China’s Stocks Rise Most In Week On Bank Rules Delay, Policy Bet

Jun. 7 - China’s Stocks rose the most in a week after the government signaled it will delay tightening bank capital rules and investors speculated monetary policy will be eased to prevent Europe’s debt crisis from harming the economy.

Industrial & Commercial Bank of China Ltd. and China Vanke Co. led gains for lenders and developers after regulators postponed tighter capital rules until the beginning of next year in a move that may bolster loan growth.

China Cosco Holdings Co., the biggest Chinese shipping company, gained 1.1 percent as European Central Bank President Mario Draghi said officials stand ready to act as the euro region’s outlook worsens.

The Shanghai Composite Index (SHCOMP) climbed 13.8 points, or 0.6 percent, to 2,323.38 at 9:50 a.m. local time, heading for the biggest gain since May 29. The CSI 300 Index (SHSZ300) added 0.8 percent to 2,577.43. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, climbed 2.7 percent at the close in New York.

“Stocks are gaining because of developments in Europe while the bank rules delay are beneficial to financial stocks too,” said Chen Liqiu, a strategist at Jianghai Securities Co. in Shanghai. “The domestic economy is still a big concern and data this weekend is likely going to be bad,” Chen said, adding that he expects interest-rate cuts in the second half of 2012.

China joined a global stocks rally today on speculation policy makers will take steps to stimulate economic growth. The Standard & Poor’s 500 Index advanced 2.3 percent, the biggest gain this year, while the MSCI Asia Pacific Index increased 1 percent.

Global Outlook
Federal Reserve Bank of Atlanta President Dennis Lockhart said extending Operation Twist, the program to lengthen maturities of debt on the U.S. central bank’s balance sheet, is an “option on the table.”

The ECB is under pressure to lower rates and introduce more liquidity support for banks as governments struggle to fix a crisis that’s engulfing Spain and could force Greece out of the euro. Draghi stopped short of pledging longer-term financing to address the euro-zone’s debt crisis.

China Cosco rose 1.1 percent to 4.83 yuan.

The Shanghai Composite has climbed 5 percent this year on optimism the government will ease monetary policies and accelerate approvals of infrastructure projects to spur growth. Stocks in the measure are valued at 10 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg.

Buying Opportunity
“It’s a decent opportunity to accumulate Chinese stocks as most of them have been soft,” Adrian Lim, a senior investment manager at Aberdeen Asset Management Plc, who helps oversee $102 billion in the Asia-Pacific region, said in an interview at Bloomberg’s headquarters in New York yesterday. “The region as a whole remains fundamentally very attractive. There’s still a very fat amount of demand.”

A gauge of financial companies in the CSI 300 rose 0.7 percent. ICBC, the biggest Chinese lender, added 0.5 percent to 4.22 yuan. Industrial Bank Co. rose 0.5 percent to 13.23 yuan. China Vanke, the largest-listed developer, jumped 1.6 percent to 9.13 yuan, while Poly Real Estate Co. the second-biggest, surged 3.3 percent to 13.96 yuan.

The draft rules from the China Banking Regulatory Commission will allow lenders to include “excess” loan-loss provisions as capital, and will give a 10-year grace period to phase out capital instruments local banks have already issued that don’t qualify under the new rules, according to a statement posted on the central government’s website yesterday.

Bank Rules
Regulators delayed the rules after banks warned that the change would cut lending capacity as the nation’s economic expansion slowed. The new standards were originally scheduled to take effect at the start of this year, before similar regulations in developed markets.

China should take advantage of a “relatively low” inflation to further liberalize interest rates as it seeks to bolster economic growth, former central bank adviser Li Daokui said yesterday.

The central bank may cut lending rates while pursuing rate reform to counter the effects of a troubled global economy, Li said in a speech in Singapore. Monetary policy remains “very tight” and there’s room for policy makers to reduce the amount of cash that lenders must set aside as reserves, he said.

Data this weekend are expected to show fixed-asset investment expanded at the slowest pace in a decade in May, inflation matched a two-year low and industrial output grew less than 10 percent for a second month, Bloomberg economist surveys show.

ETF
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., advanced the most in a week, adding 2.7 percent to $33.49.

The Fed’s Lockhart indicated that he wouldn’t oppose the central bank extending Operation Twist, the maturity-extension program that’s scheduled to expire at the end of this month. The policy-setting Federal Open Market Committee meets June 19-20 to consider whether more stimulus is needed after the U.S. economy added the fewest jobs in a year in May.

China Dangdang Inc. jumped 11 percent in New York, the most since Jan. 27, to $5.30 to extend its advance for the week to 16 percent. The Beijing-based company had fallen 39 percent in April and May.

SouFun Holdings Ltd. (SFUN) added 4.8 percent to $16.50, a four- week high, as the delay in capital rules pointed to the potential for increased real estate loans. Home Inns & Hotels Management Inc. (HMIN), a budget hotel operator based in Shanghai, climbed 6.6 percent to $22.04, a three-week high.

“The growth in China is still significant and we believe the regime has firm control over the economy and is managing it well,” said Timothy Ghriskey, chief investment officer at New York-based Solaris Group, which manages about $2 billion in assets. “Considering that the government hasn’t had to take bigger steps such as cutting interest rates, that gives me confidence in the economy and the potential for stocks to rebound.”