Stocks bounce back after four-day slump

08:34, November 19, 2010      

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China's stocks rose, rebounding from a four-day, 9 percent plunge that left stocks trading at the cheapest in five weeks, even after the government proposed temporary price caps to tackle inflation.

Yanzhou Coal Mining Co and Jiangxi Copper Co climbed more than 2 percent as energy and metal companies gained. Air China Ltd rose the most in two weeks, leading an advance for airlines on prospects for a stronger yuan. Beijing Sanyuan Foods Co paced declines for milk producers on concern government plans to impose price controls will hurt earnings.

The Shanghai Composite Index gained 0.94 percent to 2865.45 at the 3 pm close on Thursday. The CSI 300 Index rose 1.42 percent to 3147.96 on Thursday.

The Shanghai gauge has lost 9.3 percent since reaching a seven-month high on Nov 8 on speculation the government will raise interest rates and introduce price controls to slow inflation that grew at the fastest pace in two years in October. Stocks traded at an average 18.2 times reported earnings on the Shanghai measure at Wednesday's close, the lowest since Oct 11, according to data compiled by Bloomberg.

China in January 2008 temporarily froze prices for oil products, natural gas and electricity, as well as daily goods and school and transportation fees, to counter inflation that surged to the fastest pace in more than a decade. Shanghai's stock index plunged in 2008 after peaking in October 2007.

"It seems China's focus is more on specific administrative controls rather than broad-based measures," said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd, which manages about $85 billion. "If they're specifically targeting sectors where there a problem, investors will be a little less worried that it's going to crunch the whole economy. That's what giving the market a bit of a bounce."

Yanzhou Coal rose 2.8 percent on Thursday, climbing from a four-week low. Jiangxi Copper gained for the first time in five days, rising 2.9 percent on Thursday. Yuan forwards rose on speculation China's central bank will raise interest rates this year to help tame the fastest inflation in two years. Twelve-month non-deliverable forwards rose 0.2 percent to 6.4761 per dollar on Thursday. Air China climbed 2.6 percent on Thursday. SAIC Motor Corp paced gains for automakers, rising 4.9 percent on Thursday.

Among consumer staples, Tsingtao Brewery Co fell 0.3 percent on Thursday. Chongqing Brewery Co lost 1.2 percent on Thursday.

"The government has said very clearly it won't tolerate rapid price increases in basic necessities," said Wu Zhengwu, a Shanghai-based analyst at AJ Securities Co. "Food and beverage stocks will come under pressure in the near term."

The Shanghai gauge has rebounded 21 percent since reaching this year's low on July 5 on expectations central banks around the world will inject more cash into their economies to boost growth. The index remains down 13 percent this year after the government raised bank reserve requirements and curbed lending growth to cool the economy.

Source:China Daily


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