China's Stocks Rise, Paring Weekly Loss

China’s stocks rose as consumer companies extended the biggest weekly rally among industry groups on speculation they will benefit most from government efforts to focus on domestic demand to support economic growth.

Liquor makers Kweichow Moutai Co. (600519) and Wuliangye Yibin Co. advanced at least 3.1 percent after Shenyin & Wanguo Securities Co. recommended buying consumer stocks. Jiangling Motors Corp., the commercial vehicle partner with Ford Motor Co. gained 2.6 percent after net income rose 9.3 percent last year. Shanghai Pudong Development Bank, the Chinese partner of Citigroup Inc., added 0.7 percent after profit jumped 42 percent in 2011.

“Earnings don’t look bad and valuations are attractive,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “Even though the economy is still slowing, the market expects it to find a bottom by the end of the first quarter.”

The Shanghai Composite Index (SHCOMP) climbed 30.96 points, or 1.3 percent, to 2,404.74 at the close. The CSI 300 Index (SHSZ300) rose 1.5 percent to 2,623.52. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, added 0.6 percent in New York yesterday.

About 16.6 billion shares changed hands in the Shanghai Composite yesterday, or 33 percent higher than the daily average this year. Thirty-day volatility on the gauge was at 16.42, close to its highest level in almost two weeks.

Weekly Loss

The Shanghai Composite retreated 1.4 percent this week, the biggest weekly loss since January, after Premier Wen Jiabao said home prices are still far from reasonable levels. The slump pared this year’s gains to 9.3 percent in 2012. Stocks in the index trade at 10 times estimated profit, compared with a record low of 8.9 times on Jan. 6, weekly data compiled by Bloomberg showed.

A measure of consumer staples stocks in the CSI 300 gained 3.4 percent, the most among the 10 industry groups today and this week. Kweichow Moutai, China’s biggest producer of baijiu liquor by market value, rose 4.4 percent to 207.59 yuan, the biggest gain since August. Wuliangye, the second largest, added 3.1 percent to 37.35 yuan. Luzhou Laojiao Co., a spirits producer in Sichuan province, jumped 4.8 percent to 45.47 yuan.

Consumer stocks may be in favor as property-related shares are getting riskier and small-capitalization equities face earnings risk, Ling Peng, a strategist at Shenyin & Wanguo, wrote in a report.

A relaxation of curbs on the property market would lead to “chaos,” Wen said at a March 14 press conference in Beijing. China trimmed the nation’s economic growth target to 7.5 percent from an 8 percent goal in place since 2005, a signal that leaders are seeking to shift toward expansion driven more by domestic consumption instead of exports.

Hard Landing Risk

The government also highlighted plans to endorse higher minimum wages during this month’s meeting of the National People’s Congress to reduce the risk of a slowdown turning into a so-called hard landing.

“If you look at the Chinese data, you should stop debating about a hard landing,” Adrian Mowat, JPMorgan Chase & Co.’s chief Asian and emerging-market strategist, said at a conference in Singapore on March 14. “China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It’s not a debate anymore, it’s a fact.”

Earnings Growth

Listed companies have started to announce annual earnings reports and will finish before the end of April. They may post the slowest earnings growth since 2008, when profits dropped 11 percent amid the global financial crisis, according to data compiled by Bloomberg.

Two hundred and sixty-three companies in the Shanghai Composite have released annual earnings. They posted profit growth of 14 percent on average, trailing analyst estimates by 6.8 percent, Bloomberg data showed. That compared with an increase of 38 percent in the previous year.

Jiangling Motors gained 2.6 percent to 22.52 yuan after reporting net income of 1.87 billion yuan last year. Xinzhi Motor Co. jumped 40.6 percent to 22.50 yuan on its first day of trading in Shenzhen. Pudong Bank rose 0.7 percent to 9.25 yuan.

China will allow exchange-traded funds of Hong Kong shares to list on mainland exchanges “soon,” K.C. Chan, Hong Kong’s Secretary for Financial Services and the Treasury, said in an interview in New York yesterday.

The process of getting Hong Kong stocks to trade on the Shanghai and Shenzhen exchanges as ETFs is “almost near completion,” Chan said. “The final step would be for the regulators in China” to review companies’ applications to start the funds, he said.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., rose 0.5 percent to $38.86 yesterday, climbing for the second day this week.