Shanghai’s stocks head for biggest quarterly gain since 2009
By Bloomberg
China's benchmark stock index headed for its best quarterly performance since 2009 as coal producers rallied on the prospect that government reforms will support prices.
Datong Coal Industry Co. and Shaanxi Coal Industry Co. surged more than 3 percent in Shanghai after the government said it will levy a resource tax based on market prices. Qingdao Haier Co. led declines for consumer companies dependent on economic growth after a manufacturing gauge from HSBC Holdings Plc and Markit Economics missed estimates. New China Life Insurance Co. and Citic Securities Co. dropped at least 2 percent in Hong Kong amid the biggest political unrest in the city since the 1960s.
The Shanghai Composite Index was little changed at 2,357.41 at 1:10 p.m. after surging 15 percent this quarter on speculation reform measures will stem an economic slowdown and an exchange link with Hong Kong may fuel fund inflows.
"We might see some growth-boosting measures from the government in the fourth quarter given the data were poor," Wu Kan, a fund manager at Shanghai-based Dragon Life Insurance Co., which oversees about $3.3 billion, said by phone today. "The Hong Kong market continues to be affected by the instability."
The HSBC Purchasing Managers' Index was at 50.2, lower than the preliminary figure of 50.5 and unchanged from August. Numbers above 50 signal expansion. A separate manufacturing index from the National Bureau of Statistics and China Federation of Logistics and Purchasing is scheduled to be published tomorrow.
Easing Prospects
China may announce measures including tax cuts to manage the economy with a targeted-easing approach as economic growth in the third quarter is expected to slow from the previous quarter, the China Securities Journal reported yesterday, citing an unidentified analyst.
Economists at firms including Daiwa Capital Markets and Societe Generale SA are bucking the mainstream estimate that additional targeted policy easing will be all that's used to keep the world's growth engine humming, a monthly Bloomberg News survey showed last week. They see imminent nationwide cuts in banks' reserve requirements, while Barclays Plc is projecting a reduction in the benchmark lending rate by year-end.
Hong Kong's Hang Seng China Enterprises Index fell 1.2 percent today, while the Hang Seng Index lost 1.3 percent. The CSI 300 Index was little changed after surging 13 percent this quarter. The Bloomberg China-US Equity Index retreated 2.3 percent yesterday. Mainland markets will be shut from Oct. 1 to Oct. 7 for the National Day holidays.
Valuation Premium
Datong Coal rose to the highest level since June 2013. China Shenhua Energy Co., the nation's largest coal producer, gained 0.7 percent. China will from Dec. 1 levy a coal resources tax based on sale prices instead of volumes, according to a statement posted on the government's website.
Chongqing Gas Group Corp. jumped 44 percent on its first- day trading in Shanghai today.
Shanghai Zhenhua Heavy Industry Co. slumped 5.6 percent. The company was sued by U.K.-based Fluor to pay 250 million pounds ($405.9 million) to settle expense disputes over a British wind power project, according to an exchange statement.
The Shanghai Composite is valued at 8.5 times 12-month projected earnings, compared with the five-year average multiple of 10.9, according to data compiled by Bloomberg. Trading volumes in the index were 11 percent above the 30-day average for this time of day.
Hong Kong's biggest political unrest since the 1960s is wiping out the valuation premium of the city's stocks over their Shanghai counterparts.
HK Protests
The Hang Seng China AH Premium Index, which measures the weighted average gap between the largest dual-listed shares, rose to 100.25, the highest level since policymakers unveiled the exchange link in April. A level of 100 means H-shares in Hong Kong trade at the same price as A-shares on the mainland.
The Hong Kong-Shanghai link will give foreign investors unprecedented access to mainland shares, allowing 13 billion yuan ($2.1 billion) of net buying per day.
"Shanghai continues to confound speculators, as it rallies on," Hao Hong, Hong Kong-based strategist at Bocom International Holdings Co., wrote in a report yesterday. "With the situation unfolding in Hong Kong, it is conceivable that overseas investors could short Hong Kong as a hedge for their long Shanghai positions after the Connect program commences."
Tens of thousands of protesters filled streets in Hong Kong through the night to press for open elections and the resignation of Chief Executive Leung Chun-ying, as student leaders set an Oct. 1 deadline for their demands to be met. While numbers had thinned this morning, demonstrators remained in the main protest area near government headquarters in the Admiralty district, as well as in Causeway Bay and Mong Kok.