China's Stocks Drop as Earnings Concerns Overshadow Fed Policy - BusinessWeek

China’s stocks rose, driving the benchmark index to the highest level in more than a month, after the Federal Reserve pledged to do more to stimulate U.S. economic growth.

Jiangxi Copper Co., the nation’s biggest producer of the metal, jumped 1.8 percent after UOB-Kay Hian said the company reported “strong” revenue growth and its valuations are attractive. Kweichow Moutai Co. (600519), China’s biggest producer of baijiu liquor by market value, gained for a second day after first-quarter profit rose 58 percent.

“Further monetary stimulus such as a third round of quantitative easing is still likely and the Fed is waiting for a good time to do that,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “Easy money is good for asset markets globally.”

The Shanghai Composite Index (SHCOMP) climbed 5.37 points, or 0.2 percent, to 2,412.72 as of 9:44 a.m., set for the highest close since March 13. About 13.1 billion shares changed hands in the Shanghai Composite yesterday, or 46 percent higher than the daily average this year. The CSI 300 Index (SHSZ300) rose 0.4 percent to 2,637.36. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, added 1.1 percent in New York yesterday.

The Shanghai index has climbed 9.7 percent this year amid speculation the government will take measures to boost the economy. Stocks in the Shanghai gauge are valued at 10.3 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 in the gauge was at 18.8 yesterday, compared with this year’s high of 24.8 on Jan. 30.

Earnings Outlook

The MSCI Asia Pacific Index (MXAP) advanced 0.6 percent today after Fed Chairman Ben S. Bernanke said he’s prepared to add to its stimulus if necessary, boosting speculation the central bank might embark on a third round of monetary easing.

U.S. policy makers said they expect growth to gradually accelerate, while refraining from new action to lower borrowing costs. Central bankers upgraded their forecasts for economic growth and unemployment while repeating their view that borrowing costs are likely to remain “exceptionally low” at least through late 2014.

The U.S. is China’s second-largest export market, making up about 17 percent of the nation’s exports, according to Shenyin & Wanguo Securities Co.

Jiangxi Copper rose 1.8 percent to 26.05 yuan after the company reported a 14 percent jump in first-half revenue even as profit dropped 9.6 percent. UOB-Kay Hian said the company’s revenue growth was “strong” and kept a positive outlook on copper prices.

Moutai added 0.7 percent to 214.35 yuan. Its first-quarter net income rose 58 percent to 2.97 billion yuan, while sales advanced to 6.02 billion yuan.

U.S.-Traded Stocks

Eight hundred and fifty-five companies in the Shanghai Composite have released annual earnings. They posted profit growth of 14 percent on average, trailing analyst estimates by 2.2 percent, according to data compiled by Bloomberg. That compared with an increase of 38 percent in the previous year.

Chinese equities in the U.S. rose for the first time in four days, led by consumer stocks, on prospects the world’s second-largest economy will maintain growth as domestic demand climbs.

The world’s biggest exporter will sustain “steady and robust” economic growth, Premier Wen Jiabao told reporters in Stockholm on April 24, more than a month after releasing the lowest annual target for expansion since 2004.

“A lot of consumer stocks are on a rebound as there’s been a lot of data recently supporting the views of the soft landing crowd,” Erik Lam, director of Asian equity sales at Auerbach Grayson & Co. in New York, said by a phone yesterday. “Growth is already coming from domestic demand, and as a result, stocks viewed as benefiting from increased consumption, Internet, airlines, casino, are getting a boost.”

The IShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., climbed 0.9 percent to $37.53 in its second day of gains.

--Zhang Shidong. Editors: Allen Wan, Richard Frost

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net