Chinese Stocks Rise in Volatile Trading After Manufacturing Data

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China’s Shanghai Composite Index rose to the highest level since 2008 in volatile trading as investors weighed weak manufacturing data against the prospects of more monetary easing.

Material companies led gains, with Aluminum Corp. of China Ltd. and China Northern Rare Earth Group High-Tech Co. jumping 10 percent on a government plan to scrap export taxes on rare metals. Liquor maker Kweichow Moutai Co. dragged down consumer shares, sliding 3.4 percent after a five-day, 28 percent jump. Citic Securities Co. paced losses for financial shares with a 2.6 percent loss. The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 49.2, missing the median estimate of 49.6 in a Bloomberg survey.

The Shanghai Composite rose 0.4 percent to 4,414.51 at the close, after swinging between gains and losses at least a dozen times and sending a volatility gauge to a five-year high. The index has rallied 89 percent in the past six months, the most among benchmark indexes globally, amid speculation weak economic data will force the government to do more to bolster growth. The central bank on Monday cut lenders’ reserve-ratio requirements for a second time in 2015 after a report showed the slowest economic growth in six years.

“The PMI figure missed expectations,” said Gerry Alfonso, a director at Shenwan Hongyuan Group Co.’s international business department in Shanghai. “These types of macro figures can be interpreted in different ways and this will cause volatility.”

The Hang Seng China Enterprises Index fell 1.3 percent in Hong Kong, while the Hang Seng Index slipped 0.4 percent. The CSI 300 Index closed little changed. The Bloomberg China-US Equity Index increased 0.9 percent Wednesday.

Cooling Measures

The rally for the Shanghai index has pushed up valuations to 17 times estimated earnings for the next 12 months, compared with an average of 10.2 for the past five years. The 14-day relative strength measure for the index, measuring how rapidly prices have advanced or dropped during a specified time period, has jumped to 81. Readings above 70 indicate a price may be poised to fall. Shanghai’s trading volumes were 25 percent above the 30-day average today.

The Chinese manufacturing gauge fell to a 12-month low in April, suggesting government efforts to cushion a slowdown are yet to revive the nation’s factories. Today’s reading also showed a decline from the March figure of 49.6. Numbers below 50 indicate contraction.

Taking Profits

Chinese rare earth, tungsten and molybdenum stocks jumped following a plan to scrap export taxes on the commodities. The finance ministry said the government will scrap 15 percent export tax on rare earth ores and a 20 percent tariff on tungsten-and molybdenum-alloys. China Northern Rare Earth climbed to the highest level since February 2013.

Gauges of financial and consumer-staples stocks in the CSI 300 posted the biggest losses among industry groups. The financial measure slid 1.4 percent after more than doubling in the past six months. Shenwan Hongyuan declined for the first time in three days, falling 2.9 percent. Citic Securities tumbled 3.9 percent in Hong Kong.

“After the broader market hit a new high, some heavyweights in the financial industry fell victim to profit taking,” said Jimmy Zuo, a Shenzhen-based trader at Guosen Securities Co.

With China’s world-beating stock market attracting an unprecedented number of novice traders, the question on many investors’ minds is how long authorities will let the rally run before stepping in to cool things down.

Novice Traders

The balance of margin trading in Shanghai climbed to an all-time high of 1.17 trillion yuan ($189 billion) on Wednesday, rising for a second day. New trading accounts have surged more than 18-fold to 1.68 million in the week ended April 10, the last reading before regulators ended a rule limiting individual investors to just one account.

As UBS Group AG strategist Lu Wenjie sees it, policy makers may add to existing interventions as soon as later this year. The Shanghai Composite’s 121 percent surge over the past 15 months isn’t justified by earnings prospects in an economy growing at the slowest pace since 2009, according to Lu.

“It’s absolutely possible we’ll see some draconian measures from the regulators,” he said in an interview in Hong Kong. “The pace of stock rally is too fast.”