China’s stocks rise as financials rally after reserve-ratio cut
By Bloomberg
Chinese stocks rose, led by financial companies, on speculation a cut in banks’ reserve ratios will help boost a flagging economy.
Banks, brokerages and insurers rallied with Bank of China Ltd., China Life Insurance Co. and Haitong Securities Co. surging more than 2 percent. Gree Electric Appliances Inc. and SAIC Motor Corp. paced gains for consumer companies reliant on economic growth. Huaneng Power International Inc. slumped 3 percent to drag down a gauge of utilities.
The Shanghai Composite Index rose 1.1 percent to 3,208.35 at 1:09 p.m., while the Hang Seng China Enterprises Index advanced 1 percent. The central bank said Wednesday it’s lowering the reserve ratio by 50 basis points, joining more than a dozen global counterparts in easing monetary policy this year as tumbling commodity prices provide scope to support growth.
“This is very positive for the stock market,” Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management Asia Ltd., said by phone. “We should see a continuation of interest rate and reserve-ratio cuts in the next six to 12 months. Financials and cyclical sectors will benefit the most.”
The CSI 300 advanced 1.6 percent. Hong Kong’s Hang Seng Index rose 0.7 percent. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.-listed Chinese companies, climbed 1 percent on Wednesday.
The People’s Bank of China unexpectedly cut interest rates in November, unleashing a world-beating stock rally that saw the Shanghai Composite soar as much as 36 percent through a Jan. 26 peak. The stock measure has recently lost momentum, falling for the sixth time in seven days on Wednesday after data showed a gauge of services expanded at the weakest pace in six months, adding to reports highlighting a deepening economic slowdown.
Weak Data
The government’s manufacturing Purchasing Managers’ Index declined to 49.8 last month from 50.1 in December, signaling a contraction for the first time in more than two years.
“We expected the PBOC would cut RRR in early March when the economic data for January and February become available,” Deutsche Bank AG said in a report. “The PBOC did not wait to see the data, which suggests to us the economic momentum probably surprised on the downside for the government.”
The reserve-ratio cut could inject a total of 650 billion yuan liquidity into the system, JPMorgan Chase & Co. China economist Haibin Zhu wrote in a note. That will help ease a shortage of funds stemming from capital outflows, share offerings and cash demand in the run up to the Chinese New Year holiday starting on Feb. 18.
Capital Outflows
“The market has come to realize that the cut is largely to cushion capital outflow and forex reserve declining,” said Hao Hong, head of China research at Bocom International Holdings Co. in Hong Kong. “It is not the same as aggressive easing.”
Trading volumes in the Shanghai index were 11 percent below the 30-day average for this time of day. The gauge trades at 12 times projected 12-month earnings, compared with 8 for the H- shares gauge. The Hang Seng China AH Premium Index rose 0.4 percent to 123.67. China’s outstanding margin debt climbed 0.1 percent to 774.77 billion yuan yesterday. That compares with the record of 777.6 billion yuan on Jan. 29.
A gauge of financial shares in the CSI 300 climbed 2.8 percent for the biggest gain among industry groups after technology. China Construction Bank Corp. advanced 2.1 percent, Ping An Bank jumped 3.3 percent. Citic Securities Co. added 3.1 percent. Poly Real Estate Group Co. led gains for developers, rising 3.6 percent. China Vanke Co. jumped 3.1 percent.
History signals that real-estate developers and banks will benefit most from the reserve-ratio cut. When the PBOC announced the start of a series of similar cuts on Nov. 30, 2011, the property index led gains among five industry groups over the next week, three months and six months, rallying 25 percent.
Neusoft Corp. and Beijing Shiji Information Technology paced gains for technology companies, jumping by the 10 percent daily limit.