China’s Stocks Rise on Gains for Technology, Small-Cap Companies

China’s stocks rose, led by technology and small-company shares, on easing concern that new share sales will divert funds after the government announced fewer initial public offerings than some analysts had estimated.

Leshi Internet Information & Technology Co., the biggest company in the ChiNext index, jumped the most in a month. Yonyou Software Co. surged 5.4 percent as a gauge of technology shares climbed the most among industry groups. Kweichow Moutai Co. and Wuliangye Yibin Co. dragged down consumer-staples producers for a second day with losses of at least 1.9 percent.

The Shanghai Composite Index added 0.2 percent to 2,008.12 at the close, rebounding from a three-week low. China’s securities regulator said yesterday the nation plans to have about 100 IPOs from June through the end of this year. UBS AG strategist Chen Li said the amount was fewer than the 350-400 IPOs that he had expected.

“Stocks are rising today because the government finally announced the number of IPOs it is planning to have,” said Zeng Xianzhao, an analyst at Everbright Securities Co. “This removes the uncertainty in the market and investors can prepare accordingly. Moreover, this amount is smaller than expected.”

The ChiNext surged 1.3 percent, extending gains for a second day after entering a bear market on May 16. The CSI 300 Index was little changed. The Hang Seng China Enterprises Index fell 0.3 percent at 3:44 p.m. in Hong Kong trading.

The Shanghai measure has lost 5.1 percent this year on speculation slowing economic growth will curb earnings and a flood of IPOs would sap liquidity. Industrial-output and investment growth unexpectedly decelerated last month, while new building construction fell 22 percent in the first four months of the year. New-home prices rose in April in the fewest cities in a year and a half as developers offered discounts.

Stock Sales

“Today’s gains aren’t sustainable,” said Zeng. “The economy isn’t doing well.”

Kweichow Moutai, the biggest baijiu maker, slid 2 percent, adding to yesterday’s 4.6 percent plunge. Rival Wuliangye Yibin dropped 1.9 percent to the lowest level since March 10. The China Securities Journal reported yesterday the company had cut the price of some liquor products by more than 30 percent.

The China Securities Regulatory Commission resumed IPO sales in December after a 15-month freeze. The securities regulator halted listings of new share offerings since January to inspect the balance sheet of companies seeking to go public.

The stock sales plan for the rest of the year will be spread over time to ensure there are a similar number each month, CSRC Chairman Xiao Gang said in a statement posted on the regulator’s website yesterday. As of May 9, 557 companies were awaiting approval for first-time share sales, according to China International Capital Corp.

Smallcap Valuations

The technology sub-index in the CSI 300 rose 0.8 percent, the first gain in six days. Sanan Optoelectronics Co. advanced 0.5 percent. Yonyou Software jumped 5.4 percent.

Leshi Internet surged 4.4 percent. The stock had plunged 11 percent since reporting a 31 percent annual profit gain on March 21. The provider of Internet videos and maker of smart TVs has surged 292 percent since the start of last year, sending valuations to 115 times reported earnings, up from about 42.

Small-cap stocks, casinos and Internet companies had attracted money managers because the companies were seen as ways to tap into China’s growing consumer sector while being relatively sheltered from state intervention.

Recommending Mid-Caps

“If I were a non-emerging market investor and I had a choice, I wouldn’t be investing in China at all at the moment,” John-Paul Smith, the London-based emerging-market strategist at Deutsche Bank AG, said by phone yesterday.

Samuel Le Cornu, who helps oversee $1.2 billion at Macquarie Investment Management, is betting that investors will turn to mid-cap consumer discretionary and staples stocks on prospects they will benefit most from a plan to link the Shanghai and Hong Kong markets. The agreement, announced last month, will allow overseas investors to buy mainland shares through Hong Kong, while wealthy individuals will be allowed to buy Hong Kong equities through the Shanghai exchange.

“I am pretty bearish towards the very small cap but I am pretty bullish towards mid caps,” Le Cornu said in Hong Kong. “The small caps really lack catalysts and they have been left out of the Hong Kong ‘through-train.’ Mid-caps are the real winners from that,” he said, referring to a program that allowed Chinese citizens to invest directly in Hong Kong stocks.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE