China's Stocks Rise Most in Month as Large-Cap Financials Surge

Updated on
  • ChiNext index drops as technology shares falter before IPOs
  • China Life Insurance, China Vanke rally by 10% daily limit

China’s stocks rose the most in a month as financial companies rallied on prospects for monetary stimulus. Small-cap technology shares tumbled before the first initial public offerings in five months.

The Shanghai Composite Index climbed 2.3 percent to 3,536.91 at the close, while the CSI 300 Index advanced 3.6 percent. China Life Insurance Co., China Vanke Co. and China Citic Bank Corp. all surged by the 10 percent daily limit. The ChiNext index of technology shares lost 1.6 percent. The central bank stepped up cash injections via open-market operations on Tuesday as the restart of new share sales drove demand for funds.

Speculation has intensified the central bank will add to the six interest-rate cuts since November last year amid a recent raft of indicators signaling a deepening economic slowdown, including falling exports, declining producer prices and slowing industrial output. Manufacturing conditions are at the weakest level in more than three years, official data showed on Tuesday.

“Easing expectations are having a positive impact on property stocks, which are a focus of the market at the moment,” said Castor Pang, head of research at Core-Pacific Yamaichi Hong Kong. “There’s a good chance for the broader market to chalk up more gains even though there will be ups and downs during the day.”

The Shanghai index changed direction at least seven times in the morning before rallying in the last hour of trading. The gauge’s 10-day volatility hovered near three-month highs as trading volumes slid 8.8 percent below the 30-day average. The Hang Seng China Enterprises Index increased 1 percent in Hong Kong, while the Hang Seng Index added 0.4 percent.

Financials Surge

A gauge of insurers, banks and brokerages in the CSI 300 climbed 5.9 percent for the biggest gain since Aug. 27. The Shanghai property index rose 3.6 percent, extending a three-day rally to 9.8 percent, fueled by media reports that the government may allow mortgage interest to be deductible. Poly Real Estate Group Co., the second-biggest Chinese developer, jumped 10 percent for a three-day advance of 26 percent.

The 21st Century Business Herald said the government isn’t likely to release a policy allowing mortgage interest to be deducted from taxes “in the short term,” after speculation about such a move fueled gains in real estate companies on Tuesday. Certain departments in the government are “cautious” about allowing mortgage interest to be deducted from taxes because it involves income tax and fiscal reforms, the newspaper reported.

Expensive Stocks

The ChiNext trades at 74 times reported earnings after rallying 78 percent this year, almost five times more expensive than the CSI 300, which has risen 5.3 percent. Lens Technology Co. slid 4.4 percent.

Twenty-eight IPOs, including 10 this week, will lock up 3.4 trillion yuan ($530 billion) of funds, according to a Bloomberg survey. China may start a registration-based IPO system before the revision of its securities law is completed, Caixin reported Wednesday, citing an unidentified person. The government is switching to a new system in part because a pre-funding requirement has wrought havoc on liquidity conditions. Nearly every time a new batch of companies took orders over the past year, money-market rates climbed and stock slumped as investors hoarded cash for their bids.

“Some investors might be selling ChiNext stocks amid concerns over an upcoming registration-based IPO system, while switching to blue chips including financials, property shares and automakers,” Guo Feng, a Shanghai-based investment adviser at Northeast Securities Co., said by phone.