Markets

Chinese exchanges close higher after recent losses

(China Daily)
Updated: 2011-06-08 13:57

SHANGHAI - Stocks on the Chinese mainland advanced, extending a weekly gain for the benchmark index, on speculation recent losses were excessive relative to earnings prospects.

Shandong Lukang Pharmaceutical Co jumped by the 10 percent daily limit after financial website Hexun.com said antibiotics makers may see higher demand to treat E coli bacteria. CSR Corp, the nation's biggest train maker, climbed after saying profit may increase. Inner Mongolia Baotou Steel Rare-Earth Hi- Tech Co surged 7.2 percent after Guotai Junan Securities Co said rare-earth prices will gain.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, advanced 16.28 points, to 2744.30 at the 3 pm close. The gauge rose 0.7 percent last week, the biggest increase in seven weeks. The CSI 300 Index gained 0.6 percent to 3004.26 on Tuesday. China's markets were shut on Monday for a holiday.

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"The market is still facing uncertainty over monetary policies while inflation won't abate soon," said Dai Ming, fund manager at Shanghai Kingsun Investment Management & Consulting Co. "In this scenario, buying defensive stocks such as pharmaceuticals is a good hedge against economic risks."

The Shanghai Composite has plunged 10 percent from this year's high on April 18 on concern growth in the world's second-largest economy is slowing after the central bank raised the reserve-requirement ratio for banks 11 times and boosted interest rates four times to cool inflation.

A drop of 10 percent or more signals to some investors that the market has entered a correction. The stock gauge has fallen 2.3 percent this year, extending 2010's 14 percent decline.

The central bank may raise interest rates by 25 basis points this weekend and may increase banks' reserve requirement ratios by 50 basis points next week after inflation and other economic indicators are released, the Economic Information Daily reported on Tuesday, citing unidentified analysts. Economic data for May is due on June 14.

Inflation may have accelerated to 5.6 percent last month as a drought drove up food prices, Peng Wensheng, chief economist at China International Capital Corp, wrote in a report dated on Monday. The rate may exceed 6 percent in June, according to the report.

Stocks on the Shanghai Composite trade at about 15.3 times reported earnings, compared with a peak of about 52 times in 2007, according to data compiled by Bloomberg.

Investors should buy China stocks now as valuations are close to bottom and bearishness on the economic outlook is at a high, according to HSBC Holdings PLC.

The bank recommends index-tracking and closed-end funds investing in A shares, as well as financial stocks that trade at a discount to their underlying Hong Kong-listed shares, Steven Sun, China strategist at HSBC, wrote in a report on Tuesday. Sun reiterated a year-end target of 3300 for the Shanghai Composite and that of 3600 for the CSI 300.

A gauge of 15 healthcare stocks climbed 0.8 percent to the highest close in two weeks. Shandong Lukang soared 10 percent to 8.75 yuan ($1.3) and PKU International Healthcare Group Southwest Pharmaceutical Co surged 10 percent to 9.96 yuan.

At least 22 people have died and 2,333 people have fallen ill in the latest European outbreak of E coli, according to the European Center for Disease Prevention and Control.

"Recent media reports of the outbreak would be positive to the valuation recovery of the healthcare industry," Johnson Sun, an analyst at Guotai Junan Securities HK Ltd, wrote in report dated June 3.

CSR gained 3.5 percent to 6.85 yuan. Net income may increase more than 80 percent in the January to June period from a year earlier, the railcar maker said in a statement on June 3.

CSR's operating revenue "increased noticeably", helped by the development of high-speed railways, it said.