China stocks rise to record highs again

China’s key stock index rose to a record, having taken less than two weeks to rebound from a rout that erased more than $400 billion (Rs16.4 trillion) of market value.

China Merchants Bank Co. and property developer China Vanke Ltd paced gains after policymakers held off from raising borrowing costs. Premier Wen Jiabao last week said monetary policy needs “moderate tightening,” after reports showed inflation is at a two-year high and money-supply growth exceeds the central bank’s target.
Sichuan Changhong Electric Co., the nation’s second biggest television-set maker, was one of the 10 stocks included in the CSI 300 Index to surge by the 10% daily limit after Microsoft Corp. agreed to buy a stake in the company.

The CSI 300 climbed 128.19, or 3.1%, to 4227.57 at the close, with about 90% of the shares included in the measure advancing. It has tripled in the past year, the biggest gain among 90 global benchmarks tracked by Bloomberg.

“Investors keep buying shares as a rumoured clampdown involving measures such as interest-rate increases failed to materialize over the weekend,” said Chen Shide, who manages the equivalent of $212 million at GF Fund Management Co. in Guangzhou. “It can’t be ruled out that the government will still take action.”

The CSI 300, which tracks yuan-denominated A-shares listed on China’s two exchanges, plunged as much as 22% from 29 May’s record close of 4168.29 after the government tripled the tax on securities trades. It took about a month to recoup a single-day loss of 9.2% on 27 February, the biggest slide since the gauge was introduced in April 2005.

Investor interest has waned little since stamp duty was tripled to 0.3%. About 250,000 new securities accounts were opened daily last week, compared with the quarter’s average of some 300,000, official figures show.

Merchants Bank, which has the biggest weighting in the CSI 300, jumped 1.78 yuan, or 8%, to 23.98. Industrial & Commercial Bank of China Ltd, the nation’s No.1 lender, rose 0.09 yuan, or 1.8%, to 5.24. Bank of China Ltd, the second biggest, added 0.07 yuan, or 1.3%, to 5.36.

China Vanke Ltd, the country’s largest listed developer, climbed 0.87 yuan, or 4.6%, to 19.97. Gemdale Corp., a Chinese developer that partnered with ING Groep NV, jumped 3.28 yuan, or 10%, to 36.09. Shanghai Lujiazui Finance & Trade Zone Development Co., a developer in Shanghai’s financial district, gained 1.08 yuan, or 3.7%, to 30.09.
China’s bank regulator has found that eight banks including Bank of China have illegally lent money to companies that used the funds to buy stocks, Capital Week magazine reported. The regulator retracted a 5 June press release on its findings amid concern the news will trigger a market slump that causes borrowers to default on their loans, it said.

China’s securities regulator summoned managers and chief investment officers of 57 mutual funds last week, telling them to refrain from speculating on market rumours for short-term gains, China Business News reported on Monday. Sichuan Changhong Electric jumped by the daily limit after the company announced Microsoft Corp. has agreed to buy 15 million new shares for 94 million yuan ($12 million), or 6.27 yuan each. The shares rose 0.99 yuan to 10.92.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, gained 2.9% to 4253.35. The Shenzhen Composite Index, which covers the smaller one, rose 2.8% to 1257.75.

“The government didn’t raise interest rates over the weekend and that’s bolstering sentiment,” said Yao Maogong, head trader at Shanghai Securities Co.
The People’s Bank of China has raised interest rates twice this year to rein in industrial expansion and tame inflation, with both announcements made over weekends.
It has also ordered commercial banks five times to set aside more money as reserves to curb lending.

Even so, bank savings rates trail inflation, helping steer funds in to stocks.
Household yuan deposits fell by 278.4 billion yuan in May, after sliding in April for the first time since February 2003. Commercial banks’ deposit rates are capped at the central bank’s one-year deposit rate of 3.06 %, less than the 3.4% inflation rate.