China: Stocks jump most in 2 months as data fuel easing bets

[HONG KONG] Chinese stocks jumped the most in two months as weaker-than-estimated economic data fueled speculation of increased stimulus and industrial shares rallied on prospects of state-fund buying.

The Shanghai Composite Index rose 3.2 per cent to 3,007.74 at the close, its biggest gain since Nov 4. China Railway Group Ltd and Power Construction Corp of China both surged by the daily limit. Data on Tuesday showed China's economic growth missed analysts' estimates last quarter, while industrial production, retail sales and fixed-asset investment all slowed at the end of the year. The government may further ease monetary policy such as cutting interest rates or lenders' reserve- requirement ratios, according to Northeast Securities Co and Central China Securities Co.

"There's possibility of a cut in banks' reserve-requirement ratios," said Shen Zhengyang, a Shanghai-based analyst at Northeast Securities.

"Railway and infrastructure companies are the main fulcrum for China to stabilize economic growth." China's stocks have rebounded after entering a bear market on Friday amid concerns about the government's ability to manage its economy and financial markets. Tuesday's data showed the economy is growing at two speeds, with old rust-belt industries from steel to coal and cement in decline while consumption, services and technology do better.

Reorient Financial Markets Ltd says government-led funds may have entered to bolster the market, which was a typical occurrence on large down days during last year's US$5 trillion rout and has been more sporadic amid the recent bear-market slump.

"The national team may be stepping in to boost confidence," said Steve Wang, research director and economist at Reorient Financial in Hong Kong.

A gauge of industrial companies in the CSI 300 rose 4.7 per cent, the most among the 10 industry groups. China Railway Group and Power Construction both surged 10 per cent.

China officially launched the US$100-billion Asian Infrastructure Investment Bank on Saturday with an opening ceremony attended by President Xi Jinping. The bank will boost infrastructure investment in Asia and improve integration, he said.

Monetary Speculation Gross domestic product rose 6.8 per cent in the fourth quarter, less than the forecast for 6.9 per cent growth. For the full year, GDP increased 6.9 per cent - the least since 1990 - in line with the government's target of about 7 per cent. Industrial production rose 5.9 per cent in December, compared with the 6 percent estimate of analysts. Retail sales increased 11.1 per cent, compared with the 11.3 per cent forecast. Fixed- asset investment excluding rural areas expanded 10 per cent last year, the weakest pace since 2000.

"The stock market jumped partly because of speculation China will introduce incentives such as interest-rate cuts or RRR cuts soon after it released GDP data this morning," said Zhang Gang, analyst at Central China Securities in Shanghai.

The policy response to last year's slowdown included accelerated monetary easing with six interest-rate cuts since late 2014 and increased fiscal spending.

The Hang Seng China Enterprises Index rose 2.5 per cent at 3:16 pm in Hong Kong, while the Hang Seng Index advanced 1.7 per cent. Trading volumes in Shanghai were 6 perc ent below the 30-day average for this time of day.

Traders reduced holdings of shares purchased with borrowed money for a 12th straight day on Monday, cutting the outstanding balance of margin debt on the Shanghai stock exchange to 584 billion yuan (S$127 billion), a four-month low.

China's securities regulator denied a Reuters report that its Chairman Xiao Gang offered to resign. Reuters reported that the chairman of the China Securities Regulatory Commission submitted his resignation last week, citing unidentified people. It wasn't clear whether the government had accepted his offer, the news agency said.

BLOOMBERG