China Stocks Post Quarterly Gain on Improving Economic Signs

China’s stocks rose, capping a quarterly gain for the benchmark index, before manufacturing data tomorrow that’s expected to add to signs the biggest emerging economy is stabilizing after a two-quarter slowdown.

China Avic Electronics Co. led gains for industrial companies, surging 4.3 percent to extend a rally to 21 percent since the start of April. Shanghai Lianming Machinery Co. jumped by the maximum 44 percent on the first day of trading for Shanghai-listed shares in four months. Industrial Bank Co. paced an advance for lenders on speculation the government will relax the loan-to-deposit ratio requirement to encourage lending.

The Shanghai Composite Index rose 0.6 percent to 2,048.33 at the close. The gauge climbed 0.7 percent this quarter, the first advance since September, after the government cut reserve-requirement ratios for some banks and introduced mini-stimulus including infrastructure spending to prevent a property slowdown from endangering Premier Li Keqiang’s target of 7.5 percent growth this year.

“Sentiment is improving and there’s more drive to push up the market,” said Mao Sheng, an analyst for Huaxi Securities Co. in Chengdu, citing manufacturing data for this month. “Funds are slowly returning to the secondary market after the IPO marketing, relieving liquidity pressure.”

A preliminary manufacturing report from HSBC Holdings Plc and Markit Economics, known as the flash PMI, showed an unexpected expansion last week. Official data scheduled for tomorrow will probably show China’s Purchasing Managers’ Index rose to 51 in June from 50.8 in May, according to the median estimate of 25 economists surveyed by Bloomberg. A number above 50 signals expansion.

IPOs Resume

“Despite some uncertainties, recent developments show signs of growth stabilization and liquidity improvement and policy adjustments are still going on,” China International Capital Corp. analysts led by Hanfeng Wang wrote in a report dated today. Besides the flash PMI data, other positive signs include growing industrial profits and rising inflows from overseas funds, they wrote.

The Hang Seng China Enterprises Index was little changed at 3:30 p.m. local time, on course for a quarterly gain of 2.3 percent. The CSI 300 Index rose 0.7 percent today. The Bloomberg China-US Equity Index advanced 0.3 percent on June 27.

Gauges of industrial companies and conglomerates in the Shanghai index climbed at least 0.5 percent today, led by aerospace and defense shares. Aerospace Communications Holdings Co. jumped for a seventh day, surged 10 percent. CICC said in a report this month that increasing policy support will drive the industry. China has been beefing up spending on high-tech weapons as it throws its military weight behind territorial claims that have stirred tensions with Japan and Southeast Asian neighbors.

Banks Advance

Industrial Bank gained 0.9 percent, while Ping An Bank Co. advanced 0.9 percent.

China may cut policy loans from the loan-deposit rule, Great Wisdom reported, citing an unidentified person. Loans for agriculture, small and medium-sized companies and shantytown redevelopment may be excluded from the loan-to-deposit ratio requirement, it reported. A CBRC press officer didn’t immediately return a call and text message to her cell phone.

“There is speculation that the banking regulator will change the composition of the loan-to-deposit ratio,” said Dai Ming, a money manager at Hengsheng Hongding Asset Management Co. in Shanghai, which oversees about $193 million. “The ceiling for the ratio will still be kept unchanged and there’ll be some minor tweaks. The effect is equivalent to the targeted cut in reserve-requirement ratios.”

IPO Rally

Shanghai Lianming Machinery, whose initial public offering was 150 times oversubscribed, joined three other companies that rallied in their first day of trading last week in Shenzhen. Shandong Longda Meat Foodstuff Co., Wuxi Xuelang Environmental Technology Co. and Feitian Technologies Co. each rallied 10 percent for a second day today after surging 44 percent on their debut.

Chinese IPOs during the first two months of 2014 jumped an average 43 percent on their trading debuts as regulators pressured companies to price the deals at below-average valuations. The nation’s companies issued 222 billion yuan ($36 billion) of equity in the first half of this year, the most since 2010, according to data compiled by Bloomberg.

The China Securities Regulatory Commission said last month that more than 600 companies have submitted IPO applications and over 400 have published draft prospectuses. The securities watchdog plans to allow about 100 IPOs through the end of the year and the stock sales will be evenly spread over time, CSRC Chairman Xiao Gang said in a May 19 statement.

Hong Kong’s markets are shut tomorrow for the anniversary of the city’s return to Chinese rule in 1997. The former British colony is bracing for a mass rally to support full universal suffrage and to oppose China’s insistence that it vet candidates for the city’s leadership election in 2017.

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