SHANGHAI (BLOOMBERG) - China's stocks climbed for a second day as speculation the government will accelerate mergers among state-owned enterprises overshadowed worse-than expected economic data.
The Shanghai Composite Index climbed 1.8 per cent to 3,812.02 at 10:13 a.m. local time. China is considering combining China Shipping Group and Cosco Group, its two major shipping companies, according to people familiar with the matter. Producer prices fell in July to the lowest level since 2009 and exports dropped more than expected, data over the weekend showed. The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong slid 0.7 per cent.
"State-owned enterprise mergers are an investment theme that's quite certain and there are signs that the move will speed up," said Li Jingyuan, a general manager at Shanghai Zhaoyi Asset Management, who is adding to his stock holdings. "Foreign investors pay more attention to economic data and fundamentals, while local investors are more sensitive to policies. That's why we see the divergence of the two markets."
The CSI 300 Index rose 2 per cent. The Hang Seng Index slipped 0.7 per cent. Trading volumes in the Shanghai Composite were 15 per cent lower than the 30-day average for this time of day.
The Shanghai gauge has rebounded 8.7 per cent since the July low as authorities took unprecedented measures to shore up markets including banning stake disposals by major shareholders, suspending initial public offerings and compelling state-run institutions to support the market with equity purchases.
China CSSC Holdings Ltd. and China Shipbuilding Industry Co. surged more than 7 per cent, leading gains among industrial companies. The government may combine China Shipping Group and COSCO Group or merge some of their operations, according to the people, who asked not to be identified because the deliberations aren't public. The two companies' listed units including China Shipping Development Co. and China Cosco Holdings Co. were suspended from trading on Monday.
The producer-price index fell 5.4 per cent year on year last month, according to the National Bureau of Statistics. The drop, which exceeded the median estimate for a 5 per cent decrease, extends declines to 41 straight months. The consumer-price index increased 1.6 per cent, as a surge in pork prices offset sluggish growth in the cost of non-food items.
Exports fell 8.3 per cent from a year earlier in dollar terms, the customs administration said. The reading was four times more than the estimate for a 1.5 per cent decline in a Bloomberg survey and compared with an increase of 2.8 per cent in June. Imports dropped 8.1 per cent, widening from a 6.6 per cent decrease in June. Data on industrial production and retail sales are due on Wednesday.
In Hong Kong, PetroChina Co. and China Petroleum & Chemical Corp., the biggest Chinese refiners, slumped at least 1.6 per cent. Guangzhou Automobile Group Co. declined 1.5 per cent.
Margin traders increased holdings of shares purchased with borrowed money on Friday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising by 0.7 per cent to 845.6 billion yuan (S$188.6 billion).
The median stock on mainland bourses trades at 66 times reported earnings, higher than any of the world's 10 largest markets, according to data compiled by Bloomberg.