Chinese Stocks Rise for 11th Time in 12 Days as PetroChina Jumps

Chinese stocks climbed for the 11th time in 12 days, led by energy and industrial companies, after oil prices surged and the government said it will promote industries including transport equipment.

Offshore Oil Engineering Co. jumped 10 percent after crude headed for its biggest five-day gain since 2009 and the State Council added the marine engineering equipment industry to its development plans. PetroChina, which releases earnings Thursday, gained 5.8 percent. Beijing HualuBaina Film & TV Co. and Guangdong Qtone Education Co. sank 10 percent, pacing losses on the ChiNext index of small-cap shares, which slid 3.9 percent.

“Funds have abandoned pricey small caps to rotate into large blue-chips, which haven’t performed as well over the past few months,” said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management Co.

The Shanghai Composite Index gained 0.6 percent to 3,682.10 at the close. The gauge has climbed 11 percent in March. The measure on Wednesday halted a 10-day rally that was fueled by speculation the government will take steps to shore up faltering economic growth.

The CSI 300 Index added 0.2 percent. Hong Kong’s Hang Seng China Enterprises Index lost 0.4 percent. The Hang Seng Index slipped 0.1 percent. The Hang Seng China AH Premium Index rose 1.4 percent to 135.72, the highest since October 2011. The Bloomberg China-US Equity Index slid 1.2 percent on Wednesday.

A measure of energy stocks in the CSI 300 rose 3.6 percent, the most among the 10 industry groups. China Oilfield Services Ltd. soared 9.3 percent. Shaanxi Coal Industry Co. gained 7.1 percent.

Oil Jumps

Crude futures surged as much as 5.8 percent and headed for the biggest rally over five days since at least February 2011. Saudi Arabia’s bombing of Shiite rebels in Yemen marks an escalation in tensions with Iran, which the world’s largest oil exporter blames for fomenting trouble in its southern neighbor.

A measure of industrial stocks in the CSI 300 added 1.5 percent for the second-steepest gain. Shipbuilder China CSSC Holdings Ltd. surged 10 percent. Avic Aircraft Co. climbed 3.9 percent. China will promote the development of 10 sectors including information technology, robots, aerospace equipment, high-tech ships and advanced railway equipment, China National Radio reported, citing the State Council meeting.

Leshi Internet Information & Technology Corp., which is planning to develop electric vehicles, led declines for small caps in the ChiNext, slumping 10 percent and paring gains over the past year to 111 percent.

Smallcaps Slump

“Small caps have already jumped a lot in recent months and there’s also some speculation about a regulatory probe into small-cap trading,” said Jingxi Investment’s Wang. “That’s causing small caps to tumble. Their prices are too high.”

The China Securities Regulatory Commission didn’t immediately reply to an e-mailed request for comment. The ChiNext has jumped 56 percent this year, taking its reported price-to-earnings ratio to a record high of 87.2 times on Wednesday, as the government encourages innovation and massive entrepreneurship through direct financing from the stock market.

The 14-day relative strength measure for the Shanghai index, measuring how rapidly prices have advanced or dropped during a specified time period, was at 75.9 Thursday. Readings above 70 indicate a price may be poised to fall. Trading volumes were 42 percent above their 30-day average.

Liquidity Indicators

The Shanghai Composite climbed for 10 consecutive days through March 24, the longest winning streak since 1992, as daily turnover on mainland bourses surged to an unprecedented 1.4 trillion yuan ($225 billion). Mainland traders opened a record number of new accounts to buy yuan-denominated A shares in the week to March 20, while the value of equities purchased with borrowed money rose to an all-time high on Wednesday. The gauge has risen 14 percent this year, adding to last year’s world-beating rally.

The signs of a Chinese equity bubble are visible just about everywhere Hao Hong looks.

The chief China strategist at Bocom International Holdings Co. points to soaring price-to-earnings ratios, the shrinking yield advantage that stocks offer over bonds and the fact that mainland-listed equities now trade at a 34 percent premium over nearly identical shares in Hong Kong.

So what’s Hong’s advice to investors?

Keep buying, of course.

“Our traditional market models may not be able to capture the full picture,” he said a few days after spelling out his stance in a March 20 report titled “Price-to-Whatever Ratio: A Bubble Scenario.”

— With assistance by Shidong Zhang

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