China's Stocks Post First Monthly Advance Since $5 Trillion Rout

  • Baby formula, toy companies surge as one-child policy lifted
  • PetroChina, Bank of China drop after earnings tumble

China stocks capped their first monthly gain since May as government attempts to stabilize equities bore fruit. Baby-related companies climbed after the ending of the one-child policy, while PetroChina Co. led losses by commodity producers after posting its worst-ever earnings.

The Shanghai Composite Index, which slipped 0.1 percent to 3,382.56 at Friday’s close, rebounded 11 percent this month. Shares of companies from infant formula makers to toy producers jumped after the government said it will allow all couples to have two children. PetroChina dropped 2.1 percent in Hong Kong. Bank of China Ltd. slid to a two-week low in Shanghai after net income fell for the first time since the global financial crisis.

oct 30 shcomp

China’s benchmark index has rebounded 16 percent from this year’s low on Aug. 26 as the government took measures to end a $5 trillion rout and policy makers introduced stimulus to boost economic growth, including a sixth reduction in interest rates in a year last week. China’s decision to end birth restrictions may boost retail sales by as much as 240 billion yuan ($38 billion) a year starting in 2017, according to Credit Suisse Group AG.

“The two-child policy is something that’s newly confirmed from the plenum and the market hadn’t fully expected that,” said Zhang Haidong, chief strategist at Jinkuang Investment Management in Shanghai, who’s adding to his holdings. “The market has been rising this month because of monetary-policy loosening from the central bank.”

Dairy Surge

The CSI 300 Index added less than 0.1 percent on Friday and posted a 10 percent jump this month. Hong Kong’s Hang Seng China Enterprises Index slipped 0.4 percent, paring October’s gain to 11 percent. The Hang Seng Index lost 0.8 percent. Trading volumes in the Shanghai gauge were 14 percent lower than the 30-day average.

Dairy maker Yashili International Holdings Ltd. surged 6.3 percent in Hong Kong to a two-month high, while China Mengniu Dairy Co. gained 3.4 percent. Beingmate Baby & Child Food Co. jumped 10 percent in Shanghai for the highest close since June 30. China Child Care Corp., which sells diapers and body-care products, soared 40 percent in Hong Kong, while Biostime International Holdings Ltd., a Chinese infant-formula company, rose 5.1 percent to the highest level since July 23.

Earnings Misses

The Communist Party’s Central Committee’s decision to allow all couples to have two children was disclosed by the Xinhua news agency on Thursday, citing a communique released at the end of a four-day party policy meeting in Beijing. A previous effort to relax the policy fell well short of the goal of boosting births by 2 million a year.

The relaxation will have bigger implications for the economy in the next five to 20 years, John Silvia, managing director and chief economist at Wells Fargo Securities LLC, said in an interview in Bloomberg’s office in Shanghai.

“It’s not too late,” he said. “China is not a stagnant economy like Japan where you’re not getting any population growth and it’s not Italy or Greece.”

The Central Committee’s communique marks the first step in the official roll-out of the 2016-20 blueprint. More details are expected in coming days with the release of the draft plan.

PetroChina, China’s biggest oil and gas producer, slid for a fourth time this week. The company, faced with a “complicated and grim operating environment,” posted third-quarter net income of 5.2 billion yuan, compared with 27.9 billion yuan a year earlier. 

Tech Dominance

Aluminum Corp. of China Ltd., the nation’s biggest producer, fell 2.1 percent in Shanghai after reporting a loss of 959 million yuan in the third quarter as metal prices tumbled. Bank of China fell 0.3 percent for a 1.8 percent loss this week. Industrial & Commercial Bank of China Ltd.and Bank of Communications Ltd. are among companies due to release third-quarter earnings on Friday. 

Earnings at 68 percent of the companies on the Shanghai Composite that have reported results have missed forecasts, compared with 55 percent for the MSCI Emerging Markets Index.

Margin traders increased holdings of shares purchased with borrowed money on Thursday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising to 628.4 billion yuan, the highest level since Sept. 1.

An index of technology shares on the CSI 300 Index slipped 0.5 percent on Friday. The gauge soared 22 percent this month, the best performer among the 10 industry groups.

Technology firms’ weighting in MSCI Inc.’s benchmark Chinese equity gauge will almost double to 26 percent by May, after a Nov. 12 review when overseas-listed firms from Alibaba Group Holding Ltd. to Baidu Inc. become eligible for inclusion, according to Goldman Sachs Group Inc. 

The change will affect investors with at least $400 billion of Chinese stock holdings and give the country a higher concentration of software companies than any other MSCI index worldwide.

The yuan surged the most since March as China’s central bank said it will look at starting a trial program to allow domestic investors to directly buy overseas property or securities.

— With assistance by Shidong Zhang

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