Stock market soars amidst policy optimism
(bloomberg)
Updated: 2005-06-08 12:05

China's Shanghai Composite Index soared to its biggest gain in three years as investors bet the government will introduce more measures to bolster investor confidence after the benchmark slumped to an eight-year low.

A stock investor smiles at a securities office in Shijiazhuang, Hebei Province as the market soared to its biggest daily gain in three years June 8, 2005. The Shanghai index closed at at 1,115.58 points, up 84.64, or 8.2 percent Wednesday. [newsphoto]

China Petroleum & Chemical Corp., or Sinopec, China Yangtze Power Co. and Baoshan Iron & Steel Co. led gains by the nation's biggest companies by market value.

"It is a policy-driven market in China and investors are placing bets on the regulatory side," said Rico Cheung, who manages the equivalent of $157 million with China International Fund Management Co. in Shanghai. ``Investors believe more incentives are now in the pipeline.''

The Shanghai index tracking yuan-denominated A shares and foreign-currency B shares, surged 84.64, or 8.2 percent, to close at 1115.58, the biggest gain since June 24, 2002, and its highest since May 11.

The government wants to bolster stocks in a bid to limit losses at the nation's brokerages, burdened with about $24 billion of debt, according to the Securities Analysts Association of China. Slumping share prices are also hampering the government's plans to sell some of about $240 billion of state stock holdings to meet a pension shortfall.

Investors react as the benchmark Shanghai composite index dropped below 1,000 points in this June 6, 2005 photo at a securities company in Nanjing, capital of east China's Jiangsu Province. [newsphoto]

China's stock indexes are the worst performing of the 79 tracked by Bloomberg worldwide over the past 12 months, with the Shanghai Composite down 25 percent and Shenzhen benchmark by 29 percent.

Signals

Yangtze Power, operator of the world's biggest hydropower project, surged 0.63 yuan, or 8.1 percent, to 8.39 after the Beijing Morning Post said shareholders will get free stock as part of a plan to trim non-tradable state-owned shareholdings. The government yesterday said companies will be allowed to buy back stock to boost their shares. A day earlier, the regulator called on investment funds to support the stock market.

Shareholders of Yangtze Power will get two free shares after the company was picked to take part in the second round of sales of non-tradable stock, the Morning Post reported today, without saying where it obtained the information. Company Secretary Fu Zhenbang denied the report.

The government is offering compensation for converting its non-tradable holdings in companies. Non-tradable shares include stock held by municipal, provincial and central governments, and so-called "legal person" shares held mostly by state-owned companies.

Concern that the state will flood the market with excess stock has helped fuel the slide in share prices.

"Letting bigger companies involved in the trial sales program is what we have been expecting from the regulators," said Zhang Xuejun, who manages the equivalent of $622 million with Guotai Junan Allianz Fund Management Co. in Shanghai.

Sinopec

Sinopec, Asia's biggest oil refiner, surged 0.33 yuan, or the 10 percent daily limit, to 3.58.

Baoshan, the listed unit of China's biggest steelmaker, gained 0.42 yuan, or 8.9 percent, to 5.15. China Yangtze, Sinopec and Baoshan account for 17 percent of the Shanghai Index.

The government on May 9 picked four companies in the first stage of a program aimed at disposing of non-tradable shares, which account for about two-thirds of China's $360 billion market capitalization.

The China Securities Regulatory Commission said yesterday companies which are listed for at least a year can buy back publicly traded shares to reduce registered capital. Share buybacks would raise earnings per share by reducing the amount of outstanding stock.

Denied Reports

Stocks also gained after China International Capital Corp., the country's biggest investment bank, denied media reports it had forecast a further decline in mainland shares. ``We have never published any analysis report on the specific forecast of the index movement,'' said CICC in a statement e-mailed to Bloomberg News.

The media reports had undermined the company's reputation, misled investors and hurt market confidence, said the statement.

Elsewhere, China Eastern Airlines Corp., the nation's third- largest carrier by fleet size, advanced 0.21 yuan, or 7.2 percent, to 3.13.

The nation's third-largest carrier by fleet size said it plans to sell 2 billion yuan ($242 million) of short-term bills, which offer cheaper borrowing rates than banks. Shareholders will vote on the debt sales plan on June 30.

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