Markets

Automakers drive stock indices higher

By Irene Shen and Zhang Shidong (China Daily)
Updated: 2011-01-29 10:12

Models pose with SAIC's Roewe 550 car at an auto show in Shanghai. On Friday, shares in SAIC Motor Corp surged to the highest level in two months. [Photo / China Daily]

SHANGHAI - Stocks on the Chinese mainland rose, capping the benchmark index's biggest five-day gain in six weeks. That advance came as automakers and industrial companies rallied on speculation their shares are undervalued given the prospects for earnings growth.

SAIC Motor Corp surged to the highest in two months after Citic Securities Co and China International Capital Corp recommended automakers because of their valuations. A gauge of industrial stocks posted its steepest weekly gain since November. China Vanke Co and China Construction Bank Corp led losses for developers and lenders after two cities announced property taxes.

"Valuations for some sectors are at an historical low, bringing buying opportunities at the moment," said Deng Changrong, a strategist at Huaxi Securities Co in Shenzhen. "Some investors are taking the chance to build up their strategic portfolios."

The Shanghai Composite Index added 0.13 percent to 2752.75 at the 3 pm close on Friday. The CSI 300 Index rose 0.34 percent to 3036.74.

China's stocks are at a "valuation bottom" as the introduction of property taxes and increases in downpayments for second-home purchases have removed short-term policy uncertainty, according to Citic Securities.

The Shanghai Composite trades at between 14 times and 15 times earnings, a level that's equal to when the gauge dropped to a low of around 1,700 amid the financial crisis in 2008, Citic analysts led by Xi Feng wrote in a report on Friday. The brokerage recommends low-valuation stocks such as automakers and manufacturers of electrical appliances.

SAIC, China's largest automaker by market value, jumped 3.65 percent to 17.33 yuan ($2.63), its highest close since Nov 26. FAW Car Co climbed 4.22 percent to 17.05 yuan on Friday.

China International Capital Corp favors "leading companies" such as SAIC as valuations drop below 10 times estimated earnings for 2011, close to the low end of the historical average, analysts led by Chen Pengyang said.

Sany Heavy Industry Co rose 6.76 percent to 21.65 yuan on Friday.

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A gauge tracking banks and developers in the CSI 300 Index slid 0.6 percent on Friday and gained 0.1 percent for the week, the worst performer among the industry groups, after the government announced tighter controls on property investment and lending.

China Vanke declined 0.48 percent to 8.26 yuan on Friday. Poly Real Estate dropped 1.21 percent to 13.08 yuan.

China said on Wednesday that it will raise the minimum downpayment for second-home purchases to 60 percent from 50 percent and told local governments to set price targets for new properties.

Industrial and Commercial Bank of China Ltd, the world's largest bank by market value, lost 0.71 percent to 4.21 yuan on Friday. China Construction Bank Corp slid 1.06 percent to 4.66 yuan.

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