China Stocks Halt Two-Day Drop as Data Show Economy Stabilizing

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China’s stocks rose for the first time in three days as higher-than-estimated growth in industrial output and the broadest gauge of credit as well as a jump in new home sales signaled the nation’s economy may be stabilizing.

Technology and health-care companies led gains, with Neusoft Corp. and Harbin Pharmaceutical Group Co. surging at least 6.8 percent. Data on Thursday showed industrial output rose 6.1 percent last month, compared with the median analyst estimate of 6 percent. Growth in retail sales accelerated, while aggregate financing and new loans beat projections and new-home sales surged 30 percent.

The Shanghai Composite Index added 0.3 percent to 5,121.59 at the close. Stocks fell over the past two days after MSCI Inc. held off from adding mainland shares to its benchmark indexes and reports showed exports dropped and producer prices declined more than estimated.

“Most of the data are in line with market expectations,” said Wu Kan, a fund manager at Dragon Life Insurance Co. in Shanghai, which oversees about $3.3 billion. “One good thing is that property sales showed signs of a pick up, which is important for the stabilization of the economy.”

The CSI 300 Index declined 0.1 percent. Hong Kong’s Hang Seng China Enterprises Index added 0.9 percent, while the Hang Seng Index rebounded 0.8 percent. Trading volumes in Shanghai were 1.4 percent below the 30-day average, according to data compiled by Bloomberg.

Economic Data

Industrial output accelerated from 5.9 percent in April, while retail sales added 10.1 percent, the statistics bureau said. Fixed-asset investment excluding rural households climbed 11.4 percent in the first five months. New-home sales grew faster than the 16 percent year-on-year increase in April, according to Bloomberg calculations.

Aggregate financing, which includes bank loans and off-balance credit, was 1.22 trillion yuan, the People’s Bank of China said after the market close. That compares with the median estimate of 1.13 trillion yuan in a Bloomberg survey. New yuan loans were 900.8 billion yuan, compared with a survey forecast of 850 billion yuan.

“A stabilization in production, or a modest acceleration, shows that the Chinese economic performance won’t be bad in the coming months,” said Li Wei, China economist for Commonwealth Bank of Australia in Sydney. “Both industrial production and consumer spending are likely to turn better in the second half of this year.”

The Shanghai gauge has surged 149 percent in the past year on a record jump in margin debt and bets the government will step up stimulus efforts. The measure is valued at 19.3 times 12-month projected earnings, the highest level since December 2009, according to data compiled by Bloomberg.

MSCI Reaction

Gauges of technology, drug and consumer-staples producers in the CSI 300 climbed at least 0.8 percent for the best performances among 10 industry groups. Financial software developer Hundsun Technologies Inc. surged 5.8 percent. Harbin Pharmaceutical rallied by the 10 percent daily limit. Bright Dairy & Food Co. jumped 10 percent, surging for a third day after China International Capital Corp. upgraded the stock to a strong buy.

Margin traders increased holdings of shares purchased with borrowed money for a 13th day on Wednesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising to a record 1.44 trillion yuan.

MSCI’s decision not to add Chinese mainland stocks to its global indexes now is “very good news” and could be a trigger for investors to sell the nation’s overvalued equities, Mark Mobius, who oversees about $40 billion as the executive chairman of Templeton Emerging Markets Group, said on his Twitter feed.

IPO Concern

China’s money-market rates are set to rise as initial public offerings tie up funds next week. The China Securities Regulatory Commission has approved 24 new share sales, according to a statement released Tuesday. The amount of locked-up funds will peak at 5.5 trillion yuan ($886 billion) on June 19, SWS Research analysts wrote in a note Wednesday.

The money-market rate will probably average 2.5 percent in June, up from May’s 2.06 percent, according to a Bloomberg survey of five traders and analysts conducted on May 29. The benchmark has risen every June in the past five years on lenders’ quarter-end demand for cash.