China's Shanghai Composite Surges 9.3%

Hong Kong also rises, but other markets are subdued.
Author:
Publish date:

Stocks in China soared 9.3% Thursday as a reduction in the stamp duty heartened mainland investors and a rise in crude oil buoyed sentiment about commodity stocks.

China's Shanghai Composite Index rocketed 305 points to 3583.03, propelled by major buying in liquid red chips such as

Aluminum Corp. of China

(ACH) - Get Report

and

PetroChina

(PTR) - Get Report

. Shares in Hong Kong took the cue, though the Hang Seng was more subdued, rising 392 points, or 1.6%, to 25,680.78.

Shares rose in line with big gains in ADRs, as Chinese officials announced after market close Wednesday that they were reducing the tax paid on share purchases to 0.1% from 0.3% previously. The change takes effect on Sunday.

"The cut in stamp duty is more symbolic than anything else. The saving is nothing, but the government wanted to convey the message to investors that they do care about investor interests," says Richard Lee, an analyst at Core Pacific Yamaichi in Hong Kong. "When A-shares are doing well, the Hong Kong H shares follow."

In China, many shares reached the maximum daily allowed limit of 10% gains before the close and finished near those levels. Aluminum Corp. of China surged 10% to 22.57 yuan, and PetroChina climbed 9.9% to 18.15 yuan.

Among financials,

Bank of China

(BACHF)

gained 9% to 5.21 yuan, and insurer

Ping An

(PIAIF)

soared 10% to 66.78 yuan.

China Life Insurance

(LFC) - Get Report

also closed at the maximum percentage high, at 32.87 yuan. Investors are bullish about insurance companies since the announcement that banks will be allowed to invest some of their excess liquidity in the sector.

In Hong Kong, telcos ended higher after news circulated around hedge fund dealing floors that Beijing will form a preparatory committee to review the restructuring process of China's telecom industry.

China Mobile

(CHL) - Get Report

rose 0.8% to HK$136, despite early sluggishness in the stock.

China Netcom

(CN) - Get Report

, which is expected to be the largest beneficiary of the restructuring process, rose 3.7% to HK$23.65.

Many observers have recently speculated that a pullback could be coming in market leaders such as China Mobile and

Baidu.com

(BIDU) - Get Report

, which have both surged in the past month. Lee, however, says that such shares are unlikely to decline in the event of a further rise in Chinese equities.

"If the market keeps going up, these are the shares that will lead the way. These shares are truly, truly, the market leaders," Lee says. "If they are not doing well, the market can't be doing well."

Gold miners mostly underperformed as the commodity remained little changed in Singapore trading, at $904.54 an ounce. The day before, it fell below $900. Still,

Zijin Mining

(ZIJMF)

climbed 4.6% to HK$7.92, as investors continued to buy the stock on an inflation-related trade where it is paired with

Yanzhou Coal Mining

(YZC)

.

Yanzhou Coal ended 6.1% higher at HK$14.38 after a large buyer snatched up shares before the close. Dealers believe the same fund has been progressively buying shares since Monday, when the company announced better-than-expected earnings.

Market volume in Hong Kong was substantial, at HK$130 billion ($16.7 billion), nearly double last week's average and three times that week's thinnest trading day.

Despite more weakness in the yen, Japanese investors shrugged off the buying frenzy in China. After opening up, the Nikkei fell 38.3 points, or 0.3%, to 13,540.87. The yen weakened to 103.60 by the end of Asian trading from 103.46 previously.

Nintendo

(NTDOY)

declined 0.7% to 58,200 yen on profit-taking that came after it announced record earnings for 2007. The maker of the Wii console said its net profit increased by 48% to 257.34 billion yen ($2.5 billion), after sales leaped 73%.

Other exporters rose a bit.

Canon

(CAJ) - Get Report

gained 0.6% to 5,170 yen, and

Honda

(HMC) - Get Report

climbed 0.9% to 3,210 yen.

Elsewhere in Asia, markets were mostly weak, as foreign buying was concentrated on Chinese stocks. Taiwan's Taiex fell 0.2% to 8990.33, and South Korea's Kospi lost 0.1% to 1799.34. In India, the Bombay Sensitive Index ended up 0.1% at 16,721.08.

Be sure to check out the Far East Portfolio at Stockpickr.com to find out which Indian and Chinese companies are making big moves and announcing major news.

Daniel M. Harrison is a business journalist specialising in European and emerging markets, in particular Asia. He has an MBA from BI, Norway and a blog at

www.theglobalperspective.biz

. He lives in New York.