China's Stocks Rise, Capping Weekly Gain, on Policy Speculation - Businessweek

China’s benchmark stock index rose, extending a weekly gain, on speculation global central banks will take action to bolster economies amid Europe’s sovereign debt crisis.

Jiangxi Copper Co. (600362) paced gains among commodity producers as metal and oil prices increased. Inner Mongolia Yili Industrial Group Co. (600887), China’s biggest dairy producer by sales, tumbled by the 10 percent daily limit as the company said it found “abnormal” levels of mercury in its baby formula.

“It looks like that global central banks are already prepared for aid packages in case economies slow further and Greece’s problem deteriorates,” Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co., said by phone today. “Liquidity injections are the most likely steps and that’s what stock markets like.”

The Shanghai Composite Index (SHCOMP) rose 3.82 points, or 0.2 percent, to 2,299.77 at the 11:30 a.m. local-time beak. About six stocks dropped for every five that gained. The measure has gained 0.8 percent this week. The CSI 300 Index (SHSZ300) added less than 0.1 percent to 2,560.75 today. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, slid 0.5 percent in New York yesterday.

Monetary policy makers from the U.K. to Japan and Canada stepped up warnings about the threat to world financial markets should Europe fail to contain its debt crisis. Bank of England Governor Mervyn King said the central bank will activate a sterling liquidity facility to aid banks, and plans to have a form of credit easing operating to boost lending as the case for looser policy “is growing.”

Stock Valuations

Thirty-day volatility in the Shanghai Composite was at 15.45 today, compared with this year’s average of 18.53. About 7.2 billion shares changed hands in the gauge yesterday, 18 percent lower than the daily average this year.

Concerns that a growth slowdown is deepening and Greece will leave the euro area have dragged the Shanghai index down 6.3 percent from this year’s high set on March 2. Stocks in the measure are valued at 9.98 times estimated earnings, compared with the five-year average of 17.8, weekly data compiled byu Bloomberg.

Jiangxi Copper, China’s biggest producer of the metal, gained 0.8 percent to 24.88 yuan. Tongling Nonferrous Metals Group Co., the second largest, added 0.7 percent to 21.03 yuan. Zhuzhou Smelter Group Co., the nation’s biggest producer of refined zinc, climbed 1.5 percent to 11.02 yuan.

Copper advanced 0.8 percent and aluminum rose 0.5 percent. Oil rallied 0.9 percent in New York.

Greek Polls

Greece will hold general elections on June 17, which may determine if the nation upholds austerity conditions attached to international aid, and could lead to the first ouster from the euro area. Almost 10 million Greeks will vote for the second time in six weeks after a May 6 ballot failed to yield a government.

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

China can further cut its reserve requirement ratio as M2 growth is “relatively slow” this year, according to a report by researchers at the Chinese Academy of Social Sciences published in the People’s Daily.

Yili Tumbles

Yili tumbled by the 10 percent daily limit to 21.85 yuan after saying it recalled some of its products. Mercury can damage the central nervous system and the lungs or cause birth defects, with children especially vulnerable.

Henan Shuanghui Investment & Development Co. (000895), the publicly traded unit of China’s biggest food company, lost 2.2 percent to 61.30 yuan. Zhengzhou Sanquan Foods Co., the nation’s biggest maker of frozen food, slipped 0.6 percent to 25.80 yuan.

A measure tracking developers on the Shanghai Composite dropped 1.4 percent today, paring this week’s gain to 3.3 percent. Developers had jumped after the central bank cut the interest rate for the first time since 2008 last week.

China Vanke Co., the nation’s biggest listed property developer, fell 1.6 percent to 9.13 yuan. Poly Real Estate Group Co., the second largest, slid 3 percent to 14.27 yuan. China Merchants Property Development Co. lost 1.8 percent to 25.50 yuan.

Chinese Internet stocks fell in New York, led by Youku Inc. (YOKU) (YOKU)’s first decline in two weeks, as Credit Suisse Group AG (CSGN) and Deutsche Bank AG reduced their growth forecast for Asia’s largest economy. The iShares FTSE China 25 Index Fund (FXI) (FXI), the biggest U.S.-listed China exchange-traded fund, rose 0.2 percent to $33.75 yesterday.

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

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