China: Stocks rise after biggest rout in three months on insurers

[SHANGHAI] China's stocks rose, halting the benchmark index's biggest drop in three months, as financial and technology companies rallied.

China Life Insurance Co jumped 6 per cent to lead gains for insurers. China Minsheng Banking Corp advanced 2.5 per cent. Technology shares surged with Aisino Co jumping 6.2 per cent and the ChiNext index advancing 4 per cent.

The Shanghai Composite Index added 0.1 per cent to 4,303.35 at 10.28am local time. The gauge dropped 4.1 per cent Tuesday amid concern the government will introduce measures to cool the market as valuations surge and new share sales potentially divert funds from existing equities.

The CSI 300 Index gained 0.8 per cent. Hong Kong's Hang Seng China Enterprises Index rose 0.3 per cent, while the Hang Seng Index added 0.2 per cent. The Bloomberg China-US Equity Index retreated 2.4 per cent in New York on Tuesday.

The Shanghai Composite has rallied 112 per cent over the past year amid expectations the government will extend interest- rate cuts and speed up mergers of state-owned enterprises to boost the economy. The index is valued at 16.6 times 12-month projected profit, compared with the five-year average of 10.2, according to data compiled by Bloomberg.

The stock market's decline on Tuesday wasn't the end of the bull market and could instead help market enter a "slow bull" mode advocated by regulators, the official Xinhua News Agency said in a commentary on its website.

For Chinese investors with a sense of history, the nation's world-beating equity rally is looking long overdue for a reversal.

Challenges Ahead The bull market turned 883 days old on Tuesday, topping China's previous record by 56 days, after a 119 per cent surge in the Shanghai Composite since December 2012.

Even if the advance is measured from June 2013 - when the gauge narrowly avoided a bear-market drop of 20 per cent - it's still the second longest since Chinese bourses opened for trading in 1990.

Expensive Chinese stock valuations, euphoric sentiment and slowing liquidity from margin lending expansion will challenge the market in the near term, Bocom International Holdings Co head of China research Hao Hong wrote in a report. Initial public offerings will drain market liquidity temporarily, Hong said.

Twenty-five companies are scheduled to sell IPO shares from Tuesday through May 11, which may freeze 2.34 trillion yuan (S$499 billion).

An increase in new share supply "absolutely" doesn't aim at suppressing the market and China's bull market will continue as monetary and fiscal policies will keep easing, the market faces low systemic risks and assets tend to accelerate investment in equities, Xinhua said.

Margin traders increased holdings of shares purchased with borrowed money on Tuesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising by 0.2 per cent to a record 1.24 trillion yuan.

Trading volumes in the Shanghai index were 27 per cent lower than 30-day average for this time of day.

BLOOMBERG