Chinese Stocks Rise Before GDP Report as Credit Expands

China’s stocks rose for a third day after the nation’s broader measure of credit topped analysts’ estimates, overshadowing concern new share sales will divert funds from existing equities.

COFCO Tunhe Co. paced a rally for industrial companies. The government announced after the market close that it will choose six state-owned enterprises for a reform trial including COFCO Corp. Liquor maker Kweichow Moutai Co. jumped 2.7 percent to lead a second-day rally for consumer-staples shares. Gemdale Corp. slumped 4.3 percent to drag down developers. Shanghai Wangsu Science & Technology Co. plunged 9.5 percent in the ChiNext Index, adding to a 16 percent loss over the past week.

The Shanghai Composite Index advanced 0.2 percent to 2,070.36 at the close. New local-currency lending and M2 money supply also exceeded estimates in June, while foreign direct investment unexpectedly rose. Data tomorrow will likely show economic growth expanded 7.4 percent in the second quarter according to the median estimate of analysts.

“We should see a further rebound,” Zhang Haidong, analyst at Tebon Securities Co., said in Shanghai. “Data has been decent and there are signs that the economy is recovering. Investors expect the full-year GDP target to be met. The market’s downside is pretty limited.”

The CSI 300 Index advanced 0.2 percent. The Hang Seng China Enterprises Index increased 0.3 percent. The ChiNext slid 1.9 percent. The Bloomberg China-US Equity Index gained 1.8 percent yesterday.

Today’s Data

The Shanghai measure has rebounded 3.3 percent from a recent low in May after data such as manufacturing and producer prices signaled growth is stabilizing. This week’s data include first-half home sales tomorrow and home prices on July 18.

Aggregate financing was 1.97 trillion yuan ($317 billion) in June, the People’s Bank of China said, compared with the median estimate of analysts for 1.425 trillion yuan. New local-currency loans were 1.08 trillion yuan and M2 money supply grew 14.7 percent from a year earlier.

New yuan lending in June compared with the 955 billion yuan median projection in a Bloomberg survey and 860.5 billion yuan a year ago. Growth in M2, China’s broadest measure of money supply, was the fastest since August and compared with the median estimate for 13.6 percent. FDI rose 0.2 percent in June, compared with the estimate for a 7 percent decline.

“The government has been concerned more about stabilizing growth recently,” and today’s figures are a “confirmation of credit easing,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “It’s offsetting the tightening from previous months.”

SOE Reform

A gauge of consumer-staples stocks rose the most on the CSI 300, gaining 2 percent. Kweichow Moutai, the biggest producer of baijiu liquor, advanced 2.7 percent. Rival Wuliangye Yibin Co. jumped 1.3 percent.

Liquor makers’ earnings growth may accelerate in the second half due to a low base last year, while the start of the Shanghai and Hong Kong exchange link may boost their appeal, Shenyin & Wanguo Securities Co. analysts Jin Feng and Deng Jingdong wrote in a report today.

COFCO Tunhe gained 3.3 percent. Shanghai Potevio Co., a maker of communications equipment, jumped 10 percent.

The government will start a trial giving some state-owned companies more independence in making investment decisions and hiring top executives, two people familiar with the matter said yesterday. The move may mark an acceleration in China’s plan to overhaul its state-owned enterprises.

State-owned Assets Supervision and Administration Commission chose State Development & Investment Corp. and COFCO for state capital investment trial, according to a statement posted on its microblog.

Smallcaps Drop

Shanghai Wangsu Science & Technology sank the most since Feb. 25, paring a rally over the past year to 124 percent. Qingdao Huaren Pharmaceutical Co. dropped 8.3 percent.

Twelve companies posted their sales prospectus, including five which plan to list in the ChiNext and six in Shanghai. Investors have flocked to new offerings this year as the Shanghai Composite declined, property prices dropped and slowing growth raised concerns of defaults in wealth-management products. The securities watchdog’s chairman said in a May 19 statement that it plans to allow about 100 IPOs from June through the end of the year.

“If you see the correction in the small-cap stocks, you will note how concerned investors are about the diversion of funds from the current market,” said Zeng Xianzhao, an analyst at Everbright Securities Co.

The Shanghai Composite trades at 7.6 times 12-month projected earnings, compared with 30 times for the ChiNext, according to data compiled by Bloomberg.

A gauge of property stocks in the Shanghai index fell 0.4 percent, the most among five industry groups. Gemdale slumped the most since April while Poly Real Estate Group Co., the second-largest developer in China, retreated 1.1 percent.

China’s property sales may decline in July, Credit Suisse Group AG said in a report. The loosening of home purchase restrictions alone may not spur a housing market rebound if monetary policy isn’t eased further, it said.

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