Markets

China equities in longest rally for 11 months

By Zhang Shidong (China Daily)
Updated: 2010-10-16 10:42

SHANGHAI - China's stocks rose for a seventh day, capping the longest rally in 11 months, as economic growth spurs higher fund flows into the country and improving earnings prospects bolster the nation's lenders.

Industrial & Commercial Bank of China Ltd (ICBC), and China Construction Bank Corp led gains for lenders after Citigroup Inc said Chinese banks will report "solid" earnings growth in the third quarter. Air China Ltd rose to a two-year high after the yuan gained to a record, reducing the cost of financing the airline's dollar debt. Citic Securities Ltd jumped 9.6 percent, capping a 32 percent rally for the week, on speculation surging trading volumes will boost revenue.

"Big-cap stocks with low valuations will be the next beneficiary of the catch-up amid the very ample liquidity environment," said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co, which oversees $285 million.

The Shanghai Composite Index gained 91.52, or 3.2 percent, to 2971.16 on Friday - that's the most since May 24, and the longest winning streak since the eight days to Nov 10, 2009.

The measure has risen 8.5 percent this week, the most since Feb 6, 2009, after the markets were shut last week for a holiday as global stocks rallied. The CSI 300 Index added 3.2 percent to 3327.68 on Friday, led by financial companies.

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The Shanghai gauge has rebounded 26 percent from the 2010 low on July 5, surpassing the threshold some investors consider the beginnings of a bull market, on signs that growth will remain resilient.

However, the measure is still down 9.3 percent this year as government efforts to cool the economy and avert asset bubbles helped drag the gauge down 27 percent in the first half.

Foreign direct investment in China increased in September, underscoring confidence in the outlook for the fastest-growing major economy. Direct investment gained 6.1 percent in September from a year earlier to $8.38 billion, the Ministry of Commerce said. Foreign investment for the first nine months rose 16.6 percent to $74.34 billion, it said. The Conference Board's leading economic index for China rose 0.7 percent to 149.9 in August, the New York-based research organization said.

China's banks will exhibit "solid" earnings growth in the third quarter when they report on the week of Oct 25, according to Citigroup Inc, which says the nation's lenders may report 32 percent profit growth on average for the third quarter.

Citigroup has an "overweight" on China's banks versus regional lenders.

UBS AG said it expects a "lot more" foreign capital inflows to China because of quantitative easing as investors seek higher returns and gains from yuan appreciation.

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