Chinese ADRs Gain in U.S. on Stimulus Outlook as Airlines Surge

  • China's three largest airlines are said to consolidate
  • Largest U.S. ETF tracking China A-Shares rises most in a week

U.S.-traded Chinese stocks ended a two-day drop as traders bet the government will implement more stimulus measures after a government planning meeting next week, and airlines surged on a report that the country’s three biggest carriers may merge.

The Bloomberg China-U.S. Equity Index added 1.1 percent to 110.43 on Thursday. American depositary receipts of China Southern Airlines Co. surged 12 percent to $41.97, the highest close in two months. China Eastern Airlines Corp. jumped 9.3 percent to $31.99. Air China Ltd. increased 11 percent to $19.24 in over-the-counter trading.

China is considering combining some operations of the three airlines as part of a broad reform of state-owned enterprises, people familiar with the plans said on Thursday. The country is also said to make more money available to local governments for financing infrastructure projects this year via a special bond program. The Communist Party will meet for its fifth plenary session at the end of this month to discuss the nation’s economic and social plans for the next five years.

“The concerns on China are not gone, but investors are always afraid to miss out on a rally,” Robbert van Batenburg, director of market strategy at Societe Generale SA in New York, said by phone. “These are the surgical responses and efforts from the Chinese government to help the economy without creating an illusion that the massive amount of fiscal stimulus is again accelerating the country’s leverage.”

Policy Meeting

President Xi Jinping said during a state visit in U.K on Wednesday that China won’t see a “hard landing” despite downward pressure on the world’s second-largest economy. Top policy makers will discuss topics that include lowering the growth target, accelerating state-sector reforms and redoubling efforts to reduce pollution at their gathering next week, according to Bloomberg economists Fielding Chen and Tom Orlik.

Mergers in the airline industry would follow similar moves in the past after China combined its two biggest railway manufacturers. China Southern and Air China’s controlling shareholders said after the market close on Thursday that they have no information on merger plans, according to separate filings to stock exchanges.

“China would like to reduce competition between its main carriers,” George Ferguson, senior air transport analyst with Bloomberg Intelligence, said in an e-mailed reply. “The carriers are competing against each other on many routes both internationally and domestically. A combination would allow a more centralized planning of additional capacity and maybe help yields improve. ”

The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF the biggest U.S. exchange-traded fund investing in mainland shares, rose 3.8 percent to $35.94. The iShares China Large-Cap ETF, which tracks Chinese stocks traded in Hong Kong, increased 2.2 percent to $39.70.

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