China’s Stocks Advance on Economic Growth Outlook, Valuations

China’s stocks rebounded from a three-week low after an indicator of the nation’s economic outlook advanced and investors speculated recent declines spurred by Japan’s biggest earthquake on record were excessive.

Aluminum Corp. of China Ltd., the nation’s largest producer of the metal, surged by 10 percent, erasing a six-day, 7.5 percent drop. Jiangxi Copper Co. rose 3.3 percent as the Conference Board’s index advanced. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. jumped to the highest in more than four months after an industry official said domestic demand is rising.

“It’s a rebound after the markets overreacted globally,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “The excessive losses create opportunities for undervalued stocks at the moment.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, added 34.5 points, or 1.2 percent, to 2,930.80 at the 3 p.m. close. The 3.5 percent drop since March 9 until yesterday drove down estimated earnings for the gauge to 13.6 times, near a record low of 12.9 set in October 2008, according to data compiled by Bloomberg. The CSI 300 Index gained 1.4 percent to 3,248.20 today.

The Shanghai index has advanced 4.4 percent this year on optimism the world’s second-biggest economy will withstand tighter monetary policies. Manufacturing expanded in January even after the central bank boosted banks’ reserve requirement ratio eight times since the start of 2010 and raised interest rates three times to cool inflation.

The Conference Board index rose 0.3 percent to 155 in January from the previous month, the New York-based research organization said on its website today, citing preliminary data. The indicator recorded the first decline since 2008 in December.

Metal Gains

Aluminum Corp. of China surged 10 percent to 11.48 yuan. Aluminum futures for three-month delivery in London rose 0.9 percent, the most since March 8.

Jiangxi Copper climbed 3.3 percent to 40.24 yuan. Yunnan Copper Industry Co. added 2 percent to 25.66 yuan. Copper prices climbed for the first time in six days on expectations that reconstruction needs after Japan’s largest quake on record will boost demand in three to six months.

Morgan Stanley boosted its “overweight” allocation for Chinese stocks, saying the likelihood the government will ease policy tightening has increased after the Japanese temblor.

“We are mindful of recent signals of policy easing as well as the superior ability of China to cope with the ongoing oil supply shock,” said Morgan Stanley analysts led by Jonathan Garner. “A subtle shift towards an easier policy stance was already evident in China in reaction to a slight reduction in inflationary pressures and recent Middle East events. It is likely to be intensified following the earthquake in Japan, given the risks posed to China’s external growth near term.”

Japan Rebound

Japanese stocks rose for the first time in five days, with the Nikkei 225 Average and the Topix Index gaining more than 5 percent, as Prime Minister Naoto Kan called for calm after Japan was struck by more temblors. The Nikkei had fallen 16 percent the past two days, the most since 1987, as the earthquake and the ensuing tsunami devastated northeastern Japan and knocked out cooling systems at a nuclear plant 220 kilometers (137 miles) north of Japan. Stocks also rebounded after the Federal Reserve said yesterday U.S. growth is becoming more durable.

Declines in Asian equities following Japan’s earthquake have not been corroborated by moves in other financial assets such as money markets or foreign exchange, Nomura Holdings Inc. analysts led by Sean Darby wrote in a report dated today.

“Moreover, a number of financial indicators suggest shares are oversold while there is little evidence of any liquidity or solvency issues that might cause investors to hoard cash,” the analysts wrote. The MSCI Asia Pacific Index climbed 2.6 percent.

Airlines Rebound

Radiation from Japan’s Fukushima nuclear plant won’t affect China in the next three days because of rain in the region of the accident, Xinhua News Agency said, citing the China Meteorological Administration. Tokyo Electric Power Co. reported today a new fire at the No. 4 reactor of its Fukushima nuclear power station that was damaged by the magnitude-9 earthquake.

China Southern Airlines Co., Air China Ltd. and China Eastern Airlines Corp. are keeping normal schedules for most of their flights to Japan, Xinhua said today, citing the three carriers. China Southern added 1.1 percent to 8.31 yuan. Air China rose 1.3 percent to 11.46 yuan. China Eastern advanced 0.6 percent to 6.35 yuan.