Equities Take a Benefit from Improving Data

The mainland's stock market surged to its highest level since late June on Monday as investors interpreted positive July economic data as a sign that downside risks had receded.

The benchmark Shanghai Composite Index rose 2.39 percent to 2,102.35 points, with turnover swelling to 116.5 billion yuan (US$19 billion) from 83 billion yuan on Friday.

Leading the rally were coal miners, which represent the main source of energy, and non-ferrous metal companies. These sectors gained 7.86 percent and 4.34 percent, respectively.

China Shenhua Energy Co, the nation's biggest coal producer, rallied 6.1 percent to 17.14 yuan a share.

Jiangxi Copper Co, the largest copper producer, had its biggest gain in a month with a surge of almost 4.5 percent to 17.93 yuan.

Analysts said the rebound in China's official Purchasing Managers' Index and trade data, and subdued inflation readings in July, show the economy has stabilized and is set to recover in the third quarter.

That assessment has lifted commodities, commodity-related currencies and some stocks.

"Prices of commodities and related shares were weak in recent months because of concerns about a slowing economy in China.

"But prices of these assets have strengthened as investors took heart from the upbeat data in July. The latest figures show the economy is picking up, with exports and imports rebounding with a speed above expectations in July," said Zito Ji, an analyst with a mutual fund in Shanghai.

An increase in economic activity in the coming months may boost demand for primary materials, he added.

According to the National Bureau of Statistics, industrial production growth accelerated to 9.7 percent year-on-year in July from 8.9 percent in June. The figure last month was significantly above market expectations of 8.9 percent.

Output growth of major products has quickened, especially steel products, nonferrous metals, power and cement.

Consumer price inflation was 2.7 percent year-on-year in July, unchanged from June.

What's more, the stock market is widely expected to benefit from the injection of capital into the banking sector this month, which is helping boost overall liquidity in the economy.

In the past two weeks, the People's Bank of China has conducted several reverse repurchase operations to inject liquidity.

The seven-day repo rate has declined to below 4 percent, which is read by analysts as a positive signal that the authorities intend to stabilize short-term liquidity and bring down the cost of capital.

"We do see some negative impact from the June inter-bank liquidity crunch on credit availability for the real economy, as evidenced by the sharp fall in corporate bond issuance and bills.

"However, we believe the impact is muted because Premier Li Keqiang's team has taken decisive measures to calm the inter-bank market and to support growth," Ting Lu, an economist with Merrill Lynch wrote in a note on Monday.

Several economists said the bear market for Chinese equities is over and it's a good time to invest.

Media reports said the number of individuals holding more than 100 million yuan worth of domestic shares had increased by 7.8 percent from June to 1,231 by the end of July.

Despite the overall poor performance of equities this year, an index from data provider Wind Information Co Ltd shows culture and media companies rising 78 percent this year.

Explaining the robust rise in coal shares, Dai Bing, director of the coal industry information department at JYD Online Corp, a Beijing-based bulk commodity consultancy, noted developments in Shanxi province.

Shanxi, the nation's traditional coal producer, last week launched new policies to help miners increase production and revenue.

Shanxi's moves will be followed by other coal-producing areas, Dai forecast.