China’s Stocks Complete Biggest Weekly Advance in Two Months

  • PBOC said to raise reserve ratio for some lenders; banks drop
  • Technology companies post steepest gain among groups this week

How Much Does China's PBOC Matter to Investors?

China’s stocks capped their steepest weekly gain in two months after the government signaled increased support for the economy through higher spending and new measures to boost bank lending.

The Shanghai Composite Index slipped 0.1 percent to 2,860.02 at the close, paring this week’s advance to 3.5 percent. Financial shares declined. The People’s Bank of China will raise the amount of money some banks have as reserves after new loans jumped to a record in January, people familiar with the matter. Technology companies led gains this week. Hong Kong’s Hang Seng China Enterprises Index fell 0.7 percent, trimming the five-day rally to 8.1 percent.

Policy makers have accelerated measures to bolster the economy after data this week showed a decline in exports and a pickup in inflation. In moves that could support lending after a record surge in new yuan loans last month, the PBOC loosened restrictions on what banks could pay on deposits and charge for loans, while the nation’s cabinet has discussed lowering the minimum ratio of provisions that banks must set aside for bad loans. Even with this week’s advance, the Shanghai gauge is the world’s worst performer this year after Greek and Italian equities, plunging 19 percent.

“The rebound has policy support and the Shanghai Composite may rise further to 3,000,” said Li Jingyuan, general manager at Shanghai Bingsheng Asset Management. “All the policies to support growth are good and helpful to recover market confidence. It’s hard to say whether the economy will pick up any time soon, but it cannot get worse.”

Industrial & Commercial Bank of China Ltd. declined 1 percent, while Bank of Beijing Co. slumped 2.2 percent. Regional banks are among those lenders affected by the increase in the reserve ratio, according to the people, who asked not to be identified because the move wasn’t made public. The people didn’t give additional details about which banks were affected. The PBOC didn’t immediately respond to a faxed request for comment.

“It’s not likely to have a big impact on the market and liquidity,” said Wei Wei, an analyst at Huaxi Securities Co. in Shanghai. “The central bank is doing this to control risks.”

A report this week showed the country’s banks extended 2.51 trillion yuan ($385 billion) of new loans in January. The central bank said it will start conducting open-market operations every business day, strengthening its influence on interest rates. Policy makers are giving greater prominence to market-based tools to guide borrowing costs.

The yuan rose 0.85 percent from Feb. 5 and fell 0.05 percent on Friday to 6.5201 a dollar in Shanghai, according to China Foreign Exchange Trade System prices. That’s the biggest gain for a week since March 2015. Yuan borrowing costs in Hong Kong climbed to one-month highs, a sign of renewed appetite for bets against the currency.

Relief Rally

With signs that the economy is stabilizing in the near term, China’s stocks may extend their recent “relief rally,” Kinger Lau, Hong Kong-based strategist at Goldman Sachs Group Inc., wrote in a note.

The CSI 300 Index slipped 0.1 percent, while Hong Kong’s Hang Seng Index fell 0.4 percent.

A measure tracking technology stocks in the CSI 300 rebounded 6.3 percent this week after sliding 26 percent last month. Glodon Software Co. gained 17 percent in the past five days, while Dr. Peng Telecom & Media Group Co. advanced 9.7 percent. Gauges of energy and material shares were among the worst performers on Friday, with Zijin Mining Group Co. and Yanzhou Coal Mining Co. sliding at least 1.3 percent.

New-economy companies in industries such as technology will continue to outperform old-economy shares this year, Jonathan Garner, Hong Kong-based equity strategist at Morgan Stanley said in an interview on Friday. While some investors have expressed concern about valuations, technology companies offer better growth potential and return-on-equity, he said. Morgan Stanley is also favoring health-care, clean energy, defense and mass-consumption companies, Garner said.

— With assistance by Shidong Zhang

Before it's here, it's on the Bloomberg Terminal.