Shanghai Composite Rises to Four-Year High as Financials Advance

China’s benchmark stock index rose to a four-year high amid speculation the government will loosen monetary policy and ease capital requirements that may allow brokerages to boost margin lending.

Citic Securities Co. and Haitong Securities Co., the largest brokerages, surged at least 8.4 percent to send a gauge of financial companies to the highest level since 2008. Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp., the biggest lenders, gained more than 5 percent. Jiangxi Copper Co. slid 2 percent to pace declines for metal producers. Casino operators plunged in Hong Kong.

The Shanghai Composite Index climbed 1.3 percent to 3,061.02 at the close, even as three stocks slid for each one that gained. Its 30-day volatility jumped the most in four years after surpassing the 3,000 level yesterday. Brokerages and banks rose after the 21st Century Business Herald reported the regulator will ease brokers’ capital limits, and the China Securities Journal said the government may stop requiring loan-to-deposit ratios for lenders.

“Brokerages have solid fundamental support and will see a significant improvement in earnings next year as the sector is the biggest beneficiary of a bull market,” said Wu Kan, a fund manager at Dragon Life Insurance Co. “The good performance of brokerage stocks has the squeeze-out effect on other sectors and small caps.”

The CSI 300 added 1.7 percent. Hong Kong’s Hang Seng China Enterprises Index gained 1.2 percent, while the Hang Seng Index slid 0.4 percent as casino stocks tumbled. The Bloomberg China-US Equity Index lost 0.4 percent yesterday.

New Accounts

The Shanghai Composite has advanced 45 percent this year amid speculation the central bank will reduce lenders’ reserve-requirement ratios after cutting interest rates for the first time in two years last month. It’s valued at 11.5 times 12-month projected earnings, the highest level in three years, according to data compiled by Bloomberg.

Trading volumes in the Shanghai gauge were 43 percent higher than the 30-day average today. The 14-day relative strength measure, measuring how rapidly prices have advanced or dropped during a specified time period, was at 77.3 today, higher than 70 for a sixth day. Readings above 70 indicate a price may be poised to fall.

The CSI 300 financial sub-index jumped 5.3 percent today, adding to a 53 percent surge over the past month, the most among the 10 industry groups. Citic Securities climbed 10 percent, while Haitong Securities added 8.4 percent. Their shares have doubled over the past month on speculation a jump in trading and demand for margin trading will boost profit.

Margin Trading

China’s retail investors opened almost 900,000 accounts to trade stocks last week, the most since October 2007. That’s helped drive the Shanghai Composite up 22 percent in the past month through yesterday, compared with a 3.9 percent drop by the MSCI All-Country World Index. The value of equities changing hands on mainland exchanges surged to 1.24 trillion yuan ($200 billion) on Dec. 9, almost five times the one-year average.

The regulator is seeking an opportunity to announce revised rules on the management of brokerages’ risk control indicators, the 21st Century Business Herald reported, citing an unidentified person close to the regulator. The rules will lower the limit on their net capital to net asset ratio, it said. The rules may be issued in February or March, Luo Yi, an analyst at Huatai Securities Co., said on his microblog.

Investors bought 92.4 billion yuan of shares using margin debt on the Shanghai exchange yesterday, taking the outstanding value of stock purchases through borrowed money to a record 638 billion yuan, according to data from the bourse. Chinese hedge-fund managers and high-net-worth investors have caused the record jump in margin trading of stocks, Z-Ben Advisors said in a note yesterday.

Banks Gain

ICBC surged 5.2 percent and China Construction Bank advanced 5.3 percent. Bank of China Ltd. rose 4.1 percent while China Minsheng Banking Corp. surged 10 percent. Easing loan-to-deposit rules signal an effort to boost credit as the economy falters. Savings that banks hold for non-deposit-taking financial institutions may be classified as deposits, a government official briefed on the matter said last month, declining to be identified as he’s not authorized to speak publicly about the matter.

China Railway Construction Corp. surged by the 10 percent daily limit on a plan to raise as much as 9.9 billion yuan in a private stock placement. A gauge of material shares in the CSI 300 slid 2 percent for the steepest loss among the groups. Yunnan Tin Co. declined 4.4 percent. Data this month showed Chinese manufacturing contracting, export growth slowing and imports unexpectedly dropping amid weak demand.

In Hong Kong, casino operators plunged after the South China Morning Post reported China will start cracking down on illicit money channeled through the city’s casinos. Galaxy Entertainment Group Ltd. and Sands China Ltd. slid at least 6.2 percent. Great Wall Motor Co. slumped 3 percent after peer Geely Automobile Holdings Ltd. forecast a 50 percent slide in 2014 profit amid a slumping ruble. Geely plunged 17 percent.

— With assistance by Shidong Zhang

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