China's stocks rise as small-cap companies spearhead rebound

[SHANGHAI] China's stocks rose after a home-price recovery spread to more cities and speculation grew equities were oversold after the benchmark index entered a bear market last week.

The Shanghai Composite Index gained 0.4 per cent to 2,913.84 at the close, led by property developers and technology companies. The gauge's relative-strength index slumped to levels that indicate a selloff was overdone. The offshore yuan strengthened the most in a week. The ChiNext index of small- company stocks jumped 2.9 per cent.

"There are fresh funds coming in to bottom fish and they are targeting mostly beaten-down small caps," said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co.

While Jingxi Investment expects a rebound, other strategists and fund managers are bracing for a deeper bear market amid waning confidence that the government can manage the country's transition to a new growth model and to a more freely- traded currency. The Chinese government will probably report annual gross domestic product growth of 6.9 per cent on Tuesday, the slowest pace since 1990.

Stocks rebounded on Monday afternoon in dwindling trading volumes as volatility hovered near the highest levels since October. Wang said he wasn't sure whether state funds had 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 Shanghai gauge has fallen 20 per cent since December.

The Shanghai index's 14-day relative strength measure, measuring how rapidly prices have advanced or dropped during a specified time period, was at 27 on Friday. Readings below 30 indicate it may be poised to rise. Trading volumes were 26 per cent lower than the 30-day average.

Gemdale Corp led gains for property developers, adding 2.8 per cent. New-home prices climbed in 39 cities, compared with 33 in November, among the 70 cities tracked by the government, the National Bureau of Statistics said Monday. China's politburo last month vowed to reduce home inventory as one of its key tasks in 2016, prompting expectation of more easing measures.

The CSI 300 Index added 0.4 per cent, with a measure of technology stocks jumping 2.1 per cent for the biggest advance 10 industry groups. GoerTek Inc. soared 6.1 per cent. Hundsun Technologies Inc. gained 4.8 per cent. Siasun Robot & Automation Co. led the rally in the ChiNext, surging 6.8 per cent.

The ChiNext has fallen 25 per cent since November, sending valuations to 36 times estimated 12-month earnings, down by half from June's record high.

Hong Kong's Hang Seng China Enterprises Index lost 0.8 per cent at 3:11 p.m., while the Hang Seng Index slipped 1.1 per cent.

Analysts from Bocom International Holdings Co. and Wells Fargo Funds Management predicted that the Shanghai Composite may drop 14 per cent from Friday's close to 2,500. Zhongtai Securities Co. sees the gauge losing as much as 300 points, or 10 per cent, before bottoming out. Phillip Securities and Central China Securities Co. expect more selling pressure even after the Shanghai index sank 3.5 per cent to 2,900.97 on Friday.

The recent stock selloff is a setback for President Xi Jinping as his government attempts to shore up growth and control the gradual globalization of China's markets. Volatility has soared amid confusion over policies, from the central bank's exchange-rate strategy to a failed experiment with share circuit breakers. A review of the turmoil since June exposed loopholes and ineptitude within the regulatory system, Xiao Gang, chairman of the nation's equities watchdog, said over the weekend.

The yuan traded in Hong Kong rose 0.34 per cent to 6.5916 a dollar after China stepped up efforts to curb bearish bets on the exchange rate. The central bank said it will impose reserve- requirement ratios on yuan deposited onshore by overseas financial institutions from Jan. 25, without saying what level would be used.

The government will probably report fourth-quarter GDP growth of 6.9 per cent on Tuesday, according to economists' estimates. They project GDP growth will further slow to 6.5 per cent this year. That's in line with government targets set in March.

BLOOMBERG