China Stocks Rise After Break as Energy Shares Gain; Yuan Falls

  • China Oilfield rallies after week-long holiday on crude jump
  • Property developers decline as cities impose housing curbs

China’s stocks rose, led by energy producers, as the nation’s financial markets reopened after week-long holidays. A gauge of property developers tumbled after a number of cities imposed curbs to cool surging home prices, while the yuan slumped the most since June.

The Shanghai Composite Index added 1.5 percent at the close. China Oilfield Services Ltd. jumped the most in almost three months and China Petroleum & Chemical Corp. rallied to a one-month high. A gauge of Chinese stocks in Hong Kong climbed 3.6 percent last week, while New York crude jumped 3.3 percent. Property developers struck a more discordant note, with Poly Real Estate Group Co. sinking 3.5 percent. The yuan slid 0.4 percent in Shanghai. Hong Kong’s equity market is closed for a holiday.

Shanghai became the latest city to impose new measures to curb a surge in property prices that some analysts compare to last year’s stocks bubble. Investors remain downbeat on domestic equities as prospects for monetary easing fade and concerns persist about a weakening yuan, according to a Bloomberg poll. While the Hang Seng China Enterprises Index has climbed 2.7 percent this year, the Shanghai Composite Index is still down 14 percent.

“With H shares up last week, mainland shares are catching up,” said Andrew Clarke, Hong Kong-based director of trading at Mirabaud Asia Ltd. “The real estate sector could be a drag, with the government desperately trying to cool down speculation, at the moment with no avail.”

The Shanghai Composite Index rose to 3,048.14, while the ChiNext index of small-company shares advanced 2.7 percent, its biggest gain since Aug. 15.

Energy companies surged after oil futures last week extended their rally. China Oilfield jumped 4.1 percent and China Petroleum & Chemical, better known as Sinopec, gained 1.9 percent. Oil prices have climbed since the Organization of Petroleum Exporting Countries agreed Sept. 28 to cut production for the first time in eight years. Crude futures slipped 0.5 percent on Monday.

Baoshan Iron & Steel Co. surged 10 percent in Shanghai as shares resumed trading for the first time since June. The company will acquire Wuhan Iron & Steel Co. in an all-share deal that is China’s biggest-ever steel merger. Wuhan Steel also jumped by the daily 10 percent limit.

A Shanghai measure of property companies tumbled to a two-month low. Poly Real Estate Group Co. retreated to a two-month low, while Future Land Holdings Co. plunged 7.7 percent. Shanghai announced new steps including increasing land supply and forbidding price increases in new home pre-sales without approval. Local governments in at least nine other mainland cities tightened rules for home purchases over the week-long holidays in a bid to damp resurgent demand and rein in excessive speculation.

Bubble Fears

Deutsche Bank AG said last month it sees “clear sign of a bubble” in property -- one that will end in a major correction in two years’ time, while JPMorgan Asset Management said the frenzy resembles last year’s manic trading in equities -- which ended with a $5 trillion rout.

HSBC Holdings Plc prefers H shares over their Shanghai counterparts, saying stocks in Hong Kong are attractively valued and overseas investors are “significantly” underweight them. The bank has a neutral rating on mainland equities, citing sales by insiders and a lack of interest by individual investors.

Even after the outperformance by Hong Kong-listed equities, mainland shares are still twice as expensive. The Shanghai Composite trades at 17.7 times reported earnings, versus the Hang Seng China Enterprises’ 8.5 multiple. A gauge measuring the premium of A shares over H fell last week to the lowest level since December 2014.

Yuan Impact

A depreciating currency has also limited gains by Shanghai shares. Mainland flows into Hong Kong equities swelled to a record last month, partly as investors sought a hedge against yuan weakness.

“Even with a recent narrowing, valuation is still expensive for the mainland,” said Yen Chiu, a Hong Kong-based trader at China Securities International Finance Holding Co. “This year, I am definitely more optimistic about Hong Kong than A shares. For any dramatic change in the mainland’s stock markets, we need to see if turnover can pick up first.”

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