China: Stocks fluctuate as traders weigh policy easing prospects

[HONG KONG] Chinese stocks swung between gains and losses as investors weighed the prospect of more policy easing after monetary data missed economists' estimates. Technology and telecom companies gained, while property developers slumped.

ZTE Corp. led an advance for phone companies, rallying 5.2 per cent. IFlytek Co. headed for a record high. Tencent Holdings Ltd. advanced 2.6 per cent in Hong Kong after reporting a record profit. Poly Real Estate Group Co slumped 1.9 per cent.

The Shanghai Composite Index added 0.2 per cent to 4,383.56 at 9.35am. The gauge fell Wednesday after data showed fixed- asset investment slowed to the weakest pace in more than 14 years and industrial output trailed estimates. After the market close, the central bank released data showing new loans plunged, while aggregate financing and M2 money supply missed forecasts.

"The April monetary data suggest there was a credit crunch to the economy with rising downside risks to the growth outlook, calling for more monetary easing," Jian Chang, an economist at Barclays Plc, wrote in a report.

"Besides subdued money and loan growth, the large negative surprises on exports, as well as weak real activities released earlier indicate strong headwinds to second-quarter gross domestic product growth."

The Shanghai Composite has rallied 113 per cent over the past year, spurred by three cuts in interest rates since November and growth in margin trading. The index trades at 16.9 times 12-month projected earnings, compared with the five-year average of 10.2, according to data compiled by Bloomberg.

The CSI 300 Index was little changed. Hong Kong's Hang Seng China Enterprises Index fell 0.5 per cent, while the Hang Seng Index was little changed. The ChiNext index of smaller companies declined 0.1 per cent. The Bloomberg China-US Equity Index increased 0.2 per cent on Wednesday.

IPO Concern

New yuan loans plunged to 707.9 billion yuan (S$1.51 billion) in April, compared with the estimate for 903 billion yuan, central bank data showed. M2 money supply growth rose 10.1 percent. Aggregate financing slid to 1.05 trillion yuan from March's 1.18 trillion yuan.

New share offerings may divert funds from existing equities. Subscription for 20 initial public offerings will probably lock up 2.79 trillion yuan of liquidity starting next week, according to the median estimate of 6 analysts surveyed by Bloomberg.

Margin traders increased holdings of shares purchased with borrowed money on Wednesday, with the outstanding balance of margin debt in Shanghai climbing for a third day to 1.26 trillion yuan.

BLOOMBERG