Chinese Equities Advance as Material Producers Rally

Chinese stocks rose for the fourth time in five days as commodity producers, consumer discretionary companies and property developers rallied.

A gauge tracking materials producers climbed 2.4 percent from its lowest level since November 2008, as Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. jumped 7.1 percent. Gree Electric (000651) Appliances Inc. led an advance by appliance companies after Goldman Sachs Group Inc. recommended the shares. China Vanke Co., the nation's largest developer, surged 3.6 percent.

The Shanghai Composite Index (SHCOMP) added 0.6 percent to 2,006.10 at the close, after gaining 1.4 percent and falling 1 percent during the day. More than three stocks advanced for each that dropped. The CSI 300 Index rose 0.8 percent to 2,221.98. The Hang Seng China Enterprises Index climbed 1.5 percent after plunging 3.3 percent yesterday.

"There are some investors that may want to buy now, prices are cheap," said Qian Weihai, an analyst at Shanghai Securities Co. "But most people remain cautious, hence the fluctuations between gains and losses over the past few sessions."

The Shanghai Composite has tumbled 12 percent this year and the Hang Seng China has slumped 21 percent as data from industrial production to exports pointed to a sustained slowdown in the economy. Stocks also fell as overnight money-market rates rose to record highs before retreating. The Shanghai index trades at 8.2 times 12-month projected profit, after reaching the cheapest level in at least five years last week, data compiled by Bloomberg show.

Rare Earth

A gauge tracking materials producers rose, paring its 2013 decline to 29 percent. Baotou Rare-Earth (600111), China's biggest producer of rare earth advanced to 21.40 yuan after closing at its lowest level since January 2012. Qinghai Salt Lake Industry Co. jumped 8.7 percent to 18.09 yuan, its biggest gain in more than a year.

Premier Li Keqiang said fiscal funds should be used to redevelop shanty towns and improve basic infrastructure, the State Council said in a statement yesterday. Money should also be allocated to transform the structure of the economy to focus more on domestic consumption, according to the statement.

Energy stocks advanced 1.6 percent on the index. China Shenhua Energy Co. climbed 2.9 percent to 17.20 yuan, its biggest gain since Dec. 14. Yanzhou Coal Mining Co. advanced 2.9 percent to 9.44 yuan.

Gree Electric jumped 3.9 percent to 25.77 yuan. Hisense Electric Co. soared 3.8 percent to 11.59 yuan. Goldman Sachs upgraded Chinese consumer stocks to overweight, saying the companies have "better earnings visibility" and will "benefit more" from government efforts to boost consumption.

Stock Targets

Goldman Sachs also cut their CSI 300 year-end target to 2,380 from 2,800, according to a report dated July 2. The brokerage forecast the index will reach 2,600 for the first half of 2014.

China Vanke increased to 9.80 yuan. A property gauge rose 2 percent, paring its loss for this year to 16 percent.

The country's benchmark money-market rate dropped for a 10th day, the longest stretch in almost 14 months, as the central bank refrained from draining funds from the financial system in the wake of the worst cash crunch on record.

The seven-day repo rate fell 32 basis points, or 0.32 percentage point, to 3.91 percent, according to a weighted average compiled by the National Interbank Funding Center. A daily fixing averaged 6.81 percent last month, the highest in data going back to the start of 2004.

Service Industries

An official report yesterday showed expansion in service industries slowed, underscoring Li's challenge in achieving sustainable growth through increasing consumption and reducing reliance on exports and investment. Service industries accounted for 45 percent of gross domestic product last year, according to the statistics bureau, up from 41 percent in 2003.

China may have difficulty reaching its growth target this year, 21st Century Business Herald reported, citing Fan Jianping, chief economist at the State Information Center.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. slipped 0.6 percent yesterday, while the iShares FTSE China 25 Index Fund (FXI), the largest Chinese exchange-traded fund in the U.S., slid 0.9 percent in a third day of declines.