China's Stocks Rise for First Time in 8 Days on Europe Optimism - Businessweek

China’s stocks rose for the first time in eight days on speculation the European debt crisis that has slowed global growth is easing after the region’s leaders agreed to ease repayment conditions for loans to Spanish banks. [bn:WBTKR=601628:CH]

China Life Insurance Co. [] and Citic Securities Co. led gains for insurers and brokerages on speculation they will benefit from the development of the Qianhai zone in Shenzhen. Consumer staples producers rallied, with Kweichow Moutai Co. adding 1.8 percent after Bank of Communications Co. recommended buying shares of companies whose earnings may be sheltered from the slowdown. Europe’s leaders are meeting for a two-day summit in Brussels, agreeing to drop requirements that governments receive preferred creditor status on crisis loans to Spain’s banks.

“More fruitful results will come out of the Europe summit and that’ll help to contain the debt crisis,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Lower risk premiums are positive for equities.”

The Shanghai Composite Index (SHCOMP) gained 0.7 percent to 2,211.52 as of the 11:30 a.m. local-time break, poised to end a seven- day, 5.2 percent drop. The measure has plunged 6.8 percent in June, making it the world’s second-worst performing measure this month after erasing this year’s gain yesterday. The CSI 300 Index (SHSZ300) rose 0.9 percent to 2,447.11. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, fell 1.5 percent in New York yesterday.

The Shanghai index has fallen 10 percent from this year’s peak on March 2 on concern the government isn’t loosening monetary policy quick enough to stem a slowdown. Stocks in the measure are valued at 9.66 times estimated earnings, compared with the average of 17.66 since Bloomberg began compiling the data in 2006. The eight-day loss is the longest since May 2011.

Qianhai Zone

The 14-day relative strength measure for the Shanghai Composite, measuring how rapidly prices have advanced or dropped during a specified time period, was at 27.37 yesterday. Readings below 30 indicate it may be poised to rise.

A gauge of financial stocks in the CSI 300 surged 1.6 percent today, the most among the 10 industry groups. China Life, the nation’s biggest insurer, gained 3.2 percent to 18.19 yuan. Citic Securities, the largest listed brokerage, advanced 2.2 percent to 12.33 yuan. GF Securities Co. (000776) climbed 3 percent to 29.55 yuan.

China will support overseas financial institutions in setting up headquarters in Qianhai, Shenzhen, Radio Television Hong Kong reported today, citing the National Development and Reform Commission. A policy framework will be formed for six industries including finance, legal and telecommunications in Qianhai, which will be established as a trial special economic zone, according to the report.

Consumer Staples

A gauge of staples producers in the CSI 300 climbed 1.2 percent, the second-biggest gainer among industry groups. Kweichow Moutai, the largest maker of baijiu liquor, advanced 1.8 percent to 240.49 yuan. Wuliangye Yibin Co. (000858), the second largest, gained 2.1 percent to 32.66 yuan.

Hao Hong, head of Chinese research at Bank of Communications Co. in Hong Kong, recommended investors buy “defensive” companies such as consumer staples producers and avoid “cyclical” companies.

China’s stocks are poised to extend losses after erasing this year’s gains amid concerns over a slowing economy, according to Hong, the only strategist who forecast declines for Chinese shares in 2012.

China will fine-tune its economic policies in a “timely and appropriate” manner, People’s Bank of China Governor Zhou Xiaochuan said today.

The government will maintain a prudent monetary policy and proactive fiscal policy, Zhou said at a forum in Shanghai, reiterating the stance set out by Premier Wen Jiabao in his annual work report to the nation’s legislature in March.

Industrial Profits

Stocks fell earlier after the statistics bureau said Chinese industrial companies’ profits declined for a second month in May. Income dropped 5.3 percent from a year earlier to 390.9 billion yuan ($61 billion), the National Bureau of Statistics said on its website. That compares with a 2.2 percent decline in April and 4.5 percent gain in March.

“Industrial profits will continue to be under pressure as the slowdown in the economy is curbing demand and deflation is further squeezing profits,” Dariusz Kowalczyk, senior economist and strategist with Credit Agricole CIB in Hong Kong, said before the release.

The Purchasing Managers’ Index compiled by the statistics bureau and logistics federation may drop to 49.9 this month, falling below the dividing line of 50 for expansion and contraction, according to the median estimate of 19 economists in a Bloomberg survey. The figure is due July 1.

--Zhang Shidong. Editors: Allen Wan, 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