China: Stocks end sharply up as investors switch to blue chips

[SHANGHAI] China stocks posted their biggest one-day per centage rise in a month on Wednesday, as investors rotated out of small caps into blue chips, with property shares surging for the second day on speculation of more government stimulus.

The CSI300 index of China's largest listed companies rose 3.6 per cent, to 3,721.95, while the Shanghai Composite Index gained 2.3 per cent, to 3,536.91 points.

Both indexes had their best one-day performance since Nov. 4.

Investment flowed from more speculative small caps into relatively cheap blue chips, with a 2.2 per cent slide in Shenzhen's start-up board ChiNext, and a simultaneous surge in banking and real estate stocks .

Property giants such as China Vanke Co and Poly Real Estate Group Co jumped their 10-per cent daily limit for the second day, on market talk that China will unveil tax incentives to encourage more home purchases.

The sector was also aided by expectations that China's home prices would rise slightly in the coming year on the back of Beijing's support, thus relieving some pressure on the slowing economy. "The logic of the mainland market is very simple. On the dark side, there're too few good companies to invest in, as corporate profit and ROE (return on equity) are both heading south," said Liu Haiying, Chairman of Haiying (Shanghai) Investment Consulting Co. "On the bright side, there's too much liquidity. So the key question is whether fresh money is flowing into stocks, which I don't think is the case at the moment." Despite strong gains in the key indexes, 1,669 stocks fell on Wednesday, outnumbering gainers, which totalled 868.

REUTERS