China’s Stocks Rise for Fourth Day as Phone Companies Surge

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China’s stocks rose for a fourth day as phone companies rallied on speculation of a merger and consumer shares extended gains on prospects for increased sales during the Chinese new year holiday.

China United Network Communications Ltd., which controls China Unicom (Hong Kong) Ltd., jumped 8.4 percent in Shanghai. China Unicom and China Telecom Corp. climbed more than 2 percent in Hong Kong as traders speculated the two companies may combine. China Telecom said in a statement that it isn’t aware of any plan to merge with China Unicom. Beingmate Baby & Child Food Co. jumped 5.5 percent on Fonterra Cooperative Group Ltd.’s plan to buy a stake. Citic Securities Co. paced a retreat for financial shares with a slide of 1.1 percent.

The Shanghai Composite Index gained 0.5 percent to 3,173.42 at the close, with trading volumes 40 percent below the 30-day average. China’s markets will be shut for a week-long holiday from Feb. 18.

“There won’t be a lot of interest in trading stocks in the next couple of days as the market prepares for the Chinese New Year,” said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management Co. “The market will likely fluctuate in a range that’s isn’t too wide.”

The CSI 300 Index added 0.3 percent. Hong Kong’s Hang Seng China Enterprises Index climbed 1.1 percent, while the Hang Seng Index gained 0.4 percent.

The Shanghai Composite has gained 50 percent over the past year, the second-best performer among 93 global benchmarks tracked by Bloomberg, spurred by monetary easing speculation, an exchange link with Hong Kong and growth in margin trading. The gauge is valued at 12 times 12-month projected earnings, compared with the five-year average of 10.3, according to data compiled by Bloomberg.

Telecom Stocks

Gauges of telecom and industrial shares in the CSI 300 advanced 2.7 percent and 1 percent respectively for the biggest gains among 10 industry groups.

China Telecom climbed the most in three weeks, while China Unicom added 3.7 percent. China Mobile Ltd. jumped 3.6 percent.

Stocks erased losses in the afternoon on speculation China Telecom and China Unicom would combine to offset China Mobile’s dominant position and follow global trends, Andrew Sullivan, head of sales trading at Haitong International Securities Group in Hong Kong, said in an e-mailed message.

“I haven’t seen the article but it’s what I am being told,” said Sullivan. “By merging the two smaller operators the obvious hope is that the new company will able to compete with China Mobile.”

Financial Losses

Hisense Electric Co. jumped by the maximum daily limit of 10 percent for a second day to lead gains for consumer-discretionary companies.

Trainmakers CSR Corp. and China CNR Corp. led a rally for industrial companies, surging more than 6 percent. China Railway Group Ltd., the nation’s biggest construction company by total assets, climbed 2.2 percent after saying it won 33 projects for a combined 49.3 billion yuan ($7.9 billion).

Financial shares fell before January data on money supply and new lending that may come as early as today. Recent reports showed exports and imports falling last month, manufacturing gauges signaling a contraction and a gauge of services expanding at the weakest pace in six months. China Minsheng Banking Corp. slid 0.5 percent, Industrial Bank Co. declined 1.8 percent and Haitong Securities Co. retreated 1.2 percent.

China granted small banks nationwide access to a short-term lending tool to help them cope with liquidity strains, especially during the upcoming lunar new year holiday when Chinese withdraw cash to give as gifts.

Margin traders increased holdings of shares purchased with borrowed money by a sixth day on Wednesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising 0.9 percent to a record 805.1 billion yuan.