China Stocks Head for Sixth Week of Gains on Policy Easing Bets
Chinese stocks rose, with the Shanghai Composite Index heading for a sixth straight week of gains, on speculation the government will add stimulus as the economy decelerates.
Train makers CSR Corp. and China CNR Corp. jumped by the 10 percent daily limit for a fifth day to lead industrial companies higher. Shanghai Fosun Pharmaceutical Group Co. climbed to a record in Hong Kong following a three-week trading suspension on a plan to sell shares.
The Shanghai Composite climbed 2.1 percent to 4,281.40 at the 11:30 a.m. break, the highest since March 2008. The gauge has jumped 82 percent in the past six months, the most among 93 benchmark indexes globally, fueled by record leverage and speculation the government will lower borrowing costs to boost growth in the world’s second-largest economy.
“The market expectations have been there that the government will loosen monetary policies further soon,” said Wu Kan, a money manager at Dragon Life Insurance Co. in Shanghai, which oversees about $3.3 billion. “Railway stocks are the major bets on the government’s state strategy of the New Silk Road Plan, which will help infrastructure construction in developing nations. Funds are now riding on the government’s strategic plays.”
The CSI 300 Index rose 1.7 percent as gauges of power companies and industrial firms surged more than 3 percent. The Hang Seng China Enterprises Index and the Hang Seng Index both gained 0.5 percent. The Shanghai Composite has climbed 6.1 percent this week.
Rail Rally
Data this week showed the economy expanded 7 percent in the first quarter from a year earlier, the slowest pace in six years, while industrial production grew 5.6 percent in March, missing the lowest forecast in Bloomberg’s survey of 40 economists. Retail sales and fixed-asset investment also trailed analyst estimates.
The Shanghai Composite is valued at 21.1 times reported earnings, the highest since April 2010 and more than double last year’s low, according to data compiled by Bloomberg. The MSCI Emerging Markets Index trades at 13.7 times.
“If measured by price-earnings ratio, a bubble is obvious as the P/E ratio for 70 percent of stocks is higher than 50 times,” Chen Xingdong, an analyst at BNP Paribas SA, wrote in a report dated Thursday. “But based on the three decisive factors: rich liquidity, the strong expectation of further policy easing, and the belief that financial risks are well under control, the current bubble may continue to grow.”
CSR and CNR have both surged 61 percent this week, making them the best performers among the 1,073 members on the Shanghai Composite. The two companies, which are in the process of merging, now have a combined market capitalization of $142 billion, while their relative strength indexes are above 94. Levels above 70 signal to some traders shares are due to fall.
Smart Money
Shanghai Fosun jumped 21 percent, heading for the biggest gain on record, after the company said it plans to raise 5.8 billion yuan ($936.5 million) selling new yuan-traded A shares.
Five of 11 professional money managers from mainland China, Hong Kong and Taiwan surveyed by Bloomberg from April 8 to 16 said they plan to boost holdings of A shares this quarter, while four will maintain positions and two will reduce their stakes. Technology, consumer, health-care and financial shares were preferred industries among the managers, who oversee a combined $41 billion.
Margin traders increased holdings of shares purchased with borrowed money on Thursday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising by 1 percent to a record 1.16 trillion yuan.
Source: Bloomberg – China Stocks Head for Sixth Week of Gains on Policy Easing Bets
