Bloomberg September 14, 2012 - China Stocks Rise Most in Week After Fed Boosts Asset Purchases
China's stocks rose, driving the benchmark index's biggest gains in a week, after the Federal Reserve said it will buy mortgage securities to boost growth in the world's biggest economy.
Zijin Mining Group Co. (601899) and Jiangxi Copper Co., China's biggest producers of gold and copper, advanced more than 2 percent as the Fed's debt purchases bolstered the outlook for metals demand. Anhui Jianghuai Automobile Co. (600418), a unit of the biggest light-truck exporter, surged the most in almost four months on a share repurchase plan. China Vanke Co., the nation's biggest listed property developer, slid 1 percent after the China Securities Journal said regulators are monitoring high- priced government land sales.
"The Fed's new round of bond purchases will reduce the risk premium for risky assets," said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. "Money will probably go to emerging markets and boost asset prices there because of ample global liquidity. That's very positive for stocks."
The Shanghai Composite Index (SHCOMP) rose 0.6 percent to 2,123.85 at the close, trimming a weekly loss to 0.2 percent. The CSI 300 Index (SHSZ300) climbed 0.7 percent to 2,315.54. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong jumped 3.7 percent.
The Shanghai Composite has fallen 3.4 percent this year on concern the government isn't loosening monetary policy or introducing stimulus policies fast enough to counter the slowdown in the economy. It's valued at 9.7 times estimated earnings, compared with the 17.4 average since Bloomberg began compiling the weekly data in 2006. The MSCI Asia Pacific Index (MXAP), up 2.4 percent today, trades at 12.8 times estimated earnings.
The Fed said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month, known as quantitative easing. The central bank will continue its purchases of mortgage-backed securities and undertake other asset purchases if the outlook for the labor market doesn't improve substantially, the Federal Open Market Committee said yesterday in a statement at the end of its two- day meeting in Washington.
The FOMC also said it would probably hold the federal funds rate near zero "at least through mid-2015."
The MSCI Emerging Markets gauge jumped 80 percent in the first period of debt purchases from December 2008 to March 2010, while developed stocks rose 35 percent, Citigroup Inc. said last month. The measure of developing stocks rose 19 percent in the second QE period between August 2010 and June 2011.
Chinese stocks may see short-term rallies on stimulus policies and easing uncertainty in the leadership transition in China, while there are upside risks from global liquidity loosening such as QE3, Macquarie Group Ltd. analysts including Chen Shao said in a report dated yesterday.
State-run media reported on the activities of Xi Jinping for the first time since Sept. 1 yesterday, signaling that the leadership was seeking to counter speculation his absence would disrupt the once-in-a-decade transfer of power. Xi is forecast to become China's next president and general secretary of the 82 million-strong party in a leadership change later this year.
An index of material stocks in the CSI 300 jumped 2.1 percent today, the most among the 10 industry groups.
Zijin Mining surged 3.3 percent to 4.03 yuan. Jiangxi Copper advanced 2.9 percent to 23.13 yuan. Yunnan Tin Co. (000860), the world's largest producer of the metal, climbed 3.5 percent to 20.60 yuan.
The Standard & Poor's GSCI Spot Index of 24 raw materials rose 0.6 percent to settle at 687.22 yesterday. Earlier, the gauge reached its highest since April 5. The measure climbed for the sixth straight session, the longest rally since July 19. Silver and gold gained the most in 10 weeks, leading the rally.
Metal stocks were upgraded to overweight from neutral by Shenyin & Wanguo Securities Co. today. Commodity markets will benefit from QE3, Ye Peipei, an analyst at the Shanghai-based brokerage, wrote in a report.
Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. (600111), the nation's biggest producer of the metal, rose 2.2 percent to 35.49 yuan. The China Securities Journal said China has reduced the number of permits to mine rare earths by 41 percent.
China issued 67 permits, compared with 113 previously, the Journal said yesterday, citing an announcement from the Ministry of Land and Resources. In July, the ministry announced it would reduce the number of permits to encourage consolidation in the industry, the newspaper said.
Anhui Jianghuai jumped 6.3 percent to 4.89 yuan, its biggest gain since May 28. The automaker said it plans to buy back as much as 300 million yuan of its shares for 5.20 yuan each.
Vanke lost 1 percent to 8.34 yuan. China Merchants Property Development Co. (000024), the nation's third biggest listed property developer, retreated 1.3 percent to 20.78 yuan. Gemdale Corp. (600383), the fourth largest, dropped 2.1 percent to 5.07 yuan.
The land ministry is targeting overly high price premiums, excessively high minimum bidding prices and the pace of residential and corporate land development, the China Securities Journal reported today, without saying where it obtained the information.
China's economic growth slowed to 7.6 percent in the three months through June, the least since 2009, as a crackdown on property speculation damped domestic demand.
The Shanghai Composite posted its fourth weekly decline in five weeks after trade data missed estimates and industrial output grew at the slowest pace in three years.
The growth slowdown is set to deepen to a 23-year low next year as the nation's export- and investment-led expansion wanes, according to Pacific Investment Management Co., which manages the world's biggest bond fund.
Gross domestic product will expand "about 7 percent" in 2013 and be "similar in subsequent years," Ramin Toloui, Pimco's global co-head of emerging markets portfolio management in Singapore, said in e-mailed comments yesterday.
Thirty-day volatility in the Shanghai Composite was at 15.8 today, compared with this year's average of 17. About 9.1 billion shares changed hands in the gauge today, 17 percent higher than the daily average this year.
The Bloomberg China-US 55 Index (CH55BN), the measure of the most- traded U.S.-listed Chinese companies, added 2.3 percent in New York yesterday.
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