The biggest two-day rally in the Hong Kong-traded shares of Chinese companies since 2008 signals mainland stocks may rise after a one-week holiday on speculation inflation is slowing and the European debt crisis may be contained.
The MSCI China Index, which mostly tracks shares of Chinese companies listed in Hong Kong, advanced 10 percent on Oct. 6-7, the most since December 2008. Hong Kong’s Hang Seng China Enterprises Index of so-called H shares surged 9.7 percent. TheiShares CSI 300 A-Share Index ETF (2846), a Hong Kong exchange-traded fund that tracks yuan-denominated A shares, jumped 6.9 percent.
Stocks globally have climbed the past two trading days, driving the MSCI All-Country World Index up by 3.1 percent, as European Central Bank President Jean-Claude Trichet said Oct. 6 the ECB will resume covered-bond purchases and reintroduce yearlong loans for banks. Data due on Oct. 14 may show China’s inflation rate slowed for a second month.
Having missed a week of trading, China’s A shares “are going to go up,” Todd Martin, a Hong Kong-based Asia equity strategist for Societe Generale, said in an Oct. 7 phone interview. “We have been having good macro data and new information since China has been closed.” He expects shares to rise “at least 2-3 percent” and favors building and consumer stocks.
The benchmark Shanghai Composite Index dropped 0.3 percent to 2,359.22, its lowest close since April 2009, on Sept. 30 before it closed for the Golden Week holiday. The gauge trades for 10.9 times estimated profit, a record low, data compiled by Bloomberg show. The MSCI BRIC Index of Brazilian, Russian, Indian and Chinese stocks, is valued at 8 times.
Inflation Policies
The Shanghai index has tumbled 16 percent this year as Premier Wen Jiabao’s government sought to defuse the fastest gains in consumer prices since 2008 without a collapse in China’s growth, the strongest among the major economies. The People’s Bank of China has raisedinterest rates five times and banks’ reserve requirements nine times in the past 12 months.
China’s statistics bureau may report this week that inflation cooled to 6.1 percent last month, according to the median of 10 economists surveyed by Bloomberg as of Oct. 7. Prices rose 6.5 percent in July from a year earlier, the most in three years, before easing to 6.2 percent in August.
Economists surveyed also expect data on Oct. 13 to show exports grew 20.8 percent in September. A purchasing managers’ index for China’s non-manufacturing industries rose to 59.3 from 57.6 in August, driven by retail spending, the China Federation of Logistics and Purchasing said on its website on Oct. 3. The pickup may ease concern the world’s second-largest economy is slowing.
Slowing Economy
The MSCI China (MXCN) Index’s two-day surge erased a 9 percent decline on Oct. 3-4. Hong Kong’s markets were shut on Oct. 5 for a holiday.
Weekly gains in global equities were capped after Fitch Ratings cut its credit grades on Spain and Italy on Oct. 7. The Standard & Poor’s 500 Index of U.S. stocks retreated 0.8 percent following the downgrades, trimming its weekly advance to 2.1 percent.
Twelve percent of global investors in a quarterly Bloomberg poll predicted growth in China will slow to less than 5 percent within a year, a pace unseen in the past two decades. Economic growth slowed in the three months ended June 30 to 9.5 percent, the second consecutive quarterly decline. Third-quarter gross domestic product data is due Oct. 18.
Any stock rally in China “will be short-lived without meaningful signs of an easing in monetary or fiscal policy,” Clive McDonnell, Singapore-based head of emerging-market equity strategy for Standard Chartered Plc, wrote in an e-mailed response to questions on Oct. 6.
Golden Week
Premier Wen said the economy is “good” and “stable,” while initial progress has been made in containing inflation, Xinhua News Agency reported on Oct. 5.
Chinese property shares surged in Hong Kong last week as Deutsche Bank AG analysts wrote in an Oct. 5 report they saw “emerging” value in developers. Evergrande Real Estate Group Ltd. (3333), China’s second-largest developer by sales, and Agile Property Holdings Ltd. (3383)jumped more than 11 percent last week.
Mainland retailers may advance on speculation consumer spending is holding up. Hengdeli Holdings Ltd. (3389), the retail partner of Swatch Group AG in China, surged 11 percent on Oct. 7 after James Tien, chairman of the Hong Kong Tourism Board, said tourism numbers in the first five days of the month increased by 13 percent from a year ago due to Chinese visitors.
Chinese shares will “definitely rise,” Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management Ltd., which oversees about $10 billion. “The Golden Week spending in China seems to be much better than the bearish people had expected, so stocks will reflect that as well.”
Citic Securities Co., China’s biggest brokerage by market value, may be active in Shanghai. The company’s Hong Kong shares slumped 6.8 percent in their first trading days on Oct. 6-7. Citic raised HK$13.2 billion ($1.7 billion) in Hong Kong’s biggest public stock offering in more than three months.
(source: Bloomberg)
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10/10/2011 08:29:26 AM | 