Hong Kong Stocks Rise After China Says Price Caps ‘Temporary’

Nov. 18 （Bloomberg） -- Hong Kong stocks are headed for their first increase in five days after commodity prices climbed and the Chinese government proposed temporary price caps to tackle inflation, easing concerns of tougher tightening measures.

Cnooc Ltd., China’s biggest offshore oil explorer, rose 3.6 percent after crude prices rebounded from a four-week low. Jiangxi Copper Co., the country’s top producer of the metal, jumped 4.6 percent after metal prices increased. China Construction Bank Corp. gained 2 percent. Cheung Kong （Holdings） Ltd., Hong Kong’s second-biggest developer, fell 0.5 percent after the International Monetary Fund urged further measures to rein in property prices.

The Hang Seng Index gained 1.4 percent to 23,530.05 as of the 12:30 p.m. break, reversing a 6 percent loss over the past four days. About four stocks rose for each that fell on the 45- member gauge. China’s cabinet said yesterday the government may impose temporary price controls on “important daily necessities” and production materials to counter the fastest inflation in two years.

“The government appears to have taken a softer approach,” said Khiem Do, head of multi-asset strategy at Baring Asset Management （Asia） Ltd. “The market is relieved that the government has taken a gradual and softer approach. That’s why there’s a relief rally this morning.”

The Hang Seng China Enterprises Index of so-called H shares of Chinese companies increased 1.7 percent to 13,098.45. Futures on the Hang Seng Index gained 1.4 percent to 23,495.

Commodities Rise

Cnooc gained 3.6 percent to HK$17.08, the biggest contributor to the Hang Seng’s advance.

China Petroleum & Chemical Corp., also known as Sinopec, increased 1.1 percent to HK$7.25. Jiangxi Copper advanced 4.6 percent to HK$22.90, posting the third-biggest gain on the Hang Seng China Enterprises index.

Aluminum Corporation of China Ltd., the nation’s largest producer of the metal, climbed 2.4 percent to HK$7.18.

Crude oil for December delivery rebounded from a four-week low to gain as much as 0.7 percent in trading today. The London Metal Exchange Index of prices for six industrial metals including copper and aluminum rose 0.9 percent yesterday. Copper gained for a second-day in London, jumping as much as 1.2 percent.

The Hang Seng Index gained 11 percent this year through the end of last week on expectations that growth in corporate earnings would overcome concerns about the pace of the U.S. economic recovery and China’s steps to curb rising property and consumer prices. Shares in the gauge trade at an average 14.8 times estimated earnings, compared with about 17.2 times at the start of the year.

Curbing Prices

China Construction Bank, the world’s second-largest bank by market value, rose 2 percent to HK$7.25. Industrial & Commercial Bank of China Ltd., the world’s No.1 lender, advanced 1.5 percent to HK$6.26. Bank of China Ltd. climbed 0.9 percent to HK$4.34.

China may impose temporary price controls on “important daily necessities” and production materials will be used if necessary, the State Council said on its website yesterday after a meeting chaired by Premier Wen Jiabao. China’s accelerating inflation had sent stocks and commodities sliding on speculation that efforts to curb prices will cool the world’s fastest- growing major economy.

Chinese central bank adviser Zhou Qiren said interest-rate increases are insufficient for curbing inflation in the nation, and the government should boost its supply of resources and broaden investment channels to allow individuals and companies to spend or invest abroad to dilute excess domestic liquidity, the China Securities Journal reported.

Specific Controls

“It seems China’s focus is more on specific administrative controls rather than broad-based measures,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which manages about $85 billion. “If they’re specifically targeting sectors where there is a problem, investors will be a little less worried that it’s going to crunch the whole economy.”

Among other stocks that rose, Citic Dameng Holdings Ltd., China’s biggest manganese producer, gained 2.6 percent to HK$2.82 on its first day of trading in Hong Kong.

The company with operations in China and Gabon raised HK$2.06 billion （$259 million） in its initial public offering. About 55 percent of proceeds will be spent on upgrading its production capacity and 20 percent will be used to fund purchases of pits and mining rights, Dameng said yesterday.

Developers Drop

The Hang Seng Property Index fell 0.4 percent, the only decline among the broader Hang Seng’s four industry groups.

Cheung Kong declined 0.5 percent to HK$121.20. Sino Land Co., the Hong Kong developer controlled by billionaire Robert Ng, lost 1 percent to HK$16.54. Sun Hung Kai Properties Ltd., Hong Kong’s biggest developer, declined 0.8 percent to HK$134.90.

The IMF said Hong Kong’s accelerating inflation risks causing a bust that leads to deflation and an extended economic “downturn,” and the government should consider raising stamp duties on housing and taxes on higher-end properties if asset inflation persists.

“Depending on the amplitude of the upswing, the resulting downturn could prove both protracted and painful,” the IMF said in a report today.

--With assistance from Shani Raja in Sydney. Editor: John McCluskey, Nick Gentle.