Bloomberg Jan 26--China’s stocks rose, with the benchmark index rebounding from a four-month low, on speculation recent losses may have been excessive relative to the outlook for earnings growth.
A gauge of consumer staples producers climbed the most in a week, led by baijiu liquor makers Kweichow Moutai Co. and Wuliangye Yibin Co. China Southern Airlines Co., the largest carrier, jumped the most in three weeks as UOB-Kay Hian Holdings Ltd. said airlines may benefit from accelerating U.S. economic growth. Changsha Zoomlion Heavy Industry Science & Technology Development Co. added 1.2 percent after Nomura Holdings Inc. rated the company a “buy,” citing the profit outlook.
“The market wants a rebound after excessive declines,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “The Chinese Lunar new year will boost food prices. This is bad for inflation but at least good for consumer staples.”
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, added 15.5, or 0.6 percent, to 2,692.91 at 1:05 p.m. The CSI 300 Index rose 0.8 percent to 2,961.75, led by technology and consumer staples stocks. The CSI Smallcap 500 Index increased 1.3 percent. China’s markets will be closed from Feb. 2 to 8 for the Chinese holiday.
The Shanghai Composite has lost 15 percent since a Nov. 8 high after the central bank raised the reserve requirement ratio for banks and interest rates to counter inflation. The People’s Bank of China ordered commercial lenders on Jan. 14 to set aside more reserves, adding to six similar increases last year. The central bank also raised interest rates twice in 2010.
Stock Valuations
The Shanghai stocks measure is valued at 12.5 times estimated earnings, the lowest since January 2009, weekly data compiled by Bloomberg show. China’s economic growth is expected to slow to 9 percent this year, from 10.1 percent in 2010, according to median estimates of Bloomberg surveys. That’s still about triple the projected rate of U.S. expansion.
A gauge of consumer staples in the CSI 300 jumped 1.2 percent on speculation rising food prices will boost earnings. Kweichow Moutai, the biggest maker of baijiu, advanced 1.1 percent to 172.57 yuan. Wuliangye rose 1 percent to 31.88 yuan.
Freezing weather in China’s south has led to an increase for China’s farm-produce prices in the week ended Jan. 23 from the previous seven days, Xinhua News Agency said late yesterday, citing the Ministry of Commerce. It’s the fourth consecutive increase for the gauge, according to Xinhua.
Meat and egg prices rose because of the approaching Chinese New Year holiday, with mutton gaining 1.4 percent on week, eggs 1 percent, beef 0.8 percent, pork 0.7 percent and chicken 0.2 percent, the news agency reported.
Consumer Stocks
China’s consumer and tourism stocks have dropped to levels where buying opportunities have emerged, Citic Securities Co. said in a report yesterday.
The median valuation of major consumer companies has fallen to 23 times estimated earnings for this year and 20 times for 2012, analysts led by Zhao Xueqin wrote. The consumer companies are expected to have a compound annual growth rate of more than 30 percent for earnings over the next three years, they said.
China’s stocks are “very undervalued” compared with other emerging markets and historical levels for price earnings, according to UOB-Kay Hian, Singapore’s biggest brokerage by market value. Investors should buy shares of companies that will benefit from U.S. economic growth including airlines, shipping companies and export-oriented manufacturers, Elvic Ng, Hong Kong-based head of research, said in a report to clients.
China Southern surged 3.4 percent to 8.44 yuan. China Eastern Airlines Corp., the second largest, added 2.1 percent to 6.43 yuan. Air China Ltd. gained 3.2 percent to 11.52 yuan.
Obama Speech
In his State of the Union address, U.S. President Barack Obama focused on measures he said are necessary to accelerate the economy. He urged Congress to invest in high-speed rail, Internet access and education while warning that the nation risks being buried under a mountain of debt.
CSR Corp., a trainmaker, climbed 1.7 percent to 8.46 yuan. General Electric Co. will sign a pact with CSR to import high speed railway technology, the Securities Daily reported Jan. 21, citing an unidentified person close to CSR.
Changsha Zoomlion rose 1.2 percent to 12.90 yuan. The company was rated “buy” at Nomura, which cited the outlook for profits amid growth in concrete machinery and environmental equipment.
Chinese stocks may rebound, as the widest gap in four years between benchmark gauges for equities and industrial metals signals excess “pessimism” for the nation’s shares, according to Xinhu Futures Co. Equities have been moving in tandem with global commodities since the Asian nation led a global recovery in 2009. The correlation between the two asset classes rose to a record high in November, according to Bloomberg data.
Commodities Indicator
“Commodities are going to stay in a bull market as the global recovery continues to stoke demand,” said Jiang Lin, an analyst at Xinhu Futures. “Investors might be overly pessimistic about China’s stocks and the economy, and once the government relaxes tightening, stocks will have decent gains.”
The Shanghai Composite has dropped 4.2 percent this year, adding to a 14 percent decline in 2010. The London Metal Exchange LMEX index comprising copper, aluminum, lead, tin, zinc and nickel reached a three-year high on Jan. 12, after rising 24 percent last year.
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