Defense shares help lift index

An investor checks share prices at a securities firm's outlet in Huaibei, Anhui province. The Shanghai Composite Index advanced 1.5 percent to 2,343.58 points on Wednesday, its highest close since March 2013. XIE ZHENGYI/CHINA DAILY

Brokerages get support ahead of Hong Kong exchange link

Stocks rose on the Chinese mainland on Wednesday, sending the benchmark index to its biggest gain in about seven weeks, as a jump in new trading accounts lifted brokerages, and defense companies rallied on speculation of increased State spending.

CITIC Securities Co climbed 3.4 percent, and Changjiang Securities Co advanced by the 10 percent daily limit. Jiangxi Hongdu Aviation Industry Co surged 10 percent.

President Xi Jinping called on the People's Liberation Army to boost its combat readiness, the Xinhua News Agency reported on Monday. China Coal Energy Co rallied 3.8 percent in Hong Kong, leading energy shares higher.

The Shanghai Composite Index advanced 1.5 percent to 2,343.58 points, its highest close since March 2013. Investors opened about 217,000 accounts last week, the most in two years, amid speculation that an exchange link between Shanghai and Hong Kong and government stimulus will boost stocks.

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The 30-day average value of shares traded in Shanghai rose to the highest level since April 2011.

"We are still positive on China," Daphne Roth, head of Asian equity research at ABN Amro Private Banking, which manages about $218 billion, said by phone from Singapore.

The Shanghai Composite has gained 11 percent this year and trades at 8.5 times projected 12-month earnings, while the Hang Seng China Enterprises has declined 0.9 percent and is valued at 6.8 times. The Hang Seng China AH Premium index climbed to 96.81 on Tuesday, its highest level since May 13, signaling a narrowing gap between dual-listed stocks in Hong Kong and Shanghai.

The exchange link with Hong Kong is set to start next month. It will allow a net 23.5 billion yuan ($3.8 billion) of daily cross-border purchases. China is counting on the link's success to help liberalize its financial system, increase the role of the yuan and give its citizens more investment channels amid a slumping property market and increased risks from local wealth management products.

"There are strong expectations for reforms as we approach the start of the Shanghai-Hong Kong link," said Mao Sheng, an analyst at Huaxi Securities Co.

A gauge of financial stocks on the CSI 300 rallied 2.2 percent, the most since Aug 4. Brokerages accounted for all 10 of the biggest movers.

CITIC Securities closed at its highest level since Sept 5, while Changjiang Securities climbed to its highest since March 2011. The number of funded accounts increased by about 158,000 last week, the most since February, after falling to the lowest level since 2010 the previous week, according to official securities data.

Among defense-related companies, Jiangxi Hongdu Aviation extended its advance this year to 59 percent. Hafei Aviation Industry Co climbed 8.1 percent on Wednesday. AVIC Aircraft Co shares were suspended pending an announcement.

The MSCI China Energy Index climbed 1.9 percent, the biggest gain among the broader gauge's 10 industry groups and paring this month's rout to 7.1 percent. China Coal Energy, the second-largest listed mainland producer of the fuel, rose the most in three weeks. Yanzhou Coal Mining Co advanced 2.6 percent.

China, both the world's biggest market for coal and largest carbon-dioxide emitter, is seeking to reduce output at the nation's 14 largest producers after prices slumped amid efforts to moderate economic growth and fight pollution. More than 70 percent of miners are unprofitable, and half are delaying or cutting wage payments, according to the China Coal Industry Association.

"We're probably seeing a technical rebound triggered by speculation the government will come out with measures to help coal producers," said Ben Kwong, a director at KGI Asia Ltd. "There's recent news the government will restrict coal output and imports. That should help reduce stockpiling problems."