up 19 percent in the past two weeks, the second-best gain in the equity gauge. Anhui Conch rose more than 3 percent today in Hong Kong and Shanghai.

ICBC climbed 2.2 percent to HK$4.72. The lender said it set aside 38.3 billion yuan against soured loans in 2013, 14 percent more than a year earlier and less than the 39.6 billion yuan median forecast in a Bloomberg survey of 15 analysts. Net income in 2013 rose 10 percent to 262.6 billion yuan ($42.3 billion) from a year earlier, compared with the 261.5 billion-yuan average estimate in a Bloomberg survey.

Chinese Banks

Of 233 companies in the Hang Seng Composite Index that posted annual results this month and for which Bloomberg had estimates, about half beat profit projections. China Construction Bank Corp. and Cnooc Ltd. are among those scheduled to report today.

Brilliance China gained the most since September after reporting a 47 percent increase in full-year profit to 3.37 billion yuan. Guangzhou Automobile Group Co., a Toyota Motor Corp. partner, rose 4.8 percent, the second-steepest gain on the H-share gauge. The company on March 26 posted full-year profit that more than doubled.

Tencent, Asia’s largest listed Internet firm, climbed for the first time in four days. China Taiping Insurance Holdings Co. surged 14 percent to HK$13.76 after the full-year profit beat analyst estimates.

Futures on the S&P 500 rose 0.2 percent. The gauge dropped 0.2 percent yesterday, led by banks and technology companies, as investors continued a selloff of the bull market’s biggest winners.

Mainland Stocks

The Shanghai index slipped 0.3 percent this week to 2,041.71. The CSI 300 Index dropped 0.2 percent to 2,151.97 today as losses for technology shares and small-cap stocks overshadowed gains for automakers.

The ChiNext index of small-company shares slid 2.7 percent, falling 15 percent since hitting a February high. Leshi Internet Information & Technology Corp. slumped 6 percent in Shenzhen. Huayi Brothers Media Corp. dropped a second day after reporting earnings, losing 3.8 percent.

A gauge of technology shares on the CSI 300 index plunged 2.7 percent, the biggest loss among its 10 industry groups. The sector has rallied 9.4 percent over the past year for the second-best performance on the index.

SAIC Motor Corp., China’s biggest automaker, jumped 8.4 percent to 13.88 yuan, its biggest gain since February 2011. The carmaker posted net income of 24.8 billion yuan, exceeding estimates for a 23.2 billion-yuan gain.

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