China's Stocks Rebound from Biggest Loss in Month Before Plenumby
ChiNext rallies after Wednesday's plunge on valuation concern
Chinese technology, health-care, consumer shares lead gains
China’s stocks rebounded from the steepest loss in a month as technology and health-care companies rallied ahead of a top-level Communist Party meeting next week to discuss the nation’s economic and social plans for the next five years.
The Shanghai Composite Index climbed 1.5 percent to 3,368.74 at the close, after plunging 3.1 percent on Wednesday. East Money Information Co. and Lepu Medical Technology Beijing Co. climbed more than 6 percent. Industrial & Commercial Bank of China Ltd., which is reporting earnings later this month, slumped 2.5 percent to lead declines for lenders on concern the slowing economy may have hurt profit growth.
The Shanghai Composite has rebounded 10 percent in October, heading for the steepest monthly advance in six months, amid speculation the government will loosen monetary policy and announce more overhauls of state-owned enterprises to bolster the economy. The Communist Party meets for its fifth plenary session starting Oct. 26. Trading volumes were 12 percent higher than the 30-day average for this time of the day.
“I feel investors are treading cautiously after yesterday’s decline, as they are looking to see if there will be government support,” said Bernard Aw, a Singapore-based strategist at IG Asia Pte. “This reflects nervousness in the markets ahead of next week’s risk events, including the fifth plenum and the Federal Open Market Committee meeting.”
Chinese stocks plunged Wednesday, led by small-company shares, on concern an equity rebound had gone too far. The ChiNext index, which trades at a multiple of 71 times -- four times more expensive than the Shanghai gauge -- rebounded 4.8 percent on Thursday, paring yesterday’s 6.6 percent slump.
Investors shouldn’t be too pessimistic about the market’s outlook as Wednesday’s tumble was a “normal correction,” Zhongtai Securities Co. analysts Luo Wenbo and Zeng Yan wrote in a report.
The Hang Seng China Enterprises Index fell 0.5 percent in Hong Kong, while the Hang Seng Index slid 0.6 percent. Hong Kong’s financial markets were shut on Wednesday for a holiday. The CSI 300 Index advanced 1.5 percent, with gauges of technology and health-care companies gaining at least 3.8 percent.
Investors should buy stocks that reflect the new economy before the fifth plenum and avoid traditional heavy industry sectors that face oversupply, China Southern Fund Management Co. strategist Yang Delong said this month. East Capital Partner’s Karine Hirn recommended consumer companies as China further opens to international investors and transform its economy to one that is more consumption-driven.
Plenum topics will include lowering the growth target, accelerating state-sector reforms and redoubling efforts to reduce pollution, according to Bloomberg economists Fielding Chen and Tom Orlik.
Leshi Internet Information & Technology Corp., the biggest stock in the ChiNext, rose 4.1 percent after plunging by the 10 percent daily limit on Wednesday. Wangsu Science & Technology Co. surged 3 percent. Jiangsu Hengrui Medicine Co. paced gains for drugmakers, adding 2.4 percent. China will set up a nationwide residence permit system and gradually improve public services for Hukou permit holders under draft rules passed by the State Council in a meeting chaired by Premier Li Keqiang on Wednesday.
Bank of China Ltd. and Bank of Communications Co. both dropped more than 2 percent. The nation’s lenders will probably report weaker third-quarter profit growth as the economy remains subdued, according to Bloomberg Intelligence. Agricultural Bank of China Ltd. will report on Friday, while China Construction Bank Corp. and Bank of China will release results on Oct. 29. ICBC will report on Oct. 30.
Margin traders reduced holdings of shares purchased with borrowed money on Wednesday, halting the nine-day rising stretch that was the longest increase since June. The outstanding balance of margin debt on the Shanghai Stock Exchange dropped 0.8 percent to 609.6 billion yuan ($96 billion).