Stocks rise on surging exports

Volume up about 50 percent from a year earlier, new loans hit $92b

SHANGHAI - China's stocks rose the most in more than two weeks as Reuters reported a surge in the nation's exports in May and higher-than-estimated new loans, signaling Europe's debt crisis hasn't derailed economic growth.

Bank of China Co advanced 3.4 percent and Jiangxi Copper Co added 3 percent. Exports grew about 50 percent from a year earlier and new loans were 630 billion yuan ($92 billion), Reuters said, citing three unnamed people who said a government official unveiled the figures at an investor conference on Wednesday. The statistics bureau declined to comment.

The Shanghai Composite Index climbed 2.8 percent to close at 2583.87, reversing a decline of as much as 0.5 percent and set for its biggest gain since May 24. The Shanghai gauge has lost 21 percent this year, Asia's worst performer, on concern policymakers will tighten policy excessively even as Europe's debt crisis slows growth in China's biggest export market.

"If we assume that these numbers are pretty close to what we're going to get, then it's fairly good news for China's recovery and should dispel some of the concerns about a very sharp slowdown in the Chinese economy," said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada.

The CSI 300 Index rallied 3.1 percent to 2782.13, with an index tracking financial stocks surging 4.3 percent, the most since Dec 4, 2009.

The median estimate of 32 economists surveyed by Bloomberg News was for 600 billion yuan of new loans and a 32 percent increase in overseas shipments.

Monetary policy

The loan figure "is far more than our estimates", said Jacky Zhang, stock analyst at Capital Securities. "It shows the government may adopt a relatively easier monetary policy in the second half."

Reuters also reported consumer prices rose 3.1 percent in May, citing the same unnamed people. Economists forecast a 3 percent gain in consumer prices.

Bank of China jumped 3.4 percent to 3.63 yuan, snapping a five-day losing streak. China Citic Bank Corp rose the 10 percent daily cap to 5.51 yuan. Jiangxi Copper Co added 3 percent to 28.39 yuan.

An index measuring financial stocks has tumbled 27 percent this year, the third worst among the CSI 300's 10 industry groups, as the government ordered banks to hold more of their assets in reserve, set a lower lending target for 2010, and drained liquidity through bill sales. Regulators have also restricted mortgage lending and raised down-payment requirements for home purchases.

Lenders have also declined on concern Europe's sovereign debt crisis will harm economic growth and fundraising will dilute shareholders' stakes.

Europe concern

Fitch Ratings said on Tuesday the United Kingdom faces a "formidable" fiscal challenge. Global investors have little confidence in Europe's efforts to contain its debt crisis, a quarterly poll of investors and analysts who are Bloomberg subscribers showed.

Banks have announced plans to raise at least 300 billion yuan by selling shares and bonds to meet tougher financial guidelines after an unprecedented 9.59 trillion yuan of new loans last year weakened their capital.

Agricultural Bank of China Ltd received formal, unconditional approval for its listing in China from the country's securities regulator, Reuters said, citing three unidentified people close to the deal.

China Cosco Holdings Co, the nation's largest container line, added 1.6 percent to 9.89 yuan. PetroChina Co, the country's biggest energy company, advanced 2.1 percent to 10.60 yuan.

Effects of CPI

"Tomorrow, shares may drop when investors get over happiness about the exports and start to consider the effects of higher-than-expected CPI," Monika Yang, who helps oversee $2 billion at Hamon Asset Management Ltd in Hong Kong, said. Accelerating inflation "increases pressure for China government to raise the value of the yuan, which will affect the exports negatively in future, and exports are a huge part of the economy", Yang said.

Besides maintaining one-year benchmark interest rates at crisis levels of 5.31 percent for lending and 2.25 percent for deposits, China has kept the yuan pegged at about 6.83 per dollar since July 2008. Investors buying yuan forwards may begin betting on declines by the Chinese currency against the dollar over the next year as the euro tumbles, according to Royal Bank of Scotland Plc.

The economy still doesn't have a "solid" recovery in domestic demand and must sustain consumer spending growth, the central bank said in a statement on its website on Tuesday. Growth will be affected by the sovereign-debt crisis and trade frictions, the People's Bank of China said.

Europe is China's biggest export destination, making up 20 percent of total overseas sales.

Bloomberg News

(China Daily 06/10/2010 page17)