China Stock Futures Rise on Government Pledges to Favor Growth - Bloomberg

China Flash PMI Signals Manufacturing May Contract for 7th Month

By Bloomberg News - 2012-05-24T01:29:05Z

China’s stock-index futures rose, signaling gains for the benchmark index, after the nation’s leaders pledged to intensify “fine-tuning” of policies to support growth.

Anhui Conch Cement Co. (600585) and China Railway Construction Corp. may gain after the government said it will start a series of infrastructure projects and will speed up construction of railways. China Cosco Holdings Co., the world’s largest operator of dry-bulk ships, may pace losses by shipping lines on concern Europe’s debt crisis will stifle demand for foreign trade.

“We may see a new round of stimulus centered on infrastructure construction,” Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. said by phone today. “That’ll help reduce market pessimism.”

Futures on the CSI 300 Index (SHSZ300) expiring in June, the most active contract, gained 0.4 percent to 2,597.6 as of 9:15 a.m. local time. The Shanghai Composite Index (SHCOMP) dropped 9.87 points, or 0.4 percent, to 2,363.44 yesterday. The CSI 300 Index declined 0.4 percent to 2,616.87. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, added 0.1 percent in New York.

About 8.5 billion shares changed hands in the Shanghai Composite yesterday, 5.5 percent lower than the daily average this year. Thirty-day volatility in the gauge was at 15, the lowest in a week.

The Shanghai index has fallen 4 percent from this year’s high set on March 2 on concern a slowdown in growth at the world’s second-largest economy is deepening. Stocks in the gauge 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.

Policy Pledge

The nation “must intensify precautionary adjustment and fine-tuning of policies according to changes in conditions,” the government said on its website yesterday, summarizing a meeting of the State Council, or Cabinet.

China will start a series of “key infrastructure projects that are vital to the overall economy and can facilitate growth” and speed up construction of existing railway, environmental protection and rural projects, it said.

The statement builds on Premier Wen Jiabao’s comments published May 20 showing a bigger focus on bolstering growth, which spurred speculation the government will step up efforts to combat a slowdown after April trade and industrial output were below forecasts. Authorities this month cut banks’ required reserves for the third time since November.

PMI Index

“The State Council meeting confirms stimulus will come,” Zhang Zhiwei, Nomura International’s chief economist for China, wrote in a note to clients yesterday.

The central bank should reduce the interest rate it pays on excess reserves that banks keep with the monetary authority to increase the velocity of money, according to a commentary in the China Securities Journal today.

HSBC Holdings Plc and Markit Economics are due to release a preliminary reading for their purchasing managers’ index for May at 10:30 a.m. today. It was at 49.3 last month, below the 50 dividing line for expansion and contraction.

European leaders clashed over joint debt sales as they called on Greece to stick with the budget cuts needed to stay in the euro. Germany has “huge difficulties” with France’s call for joint borrowing by euro governments, Chancellor Angela Merkel told reporters in Brussels early today after six hours of talks.

Europe is China’s biggest export market, accounting for about 18 percent of the nation’s overseas shipments, according to Shenyin & Wanguo Securities Co.

U.S. Trading

Options traders are making the fewest bearish bets in four months on the biggest Chinese exchange-traded fund in the U.S. as the world’s second-largest economy signals it will step up efforts to stimulate growth.

Open interest for puts on the iShares FTSE China 25 Index Fund was 1.24 times higher than ownership of calls on May 21, the lowest since Jan. 9, according to data compiled by Bloomberg.

“The low put/call ratio is indicative of an oversold market caused by excessive fear of a contagion of the European crisis,” Jonathan Masse, a money manager at Walnut Creek, California-based Baochuan Capital Management LLC, which invests in Chinese stocks and options, said by phone on May 22. “If there’s a crisis, China is in a better position to battle it. A crisis won’t hit China as bad as other countries.”

Solar Power

The ETF, which tracks the biggest Chinese companies traded in Hong Kong, declined 1.1 percent to $33.25.

The Bloomberg China-US Equity Index has declined every day except one since May 2. The gauge has fallen 10 percent this quarter after gaining 14 percent in the first quarter.

Suntech Power Holdings Co. (STP), the world’s largest solar-panel maker, rebounded from an earlier tumble to gain 2 percent to $2.02 after Chief Executive Officer Shi Zhengrong said the Wuxi, China-based company would use products from other nations to avoid U.S. tariffs on Chinese cells.

The U.S. Department of Commerce announced anti-dumping tariffs on all Chinese companies May 17. Suntech was one of 61 companies subject to duties of about 31 percent and all others received a 250 percent rate. Suntech reported a first-quarter loss of 74 cents a share, worse than the 49-cent average estimate in a Bloomberg survey.

Trina Solar Ltd. (TSL) also reported larger-than-expected losses due to an oversupply in the solar panel manufacturing industry. Trina, the world’s fourth-largest maker, gained 4.1 percent to $5.55 after reporting a 42-cent loss per American depositary receipt, trailing forecasts of 27 cents.

--Zhang Shidong. Editors: Richard Frost, Darren Boey

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net; Leon Lazaroff in New York llazaroff@bloomberg.net; Belinda Cao in New York at lcao4@bloomberg.net

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