China shares rise on no policy tightening

China's main stock index closed 2.92 percent higher on Monday after the government refrained from taking steps at the weekend to cool the economy. The Shanghai Composite Index jumped 1.52 percent at the opening and continued climbing to finish at 4,253.348 points, off an intra-day high of 4,267.740. Gaining Shanghai stocks overwhelmed losers by 788 to 58.
Turnover in Shanghai A shares was 180.7 billion yuan ($23.7 billion), up from Friday's 150.5 billion but lower than levels above 200 billion yuan during May's bull run, indicating that some investors still worried about government action.
The index pulled back slightly late last week after Premier Wen Jiabao said policy would be tightened to restrain the economy. Many investors expected a moderate interest rate hike to be announced last weekend.
The government's decision not to act at the weekend partially eased concern about official action, and many analysts now expect a rate hike in July, giving time for the market to rally before then.
"Investors were relieved as government did not take further tightening steps," said Chen Jiuhong, senior analyst at Haitong Securities. "There was lots of pressure on the market last Friday as you could see turnover slip. Now the pressure is partially removed." Some traders think the index could hit its record intra-day high of 4,335.963 points, posted on May 29, by the end of this month.
Heavily weighted insurance stocks led the index up on Monday, with China Life Insurance gaining 8.97 percent to 40.82 yuan and Ping An Insurance surging its 10 percent daily limit to 71.92 yuan. Banks were also strong, with Merchants Bank up 8.02 percent to 23.98 yuan.
Many traders said there was no obvious fresh news behind the financial sector rally, and investors merely seemed to be focusing on those stocks as laggards compared to other sectors. Some said interest in financials was fuelled by Construction Bank's announcement on Friday of plans for a Shanghai IPO that could raise over $5 billion.
Sichuan Changhong Electric jumped its 10 percent daily limit to 10.92 yuan after Microsoft Corp agreed to pay 94 million yuan for a stake in the company and develop digital home entertainment products with it. The stake is small - under 1 percent - but the alliance could benefit Sichuan Changhong in the long term if successful.
TCL Corp jumped its 5 percent daily limit to 6.57 yuan after saying on Saturday that it would raise up to 2.3 billion yuan in a private placement to fund production of liquid crystal display panels.
Jiangling Motors, partially owned by Ford, jumped its 10 percent daily limit to 16.21 yuan after saying last week it planned to sell 150,000 vehicles annually by 2010, up from 85,214 in 2006. Real-estate stocks were strong, partly because of the yuan's rise to a fresh high against the dollar. Vanke climbed 4.55 percent to 19.97 yuan.
Sources familiar with the situation told Reuters on Monday that China Mobile was planning a Shanghai IPO as early as next month, and was now waiting for Beijing's decision on timing after submitting IPO documents.
It will likely be the biggest initial public offer of equity in China's domestic markets, exceeding Industrial & Commercial Bank of China's 46.6 billion yuan Shanghai IPO last year, the sources said.
Though some analysts believe the government is encouraging big IPOs to cool the market, China Mobile's offer is unlikely to push the market down if investor sentiment at the time remains strong, and could even boost the market further if it attracts fresh fund flows into stocks, traders said.