(Nov 21): China’s stocks rose, erasing a weekly loss, amid speculation the government is taking steps to prevent a cash crunch before initial public offerings next week.
Industrial & Commercial Bank of China Ltd., the nation’s biggest listed lender, climbed for the first time in five days. Citic Securities Co. and Haitong Securities Co. advanced at least 6 percent to lead a rally for financial companies. Eleven companies will sell IPO shares next week, seven of them on Monday. The new share sales will probably freeze about 1.6 trillion yuan ($261 billion), according to analyst estimates.
The Shanghai Composite Index rose 1.4 percent to 2,486.79 at the close, the most since Nov. 10. Hong Kong’s Hang Seng China Enterprises Index halted five days of losses, adding 0.7 percent. The People’s Bank of China was said to have added money to the banking system as a cash shortage stemming from new share sales drove benchmark money-market rates up the most since July.
“The central bank’s fund injection helps to ease the liquidity pressure during the IPO subscription period and that’s positive for markets,” Dai Ming, a fund manager at Hengsheng Asset Management Co. in Shanghai, said by phone today. “Brokerages’ earnings growth could be pretty fast next year as they are in the process of launching new products.”
The CSI 300 Index surged 1.8 percent, led by financial shares. The Hang Seng Index gained 0.4 percent, led by casino operators and PetroChina Co. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.-listed Chinese companies, retreated 0.2 percent in New York yesterday.
The Shanghai Composite has rallied 18 percent this year as funds flowed into Chinese equities ahead of an exchange link with Hong Kong, which started Nov. 17. The program will allow a net 23.5 billion yuan of daily cross-border purchases.
Rushed Effort
China’s “cumbersome” Qualified Foreign Institutional Investor program will gradually wither away as the exchange link is broadened, Chris Ruffle, fund manager at Open Door Capital Group, said in a newsletter obtained today. The link will be extended to Shenzhen and small-cap stocks, he said.
Stock buying through the exchange link picked up today. Global investors used up 18 percent of their 13 billion yuan daily quota of Shanghai shares through the link. Mainland traders utilized 1.8 percent of the 10.5 billion yuan quota for Hong Kong equities.
“The stock connect program started in a bit of a rush and the situation for the first week is expected that northbound investment is better than southbound,” said Dai. “It seems that institutional investors both domestic and overseas are not active as they are not fully ready for the connect program.”
Cash Crunch
The Shanghai index is valued at 9.1 times projected 12- month earnings, compared with the five-year average multiple of 10.6, according to data compiled by Bloomberg. Trading volumes were 7.5 percent lower than the 30-day average.
The monetary authority supplied funds on a short-term basis, according to two people with direct knowledge of the matter who asked not to be identified. Some 50 billion yuan ($8.2 billion) was offered using Short-term Liquidity Operations, Market News International reported earlier, citing market sources. The PBOC will provide liquidity support through multiple monetary policy tools when necessary, according to a statement today on its microblog.
A sub-index of financial stocks climbed 2.9 percent, the most among the CSI 300’s industry groups. ICBC added 1.4 percent. China Construction Bank Corp. rose 1.2 percent.
The central bank is considering changing the way it calculates banks’ loan-to-deposit ratios, a government official briefed on the matter said, signaling efforts to boost credit as the economy falters.
Brokers Gain
Savings that banks hold for non-deposit-taking financial institutions may be classified as deposits, the person said, declining to be identified as he’s not authorized to speak publicly about the matter. Money that banks lent to such institutions would be classified as loans, according to the official. The changes may take effect Jan. 1.
Citic Securities gained 6.6 percent in Shanghai, while Haitong Securities jumped 8.2 percent. Both stocks advanced at least 3 percent in Hong Kong. China Merchants Securities Co. surged 10 percent in Shanghai.
The government will lower the listing threshold for small companies and remove continuous profit requirements on new listings, Premier Li Keqiang said at a State Council meeting this week. The China Securities Regulatory Commission said it’s preparing to move toward an American-style IPO registration system and may announce a plan by the end of the year. The new framework would ensure issuers meet disclosure requirements, leaving investors to judge if companies are fairly priced.
Energy stocks posted the biggest declines this week in Shanghai amid concern a growth slowdown will curb demand. Yanzhou Coal Mining Co. dropped 5.4 percent in the past five days. The preliminary Purchasing Managers’ Index for November from HSBC Holdings Plc and Markit Economics was at 50.0, trailing the 50.2 estimate of analysts in a Bloomberg survey.