Money

Mainland stock rise extends into 6th day

By Zhang Shidong (China Daily)
Updated: 2010-10-15 09:39

SHANGHAI - The mainland benchmark stock index rose for a sixth day as investors shifted funds to financial companies on improving earnings prospects from so-called defensive companies, including producers of consumer staples.

Citic Securities Ltd, among the top 10 biggest losers on the Shanghai Composite Index this year, jumped 6.3 percent as share trading volumes on China's exchanges surged. Huaxia Bank Co gained 1.3 percent after forecasting higher profit.

"Abundant liquidity globally and a more optimistic outlook for the economy and corporate profits will push stocks higher," said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co.

"Risks are rising for small caps with high valuations, such as consumer and pharmaceutical stocks, as money keeps flowing to cheaper, cyclical big-cap shares."

The Shanghai Composite added 18.28, or 0.64 percent, to 2879.64 on Thursday, set for the highest close since April 28. The CSI 300 Index rose 0.2 percent to 3224.14 on Thursday.

Investors traded an average of 25.1 billion shares a day on China's two exchanges since markets reopened on Friday following a weeklong holiday. That compares with the daily average of 14.3 billion shares this year, according to data compiled by Bloomberg.

Royal Bank of Scotland Group Plc (RBS) turned bullish on China's stocks, boosting allocations to "overweight" from "underweight". Relative valuations and liquidity conditions have become more attractive, Emil Wolter, the Singapore-based head of Asian regional strategy at RBS, said in a note to clients.

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Banking stocks are valued at 10.8 times earnings for 2010, representing a 35 percent discount to other large-capitalization stocks, such as energy companies, analysts led by Zhu Yan at Citic Securities wrote in a report on Thursday. Banks may report a 31 percent earnings increase for the first three quarters, the report said.

Mainland stocks are in a "solid bull market" and the nation's indexes may rise 20 percent in the next six months, according to Robert Lutts, president and chief investment officer of Cabot Money Management.

"I like growth in the economy. I like valuations, and I think profitability will be very strong," Lutts, based in Salem, Massachusetts, wrote in e-mailed comments. "I now have a large weighting in China."

The mainland stock rally may falter as the Shanghai Composite faces "risk" at the 3000-level, according to Chart Partners Group Ltd.

Hang Seng gains

Hong Kong stocks rose as commodity producers climbed on higher oil and metal prices and as lenders gained for a second day after mainland bank loans increased.

The Hang Seng Index rose 1.68 percent to 23852.17 on Thursday, headed for its highest close since June 2008. The Hang Seng China Enterprises Index of H shares of mainland companies advanced 2.06 percent to 13575.95 on Thursday.

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