China’s Stocks Rise Most in Week on Monetary Easing Speculation

China’s stocks rose the most in a week as official data showing inflation slowing more than forecast spurred speculation the government will further ease monetary policy to boost the world’s second-biggest economy.

Property and technology companies led gains as Poly Real Estate Group Co. and Hangzhou HIK-Vision Digital Technology Co. added more than 3 percent. Beijing Yanjing Brewery Co. jumped the most in a month after people with knowledge of the matter said the company plans to sell a stake to a foreign investor. The overnight repurchase rate on the Shanghai Stock Exchange surged to the highest level since Dec. 2007 on cash demand for new share offerings.

The Shanghai Composite Index climbed 1.5 percent to 3,141.59 at the close. Consumer prices rose at the slowest pace in more than five years in January and factory-gate deflation deepened, the statistics bureau said. The data add to concern demand is weakening and put pressure on the central bank to lower borrowing costs to sustain economic growth.

“The economy is in a deflationary situation and still sliding,” said Dai Ming, a fund manager at Hengsheng Asset Management Co. in Shanghai. “That’ll prompt the central bank to follow up with more banks’ reserve-ratio cuts in the next one to two months. The stock market will continue to consolidate around the 3,000 level.”

The CSI 300 Index rose 1.8 percent. Hong Kong’s Hang Seng China Enterprises Index added 0.4 percent, while the Hang Seng Index was little changed.

The Shanghai index has gained 51 percent over the past year, the second-best performer among 93 global benchmarks tracked by Bloomberg, spurred by an exchange link with Hong Kong and growth in margin trading. As of the Tuesday close, foreign investors bought a combined 99 billion yuan ($15.9 billion) of mainland stocks through the link since the Nov. 17 debut.

Inflation Data

The consumer-price index rose 0.8 percent in January, compared with the projection for a 1 percent increase, while the slide in factory gate prices deepened to 4.3 percent, extending a stretch of declines to 35 months. Other data for January showed imports falling by the most in more than five years, manufacturing gauges signaling a contraction and services expanding at the weakest pace in six months.

Weak domestic demand and falling commodities prices are pushing inflation lower, raising real interest rates in the economy. The central bank followed up its November interest rate cut by lowering reserve requirement ratios for banks this month.

“The CPI data leave the door open for further monetary stimulus albeit not coming immediately,” said Zhao Bingtong, Shenzhen-based trader at Guosen Securities Co. “Trading is still slow as most people prepare for the long Chinese New Year holiday.”

Property Stocks

Trading volumes in the Shanghai Composite were 44 percent below the 30-day average, according to data compiled by Bloomberg. Turnover is slumping before the Chinese new year holiday, which starts Feb. 18 and lasts for a week. The gauge is valued at 11.7 times 12-month projected earnings, compared with the five-year average of 10.3, according to data compiled by Bloomberg.

A gauge of property stocks in the Shanghai gauge rose 2.7 percent, the most among five industry groups. Poly Real Estate climbed 3.3 percent, while Gemdale Corp. added 2.5 percent. Bank shares also climbed, with China Citic Bank Corp. gaining 2.7 percent and China Construction Bank Corp. adding 1.1 percent.

“China is well positioned to cut interest rates,” Jonathan Garner, the Hong Kong-based head of Asia and emerging-markets strategy at Morgan Stanley, said on Bloomberg Television. The government may cut rates twice in the first half, said Garner, who recommends Chinese banks, insurers and health-care companies.

IPO Sales

Yanjing Brewery gained 3 percent. The company, backed by the Beijing municipal government, plans to sell about a 20 percent stake to a foreign strategic partner, people with knowledge of the matter said. The company said in a statement that it didn’t contact foreign beverage companies on a stake cooperation.

The Shanghai gauge has fallen 7.1 percent from a five-year high set on Jan. 26 amid signs of a cooling economy and after regulators tightened rules on margin trading. Margin traders increased holdings of shares purchased with borrowed money by the most since Jan. 22 yesterday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising 0.9 percent to a record 786.7 billion yuan.

“We have entered a consolidation phase,” said Jing Ulrich, vice chairman of Asia Pacific at JPMorgan Chase & Co., said in an interview with Bloomberg Television. “Valuation is not as cheap as it once was.”

Seventeen companies started to sell initial public offering shares today, the most for a single day since the regulator removed a suspension on IPO sales last year. That adds to 24 companies marketing new shares this week, which a Bloomberg survey showed may freeze 2.05 trillion yuan. The China Securities Regulatory Commission is expected to release a plan for an IPO registration system in April and implement the rules after July, the China Securities Journal reported.

— With assistance by Shidong Zhang

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