China’s Stocks Rise to Seven-Year High on Stimulus Speculation

Chinese stocks rose, sending the benchmark index to a seven-year high, amid speculation the government will accelerate monetary stimulus to support the economy.

Aluminum Corp. of China Ltd. and Huaneng Power International Inc. led gains for material and power companies before manufacturing data Thursday that will likely show a contraction. Haitong Securities Co. jumped 10 percent as brokerages rallied on speculation the bull market is luring more people to open stock accounts. Baoding Tianwei Group became the country’s first state-owned company to default on an onshore bond, underscoring the government’s pledge to open a cooling economy to market forces.

The Shanghai Composite Index rose 2.4 percent to 4,398.50 at the close. The gauge has jumped 87 percent in the past six months, the most among benchmark indexes globally, as the government lowered borrowing costs to boost growth. The People’s Daily said in a commentary in its online edition that the bull market is just getting started at the 4,000 level.

“Data showing deterioration will only fuel speculation of more stimulus,” while the People’s Daily report will make investors more confident in the durability of the rally, said Jimmy Zuo, a Shenzhen-based trader at Guosen Securities Co.

The Hang Seng China Enterprises Index in Hong Kong rose 1 percent, extending yestersday’s 3 percent rally, while the Hang Seng Index added 0.3 percent. The CSI 300 Index climbed 2.6 percent. The Bloomberg China-US Equity Index increased 1.6 percent on Tuesday.

Bull Market

The Shanghai index trades at 16.9 times estimated earnings for the next 12 months, compared with an average of 10.2 for the past five years. Trading volumes were 30 percent above the 30-day average.

China’s stocks are just at the start of the bull market as the Silk Road plan and reforms will support the economy, according to the commentary published on the People’s Daily’s website on Tuesday.

Blackstone Group LP’s Steve Schwarzman said the Chinese stock market shows signs of excess as the population plows savings into it while economic growth slows.

“We’re now finding retail investors with multiple brokerage accounts and margin loans and indicia of some excess in their market system,” Schwarzman, Blackstone’s co-founder and chief executive officer, said Tuesday at the China General Chamber of Commerce’s Finance & Real Estate Forum in New York. “The stock market’s really humming.”

The balance of margin trading in Shanghai climbed to 1.15 trillion yuan ($186 billion), halting three days of losses after reaching an all-time high of 1.16 trillion yuan on April 16.

Trading Debut

Tianwei, a transformer maker that is a unit of the Chinese government-owned China South Industries Group Corp., said it will fail to pay 85.5 million yuan of bond interest due Tuesday.

“I don’t think the credit default risk is widespread especially after China’s monetary easing,” said Wenjie Lu, Shanghai-based strategist at UBS Group AG. “The case of Baoding doesn’t represent an escalating credit default risk in corporate China.”

All 10 companies making their trading debuts Wednesday jumped more than 30 percent including Beijing Dahao Technology Corp. and Ningbo Medical System Biotechnology Co.

Gauges of utility, financial and material companies in the CSI 300 rose at least 2.8 percent for the steepest gains among 10 industry groups. Aluminum Corp., known as Chalco, increased 4.8 percent. Huadian Power International Corp. soared 10 percent. Huaneng Power jumped 15 percent in Hong Kong.

Tomorrow’s Data

Citic Securities Co., the biggest-listed brokerage, advanced 7.8 percent in Shanghai. Haitong Securities, the second largest, rallied 11 percent in Hong Kong. Chinese investors opened 3.28 million accounts in the week ended April 17, up from 1.68 million a week earlier, according to data from the website of China Securities Depository and Clearing Co. The jump came after the government allowed each investor to open up to 20 trading accounts.

HSBC Holdings Plc and Markit Economics will release preliminary manufacturing data on Thursday. Their index, known as the flash PMI, probably slipped to 49.4 in April from the prior reading of 49.6, according to the median estimate of Bloomberg surveys. The data are scheduled for 9:45 a.m.

“What happened in China is that investors have become a little bit more comfortable with an economic downturn at least being controlled,” said Arnout van Rijn, chief investment officer for Robeco in Hong Kong. “Easing monetary policy is good for the share market because it reduces the cost of capital.”

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