China's Stocks Rise, Capping First Weekly Advance in a Month

China’s stocks rose on April 6, capping the benchmark index’s first weekly gain in a month, on speculation the central bank will ease monetary policy to bolster economic growth and foreign investors may buy more equities.

Citic Securities Co. rallied for a second day, leading a gauge of financial companies to the biggest gain among industry groups over the past five days, after the government said it will more than double the amount qualified foreign institutional investors can invest in equities, bonds and bank deposits. Liquor maker JiuGuiJiu Co. (000799) surged 3.6 percent after forecasting a fivefold jump in profit. Industrial & Commercial Bank of China (601398) Ltd. extended losses after Premier Wen Jiabao said China needs to break a banking “monopoly” of a few big lenders.

“Liquidity and corporate earnings are not likely to worsen in the second quarter,” Chen Li, head of China equity strategy at UBS AG, said in an interview in Shanghai today. “Low- valuation ‘blue-chip’ stocks will benefit from the government’s announcement” on the QFII increase, he said.

The Shanghai Composite Index (SHCOMP) advanced 4.31 points, or 0.2 percent, to 2,306.55 at the close. About two stocks gained for each one that fell. The CSI 300 Index (SHSZ300) added 0.3 percent to 2,519.83. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, rose 1.2 percent in New York yesterday.

The Shanghai index climbed 1.9 percent this week after the China Securities Regulatory Commission increased quotas for QFII investors to $80 billion from $30 billion. For the year, it’s up 4.9 percent on expectations the central bank will lower lenders’ reserve requirements and reduce borrowing costs after tightening monetary policy in the previous two years to tame inflation.

Brokerages Jump

Stocks in the measure trade at 9.7 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg. Thirty-day volatility was at 17.9 today, near the highest in a month. About 8 billion shares changed hands yesterday, or 9 percent lower than the daily average this year.

Citic Securities, China’s biggest listed brokerage, rose 1.3 percent to 12.42 yuan, extending yesterday’s 5.8 percent jump. GF Securities Co. (000776), the second largest, added 1.2 percent to 29.96 yuan after surging 8.9 percent yesterday.

“The government believes that valuations of blue-chip stocks have come to a level that can bring investors relatively good returns over the long run and is encouraging them to get in,” Hong Jinping, a Shenzhen-based analyst at China Merchants Securities, said by phone yesterday. “The brokerage industry is the first to reflect an improvement in the market.”

Rate Outlook

China’s one-year central-bank bill yield dropped to the lowest level in 11 months on speculation Premier Wen will ease monetary policy to revive growth. The yield declined 17 basis points last month to 3.31 percent, the fastest slide since October, compared with similar-maturity U.S. Treasuries that rose 1 basis point to 0.16 percent.

Speculation that Wen will reduce banks’ reserve requirements or interest rates has increased since he said policy should be fine-tuned “as soon as possible” in comments reported April 3 by state media.

A gauge of consumer staples stocks in the CSI 300 advanced 1.4 percent, the most among 10 industry groups. Jiuguijiu climbed 3.6 percent to 32 yuan after saying first-quarter profit probably jumped as much as 470 percent from a year ago. Sichuan Tuopai Shede Wine Co. (600702) added 3.2 percent to 30.57 yuan. Shanxi Xinghuacun Fen Wine Factory Co. advanced 2.4 percent to 66.60 yuan.

Buying Stocks

Credence Oriental Trade Enterprise Ltd. (CRDOTPL), a China hedge fund that has beaten 98 percent of its rivals, will boost its Chinese stock holdings on the prospect of economic expansion and increased equity purchases by foreigners.

Credence is increasing the percentage of yuan-denominated A shares and Hong Kong-listed H shares it holds in its portfolio to 70 percent from 50 percent, while reducing bets on commodities, Tom Tang, co-manager of the China-domiciled fund, said in a phone interview from Hong Kong on April 4. Credence, which has 211 million yuan ($33.6 million) in assets, has returned 29 percent in the past three years, outperforming 1,203 China-focused funds, according to data compiled by Bloomberg.

“Equities will be our major investment in the future,” said Tang, 39, who is based in Shenzhen. “There’s less variety in commodities and we want a more diversified portfolio.”

China will start to release first-quarter economic data next week. The Chinese economy probably expanded 8.4 percent in the first three months of the year, according to the median estimate of 38 economists surveyed by Bloomberg. The figure is due April 13.

The economy grew 8.9 percent in the fourth quarter of 2011, the slowest pace for 10 quarters. The government last month lowered this year’s economic growth target to 7.5 percent, after keeping the goal at 8 percent over the past seven years.

Inflation Data

Consumer prices in March, due to be released on April 9, probably rose 3.4 percent, from 3.2 percent in February, according to the median of 33 analysts’ forecasts compiled by Bloomberg. New bank loans in March gained the most in 14 months, a report due next week will show, according to the median of 28 analysts. New lending may have exceeded 800 billion yuan last month, surpassing the amount in January and February, the 21st Century Business Herald reported today.

China needs to break a banking “monopoly” of a few big lenders that make easy profits because it’s hard to borrow money elsewhere, Wen said. Earnings at China’s biggest banks are growing even as a cooling economy triggers loan defaults.

ICBC, the biggest lender, slipped 0.2 percent to 4.29 yuan, while largest rival China Construction Bank Corp. (939) declined 1.3 percent to 4.73 yuan.