China's Stocks Rise Most in Two Weeks on Consumption

China’s stocks rose, driving the benchmark index to its biggest gain in two weeks, on speculation the government will boost spending and ease monetary policy to stem a deeper economic slowdown.

Suning Appliance Co. (002024), China’s biggest home appliance retailer by market value, and washing machine maker Hefei Rongshida Sanyo Electric Co. climbed at least 1.7 percent after the government said it will provide subsidies to promote energy-saving appliances. Citic Securities Co. (600030) and GF Securities Co. led a gauge of financial stocks to its biggest gain among industry groups after the China Securities Journal said the regulator may allow brokerages to expand short selling.

“The household appliance stimulus has boosted expectations that similar packages will follow to stimulate the economy and consumption,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “The policy tone has shifted to maintaining economic growth.”

The Shanghai Composite Index (SHCOMP) climbed for the first time in five days, rising 32.69 points, or 1.4 percent, to 2,378.89 at the close, the biggest gain since May 2. The CSI 300 Index (SHSZ300) advanced 1.5 percent to 2,613.94. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 1 percent at the close in New York yesterday.

The Shanghai gauge has climbed 8.2 percent this year on expectations the central bank will ease monetary policies to spur growth. Stocks in the index are valued at 10.2 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg.

Appliance Subsidies

A gauge of consumer discretionary companies in the CSI 300 rose 1.8 percent, the second-biggest gain among the 10 industry groups. Suning Appliance added 1.7 percent to 9.87 yuan. Hefei Rongshida surged 7.8 percent to 9.17 yuan. GD Midea Holding Co. (000527), China’s second-biggest publicly traded appliance maker, added 1.8 percent to 13.89 yuan.

China will allocate 26.5 billion yuan ($4.2 billion) in subsidies to promote the use of energy-saving household appliances and products, replacing a consumption-incentive program that ended last year, according to a statement posted on the government’s website yesterday, citing a State Council meeting at which Premier Wen Jiabao presided.

The nation will also allocate a further 6 billion yuan of subsidies for purchases of vehicles with engines of less than 1.6 liters, it said.

BYD Co., the automaker part-owned by Warren Buffett’s Berkshire Hathaway Inc., advanced 4 percent to 25.12 yuan. SAIC Motor Corp. (600104), China’s largest carmaker, rose 2.3 percent to 15.47 yuan. Chongqing Changan Automobile Co., the Chinese partner of Ford Motor Co. and Mazda Motor Corp., climbed 3 percent to 4.83 yuan.

Mulling Stimulus

China is studying policies to boost domestic consumption and approve “major” infrastructure construction projects aimed at improving people’s livelihood, the Economic Information Daily reported, without saying where it got the information.

Supervising land used for expanding domestic consumption and increasing structural tax cuts are also policies being considered, the report said.

A measure tracking banks, developers and brokerages in the CSI 300 jumped 2 percent today. Citic Securities, China’s biggest listed brokerage, gained 3.8 percent to 13.31 yuan. GF Securities, the second largest, added 5.9 percent to 33.10 yuan. Haitong Securities Co. (600837), the third biggest, rose 4.5 percent to 10.25 yuan.

China will start a trial next week that will allow brokerages to borrow stocks for clients wishing to conduct short selling, the China Securities Journal reported. Brokers can also borrow money on behalf of clients for margin financing, the newspaper reported, without saying where it got the information.

Short Selling

Twenty-five securities companies will participate in the test, along with the stock exchange, fund management companies and China Securities Finance Co., which was set up as an agency to provide funds and stocks for brokerages’ short selling and margin trading.

Thirty-day volatility in the Shanghai Composite was at 15.16 today, near a two-month low. About 7.7 billion shares changed hands yesterday, 15 percent lower than the daily average this year.

The Shanghai index has dropped 3.3 percent from this year’s high set on March 2 on concern China’s slowdown in economic growth is accelerating. Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp. and UBS AG were among banks to pare their forecasts for China’s expansion following last week’s data, which included the weakest industrial production growth in three years.

No Hard Landing

Bank of America said the economy will have a so-called soft landing and the chance of a hard landing is “quite small.”

The Chinese government will boost efforts to support growth by accelerating spending in social housing and infrastructure, approving new projects and easing bank lending restrictions, Bank of America economist Lu Ting said in a report.

China’s economic growth is likely to accelerate for the first time in seven quarters after banks’ reserve requirements were cut, buoying global expansion threatened by Greece’s possible exit from the euro.

Third-quarter growth will rebound to 8.3 percent from 7.9 percent this quarter, according to the median estimate of 21 economists surveyed by Bloomberg News. Analysts forecast a further reduction of 100 basis points in reserve ratios this year, while a majority of respondents expect benchmark lending and deposit rates to be unchanged.