China's Stocks Rise as Developers Jump on Monetary Easing Bets

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  • Drugmakers advance as worsening pollution boosts outlook
  • Yuan weakens after IMF says it will become reserve currency

Chinese stocks rose as property companies rallied the most in three months on speculation the government will loosen monetary policy and drugmakers climbed amid Beijing’s worst pollution of the year.

The Shanghai Composite Index gained 0.3 percent to 3,456.31 at the close. Poly Real Estate Group Co. and China Vanke Co. both jumped 10 percent. Data showed China’s manufacturing slipped to the weakest level in more than three years, putting pressure on the government to boost the economy through stimulus. The Hang Seng China Enterprises Index rose 1.6 percent, snapping a six-day losing streak. The yuan weakened 0.2 percent in offshore trading after it was added to the International Monetary Fund’s basket of reserve currencies.

“There are continuous high expectations of further policy support in the property sector," said Gerry Alfonso, a sales director at Shenwan Hongyuan Group Co. in Shanghai. "The seasonal occurrence of high pollution, during the cold season, tends to help the share price of health-care and other related companies."

The Shanghai Composite’s rebound from a $5 trillion rout is starting to ease after the gauge closed out November with a 1.9 percent gain, the smallest percentage move since January. Rising investor optimism with the return to a bull market earlier in the month has given way to caution as the government started withdrawing market support.

Recent data have also mostly been dismal with exports falling, industrial output slowing and producer prices continuing declines. Tuesday’s report showed the official purchasing managers index at 49.6 in November, down from October’s 49.8 and below the level of expansion.

Six central bank interest-rate cuts in a year haven’t been enough to spur a recovery in manufacturing, which has continued to weaken while activity in the services sector has shown more strength. Another manufacturing PMI released by Caixin Media and Markit Economics edged up to 48.6 in November, exceeding the median estimate of 48.3. The gauge has a smaller sample size and includes smaller companies and exporters.

A gauge of property developers in Shanghai jumped 4.6 percent, the biggest gain among five industry groups. The measure has climbed 5 percent this year, compared with a 6.9 percent advance for the Shanghai Composite.

Beijing Tongrentang Co. surged 6.1 percent to lead gains for drugmakers. Air pollution enshrouding Beijing forced some parents to keep their children home from school as municipal officials limited factory output in efforts to dispel a shroud of smog that covered the Chinese capital for the third day in a row.

Hong Kong’s H-shares gauge posted its biggest gain in a month, benefiting from a return of risk appetite. Benchmark share measures from Tokyo to Sydney and Seoul climbed at least 1 percent. The H-shares gauge slumped 5.8 percent last month, the worst performance among major stock gauges in Asia.

IMF Move

Hong Kong’s Hang Seng Index rose for the first time in seven days, adding 1.8 percent. The CSI 300 Index advanced 0.7 percent.

The IMF said the Chinese currency will join the dollar, euro, pound and yen in its Special Drawing Rights basket. While yuan inclusion is a short-term negative for Chinese stocks, it is positive in the long term, UBS Group AG analysts wrote. The risk of depreciation is likely negative for stocks on a three- to six-month time horizon, they said. Still, increased capital account opening and further domestic capital market development, coupled with very low global exposure to Chinese assets currently, could bring more inflows in the long term, they said.

“We see in particular the yuan inclusion to the SDR basket has lifted sentiment in the Asian stock market,” said Adrian Zuercher, the Hong Kong-based head of Asia asset allocation at UBS. “We think Asia is attractively valued and there is too much pessimism on China.”