China’s stocks rose, driving the benchmark index to a one-week high, on speculation the government will ease monetary policy and increase spending for infrastructure to stem the slowdown in the economy.
Sany Heavy Industry Co. (600031) and Zoomlion Heavy Industry Science & Technology Co. led an advance among machinery makers after the 21st Century Business Herald reported the government may relax rules on lending to local government financing vehicles and developers. Shanxi Lu’an Environmental Energy Development Co. paced declines for coal producers after Sanford C. Bernstein lowered its forecast for the price of the fuel. Huaneng Power International Inc. (600011) jumped 6.8 percent on speculation falling coal prices will reduce the cost of generating power.
“Policy easing will go on throughout the year,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Liquidity is also improving, which will help boost valuations.”
The Shanghai Composite Index (SHCOMP) gained 18.12 points, or 0.8 percent, to 2,307.91 at the 11:30 a.m. local-time break, with 30-day volatility at 15.02, near the lowest since June 1. The CSI 300 Index (SHSZ300) advanced 1.2 percent to 2,570.39. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, rose 1.4 percent at the close yesterday.
Expectations that the government will increase spending on infrastructure projects and ease monetary policies have pushed the Shanghai index up 4.9 percent this year. Companies in the index posted profit growth of 14 percent on average last year, compared with an increase of 38 percent in the previous year, according to data compiled by Bloomberg. Stocks in the measure are valued at 10 times estimated earnings, compared with the five-year average of 17.8, Bloomberg weekly data showed.
Easing Signs
The central bank cut deposit and lending rates for the first time since 2008 last week and also reduced the reserve- requirement ratio three times since November. The interest-rate cut, a lowering of risk weightings on loans for second-home purchases and the “high possibility” of a 20 percent mortgage- rate discount point to signs of policy easing, Nomura Holdings Inc. analysts Alvin Wong and Jianping Chen said in a report.
Banks may be allowed to increase the proportion of their outstanding capital that can be lent to railway and road construction projects, the 21st Century Business Herald reported today. Some local government financing vehicles may be allowed to borrow again “appropriately,” according to the newspaper.
Sany Heavy, the biggest machinery maker, gained 1.5 percent to 14.93 yuan. Zoomlion, the second-biggest maker of construction equipment, added 1 percent to 11.01 yuan. Guangxi Liugong Machinery Co. (000528), a maker of construction equipment, climbed 1.5 percent to 14 yuan.
Power Producers
A measure of utility stocks in the CSI 300 advanced 2.2 percent today, the biggest gain among the 10 industry groups. Huaneng Power, the listed unit of China’s largest power group, jumped 6.8 percent to 6.32 yuan. Huadian Power International Corp. (600027), the listed unit of China’s fourth-largest power producer, gained 3.9 percent to 3.70 yuan.
Chinese power producers rely on coal to generate three- quarters of the nation’s electricity. China’s benchmark price for power-station coal at the port of Qinhuangdao fell to the lowest in almost 20 months last week as stockpiles surged to the highest level since November 2008, according to data from the China Coal Transport and Distribution Association.
Sanford C. Bernstein cut the 2012 average price forecast for coal to 735 yuan a metric from 750 yuan and the 2013 price estimate to 665 yuan a ton from 675, citing rising coal production, higher inventories, “weak” power consumption, lack of fiscal stimulus and cheaper imports.
Coal Slump
Shanxi Lu’an Environmental Energy fell 1 percent to 24.43 yuan. China Coal Energy Co., the nation’s second-largest coal producer, lost 1.1 percent to 8.29 yuan.
Asian stocks erased gains, with the MSCI Asia Pacific Index heading for its second day of decline, as concern heightened Europe will struggle to contain its debt crisis ahead of Italy’s bond auctions and Greece’s election scheduled for June 17.
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., advanced 2.2 percent to $33.52.
