China Stocks Rise to One-Month High on Financial Reform Outlook

China's benchmark stock index rose to a one-month high after the central bank elaborated on plans to loosen controls on financial markets. Chinese equities in Hong Kong rallied for a fifth day to erase losses for the year.

Haitong Securities Co. and China Construction Bank Corp. led gains for brokerages and lenders in Shanghai. Air China Ltd. and China Southern Airlines Co. surged more than 3 percent in Hong Kong and Shanghai after the Shanghai Securities News reported the government may issue airspace-management rules. China Life Insurance Co. rose to a nine-month high in Hong Kong after Citigroup Inc. said its earnings may exceed estimates.

The Shanghai Composite Index (SHCOMP) advanced 0.6 percent to 2,206.61 at the close, the highest since Oct. 22. The Hang Seng China Enterprises Index (HSCEI) rose 0.6 percent to 11,437.44 for a five-day, 11 percent gain, the biggest such advance since October 2011. The central bank's plans include a wider trading band for the yuan and the removal of investment caps for foreign money managers, central bank Governor Zhou Xiaochuan wrote in an article. Accelerating yuan convertibility was among key reform proposals decided at a meeting of the Communist Party, which plans to achieve the target by 2020.

"The end of the intervention in the currency market could attract more funds into Chinese shares and boost liquidity," said Zhang Yanbing, analyst at Zheshang Securities Co. in Shanghai.

Widening Gap

The CSI 300 Index advanced 0.5 percent to 2,424.85. Trading volumes on the Shanghai index increased 1.9 percent above the 30-day average, according to data compiled by Bloomberg. The Shanghai index has fallen 2.8 percent this year as slowing growth curbed corporate earnings. The measure trades at 8.7 times projected profit, compared with the five-year average multiple of 12.5, Bloomberg data showed.

China's largest package of economic reforms since the 1990s is getting a bigger vote of confidence from foreign investors than from the nation's own citizens. The H-shares gauge has jumped 6.2 percent, more than twice the Shanghai gauge, since policy makers led by President Xi Jinping pledged to ease the one-child policy and liberalize interest rates on Nov. 15. That left mainland shares valued at a 5.8 percent discount, the most in three years, according to the Hang Seng China AH Premium Index.

Foreign investors are less bearish because China's new policies will make long-term economic growth more sustainable, said Chen Li, a strategist at UBS AG in Shanghai.

Yuan Reform

China Construction Bank, the nation's second-biggest lender, rose 0.9 percent to 4.38 yuan. Haitong Securities, the second-largest listed brokerage, added 1 percent to 11.58 yuan.

The People's Bank of China will "basically" end normal intervention in the currency market and broaden the yuan's daily trading limit in an "orderly way," Zhou wrote in an article in a guidebook explaining reforms outlined last week following a Communist Party meeting. Quotas under the Qualified Foreign Institutional Investor program will be expanded and then scrapped, he wrote.

Liberalization of interest rates was also among the key reform proposals decided on at the Third Plenum and published by the official Xinhua News Agency on Nov. 15. China is reforming its policies in an effort to bolster an economy that's heading for its weakest annual expansion since 1999.

China Life Insurance advanced 0.6 percent to HK$24.35, capping a 19 percent jump over five days. Ping An Insurance gained 2.2 percent to HK$71.40. China Life's fundamentals have bottomed and its earnings may surprise "on the upside" in the second half of this year, Citigroup analyst Darwin Lam wrote in a note dated yesterday after the insurer's management spoke at financial conference.

More Upside

"Despite a notable share price rebound of late, we believe China Life still offers good relative value and remains quite under-owned by investors," Lam, who has a buy rating on stock, wrote. China Life's shares were also upgraded at Bank of America Corp. and China International Capital Corp.

A measure of industrial shares in the CSI 300 gained 1.3 percent for the second-steepest advance among 10 industry groups. Air China, the biggest international carrier, gained 3.5 percent in Shanghai and 3.7 percent in Hong Kong, while China Southern, the largest domestic carrier, advanced 3.6 percent in Shangahi and 6.3 percent in Hong Kong.

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Shanghai Securities News reported China may issue airspace management rules as early as the end of this year. Air China and other carriers have expanded their fleets as economic growth spurs travel demand in China, where the air force allots only 20 percent of air space to civil aviation. Traffic congestion is set to worsen as the nation's commercial aircraft fleet is projected to double in the next seven years.

The Bloomberg China-US Equity Index slid 0.3 percent in New York yesterday, while the db X-trackers Harvest CSI 300 lost 1.5 percent. S&P Dow Jones Indices is starting an exchange-traded fund that will allow traders in China to invest in the Standard & Poor's 500 Index.