China Stock Index Rises as Brokerages’ Gain Overshadows PMI Data

China’s benchmark stock index rose for the first time in six days as a rally for brokerages overshadowed data showing a gauge of factory output slumped to a six-month low.

Citic Securities Co. and Haitong Securities Co., the biggest Chinese listed brokerages, gained at least 1.4 percent after Premier Li Keqiang said yesterday the government will accelerate reform of initial public offerings. Guangzhou Shipyard International Co., a unit of China’s biggest shipbuilder, slid 3.9 percent. Shanghai International Port Ltd. dropped 2.7 percent for the biggest loss since May.

The Shanghai Composite Index added 0.1 percent to 2,452.66 at the close, even as six stocks fell for every five that rose. The preliminary Purchasing Managers’ Index for November from HSBC Holdings Plc and Markit Economics was at 50.0, trailing the median 50.2 estimate of analysts in a Bloomberg survey.

“Investors are turning back to the fundamentals of the economy,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “There will be no catalyst for the market in the near future as growth slows. The acceleration of IPO reforms means more companies will sell new shares and that’ll add to brokerages’ revenues.”

Hong Kong’s Hang Seng China Enterprises Index and the CSI 300 Index both ended little changed, while the Hang Seng Index slipped 0.1 percent. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.-listed Chinese companies, retreated 0.8 percent in New York yesterday.

IPO Outlook

Following readings that showed fixed-asset investment in the first ten months expanded the least since 2001 and credit growth weakened last month, the manufacturing report suggests targeted monetary easing is failing to boost growth, raising the prospect of further policy support.

The preliminary data, known as flash PMI, are “signaling a worsening situation in manufacturing SMEs,” Nomura Holdings Inc. economists wrote in a report today.

The benchmark money-market rate rose for a second day, adding 8 basis points to 3.2815 percent. It surged by the most in eight weeks yesterday on cash demand before next week’s initial public share offerings. The overnight repo traded on the Shanghai Stock Exchange jumped as much as 471 basis points to 6.9 percent today, as Shenyin Wanguo Securities Co. estimated subscriptions for IPOs next week will amount to 1.6 trillion yuan ($261.2 million), the most this year.

The government will lower the listing threshold for small companies and remove continuous profit requirements on new listings, according to a State Council meeting led by Premier Li. The nation will also guide financial institutions in adjusting the “artificially high” lending rate, Li said in the meeting.

Brokers Gain

The China Securities Regulatory Commission said it’s preparing to move toward an American-style IPO registration system and may announce a plan by the end of the year. The new framework would ensure issuers meet disclosure requirements, leaving investors to judge if companies are fairly priced.

Citic Securities gained 1.4 percent, Haitong Securities added 1.8 percent and Guoyuan Securities Co. surged 5.6 percent.

“The acceleration of IPO reforms means more companies will join the force in selling new shares and that’ll add to brokerages’ revenues,” said Wang at Zheshang Securities.

Shanghai stock buying through the Hong Kong exchange link slowed for a third day. Global investors used up 18 percent of their 13 billion yuan ($2.1 billion) daily quota of Shanghai shares through the link, down from 20 percent yesterday. Mainland traders utilized 1.6 percent of the 10.5 billion yuan quota for Hong Kong equities.

Link Outlook

“The Hong Kong-Shanghai link is not just about the initial flows, but continued market opening up and higher foreign participation over time,” said Sandy Mehta, chief executive officer of Value Investment Principals Ltd. “Investors and media are too focused on a ‘big bang’ surge, while the results will in fact continue to seen over the next many months and quarters. Chinese Mainland shares will surely re-rate to global valuation levels going forward.”

The Shanghai Composite is valued at 9 times 12-month projected earnings, compared with 16 times for the Standard & Poor’s 500 Index, according to data compiled by Bloomberg. Trading volumes in the Shanghai measure were 29 percent lower than the 30-day average today.

— With assistance by Shidong Zhang

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