China's Stocks Rise Most in Three Months as New Loans Hit Record

  • Policy makers may release package of growth steps, report says
  • Technology, industrial companies lead gains in Shanghai

China Steps Up Support for Its Economy

China’s stocks rallied the most in three months, led by technology and industrial companies, after data showed the nation’s banks doled out a record amount of loans in January.

The Shanghai Composite Index climbed 3.3 percent to 2,836.57 at the close, paring its decline this year to 20 percent. PetroChina Co. advanced 2.6 percent. New yuan lending jumped to 2.51 trillion yuan ($390 billion) last month, beating analyst estimates. Hong Kong’s Hang Seng China Enterprises Index extended Monday’s advance. The yuan weakened after having its biggest gain in more than a decade.

Policy makers are expected to release a package of measures to ensure economic growth is in a reasonable range this year, the Economic Information Daily reported, citing unidentified people. The Shanghai Composite has fallen the most among global benchmark indexes after Greece’s this year on concern the slowdown and the yuan’s depreciation will exacerbate capital outflows. China’s exports declined for a seventh straight month in January and imports plunged 19 percent, data showed Monday.

"The credit growth is driven by government efforts to boost liquidity and an increase in corporate financing," said Ken Chen, a Shanghai-based analyst at KGI Securities Co. "Economic indicators did not look pretty in January and many enterprises were facing losses or profit declines. To avoid defaults, the government stepped up easing and essentially delayed the exposure of credit risks. Government departments are also preparing funds for large projects to be launched."

The Hang Seng China Enterprises climbed 2.1 percent, extending the two-day gain to 7 percent, the most since September. The gauge of Chinese shares traded in Hong Kong plunged 49 percent from its May high through last week, sending valuations to record lows. The Hang Seng Index advanced 1.1 percent.

Declines by Chinese stocks in Hong Kong have created bargains, according to Mark Mobius. The equity measure traded at 5.6 times reported earnings last week, the lowest since at least 2001, according to data compiled by Bloomberg.

"The market already presents itself with opportunities to pick stocks at a bargain -– companies which have been unduly punished by panicked sell-offs and volatility," said Mobius, the Franklin Resources Inc. money manager who’s been investing in emerging markets for more than four decades. "Fundamentals in China still remain positive.”

Aggregate financing rose to 3.42 trillion yuan in January, according to the People’s Bank of China. The strong figures were helped by banks front loading their 2016 lending targets, companies switching foreign currency loans into yuan ones, and corporate bond issuance. M2 money supply growth was 14 percent from a year earlier, compared to the median estimate for 13.5 percent.

Capital Outflows

The jump in lending came as China’s foreign-exchange reserves shrank by $99.5 billion in January to the smallest since 2012, indicating that the central bank sold dollars as the yuan’s retreat exacerbated depreciation pressure. The stockpile slumped by more than half a trillion dollars in 2015, the first-ever annual decline.

"The new credit data shows there had been some liquidity injections, in some ways aiming to offset some capital outflows,” said Shen Zhengyang, an analyst at Northeast Securities Co. in Shanghai. "The data will also enhance market expectations for demand-side stimulus given the weak state of the economy."

Measures of technology and industrial shares in the CSI 300 jumped at least 3.7 percent for the biggest gains among 10 industry groups. BOE Technology Group Co., a maker of liquid-cystal-display panels, surged by the 10 percent daily limit, while China Cosco Holdings Co. rallied 9.9 percent.

Citic Securities Co. advanced 6.1 percent in Shanghai after the Securities Times reported that a probe into the brokerage may be over after some mid-level employees were allowed to leave the country over this month’s Chinese new year holiday.

Yuan Stability

The People’s Bank of China is stepping up efforts to restore stability to the currency and economy, with Governor Zhou Xiaochuan breaking his long silence to say there’s no basis for continued yuan depreciation. The nation’s balance of payments is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies, Zhou said in an interview published Saturday in Caixin magazine.

The yuan fell 0.3 percent to 6.5160 a dollar in Shanghai after appreciating 1.2 percent for the biggest gain since July 2005 on Monday.

“The big rise in the yuan has reversed expectations for one-way depreciation and that’s very important for stock-market sentiment,” said Wu Kan, a fund manager at JK Life Insurance Co. in Shanghai.

— With assistance by Shidong Zhang, and Fox Hu

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