China: Stocks cap second weekly gain as consumer staples rally

[SHANGHAI] China's stocks capped a second week of gains as consumer-staples producers rallied on improving earnings prospects, while property developers halted a three-day slide.

The Shanghai Composite Index added 0.8 per cent this week. Kweichow Moutai Co rose to a nine-month high after China International Capital Corp said the liquor maker's earnings may beat consensus estimates this year. Shanghai's move to tighten criteria for non-local home buyers to help stem surging property prices is seen as a "temporary end of negative news," according to KGI Securities Co. Trading volumes slumped with Hong Kong's market shut for a holiday and before the release of industrial profits data this Sunday.

China's benchmark stock gauge failed to close above the key 3,000 level for a second day on Friday amid concern a 12 per cent rebound since the January low may not be sustainable without continued support from government-backed funds and improvement in the nation's economic and earnings fundamentals.

"The rebound has reached a resistance level, so some investors are choosing to pull out and that'll cause volatile trading going forward," said Zhang Haidong, chief strategist at Jinkuang Investment Management in Shanghai. "From the long-term perspective, it's not time for the market to reverse the downward trend as the economy is weak and the pick-up in inflation has given limited policy room."

China's benchmark index rose 0.6 per cent to 2,979.43 at the close, with trading volumes slumping 19 per cent below the 30-day average. The gauge slid the most in two weeks on Thursday after some of the nation's biggest oil and materials producers reported slumping earnings. The most recent data for industrial companies show profits declined 4.7 per cent in December.

Chinese companies listed in Shanghai and Hong Kong had their profit estimates cut the most among major Asian economies as the slowest growth in more than two decades erodes corporate earnings. Projections for earnings of companies in the Shanghai Composite in the next 12 months were lowered by 6.8 per cent, while those for firms in Hong Kong's Hang Seng China Enterprises Index were reduced by 6.2 per cent, according to data compiled by Bloomberg.

The CSI 300 Index added 0.5 per cent, while the ChiNext index of smaller companies slid 0.2 per cent, falling for a second day after entering a bull market on Wednesday. Hong Kong's stock exchange will re-open next Tuesday. Markets in Australia, India and Singapore were also closed Friday.

A gauge of consumer-staples stocks rose 0.9 per cent in the CSI 300, extending its weekly advance to 2.7 per cent, the best performance among 10 industry groups. Kweichow Moutai, the biggest liquor maker, added 1 per cent, extending gains to 8.4 per cent this week. Moutai's earnings in 2016 "may far exceed consensus, mainly driven by the recognition of received advance payments and significant volume growth," CICC analysts wrote in a note. Luzhou Laojiao Co. advanced 1 per cent.

The Shanghai property index rose 0.9 per cent, while Gemdale Corp. added 1.1 per cent. The Shanghai government said Friday that it will raise the down payment of some second homes and the threshold for non-local people to buy houses in the city. The property shares may still have significant gains in the following month, said Ken Chen, an analyst at KGI Securities in Shanghai.

Anhui Conch led declines for material shares in the CSI 300 on Friday, dropping 2.3 per cent. Shandong Gold Mining Co. retreated 2.9 per cent. The materials sub-index slipped 0.3 per cent on Friday, extending this week's loss to 1.9 per cent, the biggest decline after energy.

BLOOMBERG