China’s H Shares Rally to 5-Week High as Manufacturing Improves

Chinese stocks trading in Hong Kong rose to the highest level in five weeks on a bigger-than-estimated improvement in manufacturing industries and increasing signs of policy measures to support the economy.

The Hang Seng China Enterprises Index advanced 1.1 percent to 10,109.57 at the close in Hong Kong, the highest level since April 14, as BYD Co. and Zijin Mining Group Co. climbed. The Shanghai Composite Index fell 0.2 percent to 2,021.29, dragged down by coal producers. The Hang Seng China AH Premium index dropped 1.3 percent, signaling a wider valuation gap between Hong Kong and Shanghai shares.

The preliminary purchasing managers’ index from HSBC Holdings Plc and Markit Economics was at 49.7, exceeding the 48.3 median estimate of analysts surveyed by Bloomberg News. The figure eases concern that a property slump and slowing investment will drag down the world’s second-largest economy.

“There is an improvement, and it lines up with our view that in the second quarter we will see a pickup in momentum, thanks to the recent policy support and the pickup in exports,” Donna Kwok, a China economist at UBS AG, said in a Bloomberg TV interview in Hong Kong. “We are stabilizing at low levels.”

BYD, the automaker backed by Warren Buffett’s Berkshire Hathaway Inc., gained 5.1 percent. Zijin Mining, the largest Chinese gold producer, rose 1.7 percent in Hong Kong.

Stocks also got support from signs the government is taking more measures to protect a 7.5 percent annual growth target. The 21st Century Business Herald reported the People’s Bank of China provided an 100 billion yuan ($16 billion) loan to the China Development Bank for shantytown development, while the State Council said yesterday it will double the amount of venture capital it provides for emerging industries.

Property Risks

Speculation that policy makers will act to keep a floor under share prices has fueled at least five rallies in the Shanghai Composite since June.

The index has lost 4.5 percent this year, versus a 6.5 percent decline in the Hang Seng China measure, amid concern initial public offerings will divert funds. The CSI 300 Index retreated 0.2 percent today, extending this year’s decline to 8.5 percent.

“There’s tight liquidity in the market and risks involving property and IPOs are not over yet,” said Xu Shengjun, analyst at Jianghai Securities in Shanghai.

The seven-day repurchase rate, a gauge of funding availability, rose five basis points to a two-week high of 3.42 percent, according to a daily fixing from the National Interbank Funding Center. The yuan was little changed at 6.234 per dollar.

Policy Signals

The Chinese central bank’s loan to the CDB via its relending facility is an “important policy easing measure,” Nomura Holdings Inc. economist Zhang Zhiwei wrote in a note today. The loan suggests the PBOC will play a key role in financing shantytown redevelopment, he wrote.

China will need to cut lenders’ reserve-requirement ratios soon to shore up confidence with credit growth slowing and housing heading for what could be a messy correction, Stephen Green, head of Greater China research at Standard Chartered Plc in Hong Kong, wrote in a report to clients dated yesterday.

Real interest rates are very high, suggesting monetary policy easing would be appropriate, while corporate profits are weak enough for a cut, Green wrote.

In Shanghai, Poly Real Estate Group Co., the second-largest developer, advanced 0.6 percent. China Vanke Co., the biggest listed developer, jumped 1.9 percent in Shenzhen.

Energy Stocks

Yanzhou Coal Mining Co. led declines for coal producers after Russia signed a $400 billion China gas deal, sliding 2 percent. Datong Coal Industry Co. lost 1.3 percent. The Chinese government sees expanding gas supply as a way to curb air pollution that has frequently exceeded limits recommended by the World Health Organization.

China National Petroleum Corp., PetroChina Co.’s parent and Russia’s OAO Gazprom yesterday signed the agreement in Shanghai to supply 38 billion cubic meters of gas annually over 30 years. PetroChina may benefit from the deal, said Gordon Kwan, head of oil and gas research at Nomura International Hong Kong Ltd. Gas distributors such as China Gas Holdings Ltd. and China Resources Gas Group Ltd. also stand to gain.

China Gas Holdings jumped 6 percent to HK$13.08 in Hong Kong, the biggest advance since Nov. 29. China Resources Gas increased 3.9 percent to HK$25.40, the highest since March 13.

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