China Stocks Gain as Brokerages Rally on Market Reform Optimism - Businessweek

Chinese stocks rose for the first time in three days as speculation the government will take steps to boost the equity market overshadowed concern inflation will hamper the central bank’s ability to ease monetary policy.

Pacific Securities Co. (601099) climbed 1.5 percent, pacing an advance by brokerages, after the Shanghai Securities News said regulators will push for market reforms. Agricultural Bank of China Ltd., the nation’s third-largest lender, led declines by banks as swap traders reduced expectations for the scale of interest-rate cuts.

“Some people may take the chance to bargain hunt after recent declines but any gains would be short-lived,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Investors are still concerned about the economy as it looks unlikely to improve anytime soon. It also looks less likely that the central bank will have aggressive interest-rate cuts.”

The Shanghai Composite Index (SHCOMP) gained 0.2 percent to 2,063.07 at the 11:30 a.m. local-time break. The CSI 300 Index added 0.2 percent to 2,240.66. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong rose 1.2 percent. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, slid 0.9 percent in New York yesterday.

The Shanghai Composite fell 3 percent in the previous two days, the biggest drop since March, on concern tensions with Japan over a territorial dispute will hurt trade. The gauge is valued at 9.4 times estimated earnings, compared with the 17.5 average since Bloomberg began compiling the weekly data in 2006.

Market Reform

Hao Hong, Bocom International Holdings Co.’s managing director for research, said in an interview yesterday that pessimism has largely been priced in.

Pacific Securities added 1.5 percent to 5.61 yuan. Northeast Securities Co. increased 1.4 percent to 15.58 yuan.

China will push for 15 major capital market reforms during the current five-year plan, Shanghai Securities News reported. The reforms include increasing the development of debt markets and stable development of a futures market, the Shanghai Securities News said, citing an unidentified China Securities Regulatory Commission official.

Agricultural Bank dropped 0.4 percent to 2.43 yuan, a third day of losses. China Merchants Bank Co. slid 0.8 percent to 9.91 yuan.

Swap traders have halved expectations for the scale of China’s interest-rate cuts in the coming year as policy makers signal concern that global monetary easing will reignite inflation.

Interest Rates

Swap derivatives reflect bets the People’s Bank of China will lower its one-year deposit rate of 3 percent by 44 basis points, compared with expectations a month ago for a 90 basis point reduction, according to data compiled by Bloomberg. The central bank has refrained from acting since July 6, when it reduced by 25 basis points for the second time in a month. The Federal Reserve pledged last week to keep its benchmark rate near zero until at least mid-2015.

China may cut interest rate and reserve ratio one time each this year because weaknesses in the economy still needs monetary help, says BNP Paribas SA analyst Ken Peng in a report dated yesterday. The central bank will tend to “lean towards caution” in the longer run, according to the report.

U.S. quantitative easing will hamper the decision-making ability of authorities in emerging economies and “do serious damage” to the global economy, Zhang Monan, an economic researcher at the State Information Center, wrote in the China Daily newspaper today.

The iShares FTSE China 25 Index Fund (FXI), the biggest Chinese exchange-traded fund in the U.S., retreated 0.6 percent in its second day of declines to $34.52.

Investors started to buy contracts protecting them from future declines in the ETF on “geopolitical concerns and weak” home prices data, Frederic Ruffy, a senior options strategist at WhatsTrading.com, wrote in a note to clients yesterday. Put options (FXI) show investors are betting the ETF may drop as much as 11.7 percent within the next 31 days, he said.

To contact Bloomberg News staff for this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

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