China Stocks Rise on Monetary Easing Signs as Banks Gain

China’s stocks rose, sending the Shanghai Composite Index to a second day of gains, after the central bank took more steps to ease a potential cash crunch and support an economy hampered by slumping property prices.

China Citic Bank Corp. led an advance for mainland lenders, rallying 4.6 percent. Sichuan Kelun Pharmaceutical Co. surged 3.1 percent as a sub-index of health-care companies climbed the most among industry groups. PetroChina Co. and China Petroleum and Chemical Corp. slid 1.5 percent in Hong Kong, dragging down the Hang Seng China Enterprises Index.

The Shanghai Composite added 0.4 percent to 2,315.93 at the close. The CSI 300 Index rose 0.3 percent. The central bank cut a rate it pays on repurchase agreements to the lowest since January 2011. The rate cut and cash injection to banks this week signal efforts to bolster the economy after new-home prices fell in 68 of 70 cities tracked by authorities last month.

“There are expectations for more looser policies,” Larry Wan, chief investment officer at ZhongRong Life Insurance Co., said by phone in Beijing. “It’s obvious the government wants the stock market to rise. The property data may be negative, but people are betting on more reforms.”

Hong Kong’s Hang Seng China index, or H-shares gauge, the MSCI China Index, and Hang Seng Index each lost 0.9 percent at the close. The Bloomberg China-US Equity Index slipped less than 0.1 percent after the Federal Reserve raised estimates for interest rates while maintaining a pledge to keep rates low after bond purchases are ended.

Monetary Easing

The Shanghai Composite has risen 16 percent since mid-March and trades at 8.4 times projected 12-month earnings. The H-shares measure has fallen 5.3 percent after hitting a high this year on Sept. 8 and has a multiple of 6.9. Trading volumes in Shanghai were 7.5 percent above the 30-day average for this time of day, according to data compiled by Bloomberg.

The Hang Seng China AH Premium Index jumped 1.1 percent for the biggest gain since Sept. 10, signaling a narrowing gap between dual-listed stocks.

The People’s Bank of China sold 10 billion yuan ($1.6 billion) of 14-day contracts at 3.5 percent today, according to a statement on its website. That compared with 3.7 percent at a Sept. 16 auction and is a further sign of monetary easing after the central bank supplied 500 billion yuan to the nation’s largest commercial lenders via its standing lending facility.

The cost of one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, fell 15 basis points to 3.35 percent. The seven-day repo rate dropped one basis point to 3.37 percent, a weighted average compiled by the National Interbank Funding Center showed.

Home Prices

In mainland trading, banks and drugmakers led gains. China Citic climbed the most in two months. Bank of Communications Co. advanced 1.9 percent. A measure of health-care companies in the CSI 300 added 1.5 percent, the biggest gain among 10 industry groups. Yunnan Baiyao Group Co. advanced 1.5 percent.

Property shares were the biggest drag in Shanghai, with a sub-index sliding 1 percent. Gemdale Corp. slumped 2.8 percent, while Poly Real Estate Group Co. declined 1.1 percent. In Hong Kong, China Overseas Land & Investment Ltd., the largest mainland developer listed in the city, fell 1.8 percent while China Resources Land Ltd. dropped 2.8 percent.

New-home prices dropped 2 percent from July in Hangzhou, the capital of the eastern province of Zhejiang, the biggest decline among all cities. They fell 0.9 percent in Beijing and 1.1 percent in Shanghai, according to the government.

PetroChina slid 1.5 percent in Hong Kong, paring this year’s rally to 24 percent. The largest oil producer is the fourth-best performer in the H-shares gauge this year. Jiangxi Copper fell 1.3 percent. Casino operator Galaxy Entertainment Group Ltd. climbed 1.1 percent to snap eight days of losses.

No Crunch

“In the short term, property shares may drag the market lower,” said Zhou Lin, an analyst at Huatai Securities Co. “Sentiment is still weak on economic data” and concerns new share sales will divert funds from existing equities, he said.

The nation’s regulator this week approved 11 more initial public offerings. After being frozen for a year, the pipeline for domestic IPOs was reopened late last year. IPOs on the mainland this year have surged an average 43 percent in their first day of trading. Alibaba Group Holding Ltd. is scheduled to begin trading in New York on Sept. 19, in a deal valued at $21.8 billion, which could make it the largest IPO in history.

The People’s Bank of China move to provide funds to the nation’s five largest banks will help overcome any pre-holiday cash crunch, though is unlikely to move the needle on gross domestic product, according to economists at banks including Barclays Plc. The nation’s financial markets will be shut for about a week in early October for the National Day holidays.

With Premier Li Keqiang vowing he won’t be distracted by short-term fluctuations as he maintains focus on structural adjustments, the fate of his 7.5 percent expansion target hinges on whether the injection marks the start of more easing or is just a temporary liquidity measure. UBS AG said it will take a deeper slowdown to spur an interest-rate cut as it reiterated a call growth will slide below 7 percent next quarter.

— With assistance by Weiyi Lim, and Kana Nishizawa

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