China's Stock Index Rises as ECB Pledge Overshadows Profit Drop - Businessweek

China’s stocks rose for the first time in three days rose as a pledge by European Central Bank President Mario Draghi to preserve the euro boosted prospects for overseas shipments to the region.

Tianjin Marine Shipping Co. climbed 1.3 percent amid speculation trade flows to Europe will pick up. Chongqing Changan Automobile Co. (000625) advanced 0.8 percent after an industry official said vehicle sales will probably accelerate. Stocks advanced as data showed a decline in industrial companies’ earnings slowed.

The Shanghai Composite Index (SHCOMP) gained 0.3 percent to 2,132.5 as of 9:47 a.m. local time, with seven stocks advancing for every two that declined. The CSI 300 Index (SHSZ300) increased 0.3 percent to 2,354.11. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, gained 1.9 percent to 85.94 yesterday.

“Draghi’s pledge will definitely boost sentiment, but deep inside, Chinese investors have accepted the fact that the Europe crisis will not be resolved overnight,” said Larry Wan, Beijing-based head of investment at Union Life Asset Management Co., which manages the equivalent of $2.2 billion. “There have been some strong words on property curbs recently. We had expected company earnings to be bad but it seems that they are going to be even worse than expected, so that could possibly drag on the market.”

Thirty-day volatility in the Shanghai index was at 14.1. About 5.3 billion shares changed hands in the gauge yesterday, 30 percent lower than the average this year.

Biggest Export Market

The Shanghai Composite has fallen 13 percent from this year’s high on March 2 amid concern the economic slowdown is deepening and Europe’s debt crisis is worsening. The gauge is valued at 9.5 times estimated profit, compared with the three- year average of 14.7.

Europe is China’s largest export market, making up 18 percent of the nation’s overseas sales, according to Shenyin & Wanguo Securities Co. The ECB’s Draghi said policy makers will do whatever is needed to preserve the euro, suggesting they may intervene in bond markets as surging yields in Spain and Italy threaten the existence of the 17-nation currency bloc. The ECB mothballed its bond-buying program in March as it pushed governments to do more to control their deficits.

Tianjin Marine Shipping rose 1.3 percent to 6.06 yuan. GD Midea Holding Co., an electric appliance maker that gets 28 percent of its sales outside China, added 0.4 percent to 9.48 yuan. Gree Electric Appliances Inc. (000651), which derives 24 percent of its revenue from outside of China, advanced 0.9 percent to 21.40 yuan.

Automakers Gain

Chongqing Changan climbed 1.1 percent to 5.22 yuan, while Anhui Jianghuai Automobile Co. (600418) rose 0.6 percent to 4.81 yuan. Wholesale vehicle deliveries may rise 11 percent to 16.09 million units this year, Shi Jianhua, deputy secretary general of the China Association of Automobile Manufacturers, said at a forum in Beijing yesterday.

The iShares FTSE China 25 Index Fund (FXI), the biggest Chinese exchange-traded fund in the U.S., climbed 1.7 percent yesterday, rising for a second day. The Standard & Poor’s 500 Index (SPX) advanced 1.7 percent, the most in two weeks, following Draghi’s pledge.

American depositary receipts of Shanghai-based Spreadtrum Communications Inc. (SPRD) (SPRD) gained 5.3 percent, the most since June 6, Morgan Stanley raised its recommendation to overweight from equal-weight and increased its 12-month price target by 31 percent.

China Southern

China Southern Airlines Co. (1055), the nation’s biggest carrier by passengers, rose 4 percent, the most in two weeks, as the Guangzhou-based company said it will fly its Airbus SAS A380s double-deckers on the Guangzhou-Los Angeles route starting in October. ADRs of Shanghai-based China Eastern Airlines Corp. (CEA) (CEA), the country’s second-largest carrier, jumped 4.6 percent.

Renren Inc. (RENN) (RENN), the Chinese social networking website, tumbled 5.1 percent to the lowest level since Jan. 13, as Zynga Inc. (ZNGA) (ZNGA), the biggest developer of games played on Facebook Inc. (FC) (FC)’s social (FB) network, missed analysts’ second-quarter revenue and profit estimates. Facebook, the world’s most popular social-networking site, posted a narrower profit margin as sales and marketing costs surged, a sign that the company is chasing growth through higher spending.

-- Editors: Darren Boey, Richard Frost

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

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