Chinese Stocks Rise for Fifth Day on Reform Expectations

China’s stocks rose for a fifth day as asset purchases by Guangzhou Shipyard International Co. and Sichuan Changhong Electric Co. signaled state-owned enterprise reform is accelerating, overshadowing reports showing a slowdown in the manufacturing and service industries.

Guangzhou Shipyard, a unit of China’s biggest shipbuilder, jumped 70 percent in Hong Kong and by the daily limit in Shanghai. Television maker Sichuan Changhong also jumped 10 percent. Zhongfu Straits (Pingtan) Development Co. surged after President Xi Jinping visited a pilot development zone in Fujian, where the company is based. PetroChina Co. slumped 1.5 percent in Hong Kong, dragging down mainland shares trading in the city.

The Shanghai Composite Index climbed 0.4 percent to 2,430.03 at the close, the highest level since February 2013. Reform of China’s SOEs is a crucial building block of the government’s agenda, said Nick Lardy, an economist at the Peterson Institute. An official report showed the nation’s manufacturing slowed in October, while a private gauge matched economists’ estimates. A gauge of China’s services industry fell to a nine-month low.

“The market is paying more attention to reform progress than the macro-economic data,” said Wu Kan, a fund manager at Shanghai-based Dragon Life Insurance Co., which oversees about $3.3 billion. “Reforms regarding SOEs or economic structures are the main catalysts for equities now.”

SOE Reform

The CSI 300 Index climbed 0.2 percent. Hong Kong’s Hang Seng China Enterprises Index slipped 0.9 percent. The Hang Seng Index fell 0.3 percent. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.-listed Chinese companies, added 1.4 percent in New York on Oct. 31.

The Shanghai index gained 2.4 percent in October, rising for a sixth straight month. It has rallied 15 percent this year, bolstered by speculation the government will take more measures to support the economy and as funds flowed into stocks before the start of an exchange link with Hong Kong. Trading volumes were 46 percent above the 30-day average today.

Guangzhou Shipyard soared 10 percent in Shanghai after saying it plans to buy CSSC Huangpu Wenchong for 4.53 billion yuan ($740.3 million) from its controlling shareholder China State Shipbuilding Corp. The company will pay for 85 percent of the stake through a private share placement.

Sichuan Changhong rose to the highest close since March 2008. The company said it plans to raise as much as 4 billion yuan from a private placement to fund its acquisition of a defense company.

Mixed Data

The Communist Party announced last November after a meeting that private investors would be encouraged to invest in SOEs. State firms have become increasingly inefficient and unprofitable, Jian Chang, economist at Barclays Plc, said in August. Even with privileged access to resources and markets, 25 percent of SOEs generate losses, and their average return on equity is half that of the listed companies, she said.

Zhongfu Straits closed at a record high today. During the visit to Pingtan’s development zone, President Xi urged local officials to continue to be innovative and preserve the healthy cross-Strait business and industrial cooperation environment.

The government’s non-manufacturing Purchasing Managers’ Index fell to 53.8 last month from 54 in September. The official manufacturing PMI released Nov. 1 was at 50.8 in October compared with September’s 51.1.

HK Developers

A separate PMI index from HSBC Holdings Plc and Markit Economics for October was at 50.4, unchanged from the preliminary figure and up from September’s final reading of 50.2.

The pullback in services and manufacturing will test the government’s determination to refrain from increased stimulus as the world’s second-largest economy heads toward the slowest full-year growth since 1990. The economy expanded 7.3 percent in the third quarter, the weakest pace in more than five years.

In Hong Kong, Agile Property Holdings Ltd. led developers higher amid speculation the nation’s central bank may ease its monetary stance further after relaxing mortgage policies.

Agile jumped 3.4 percent and KWG Property Holding Ltd. surged 5.8 percent.

The Shanghai Composite is valued at 8.9 times 12-month projected earnings, compared with the five-year average multiple of 10.7, according to data compiled by Bloomberg

— With assistance by Shidong Zhang

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