China Stocks Rise to 2-Week High on Buyback Rules, U.S. Bailout

By Chua Kong Ho

Sept. 22 (Bloomberg) -- China stocks surged to a two-week high after the securities regulator said it may make it easier for companies to buy back shares and the U.S. government unveiled a $700 billion debt rescue plan.

Bank of China Ltd., the nation's third-largest lender, and Citic Securities Co. both surged by the daily 10 percent maximum for a second day. China Life Insurance Co. and Ping An Insurance (Group) Co., the country's two biggest insurers, also climbed by 10 percent.

``The stock buyback news sends a strong signal that the government is willing to support the market, while the U.S. rescue assured investors that the global crisis may be contained,'' said Michelle Qi, a Shanghai-based portfolio manager at Bank of Communications Schroder Fund Management, which oversees about $790 million. ``We have increased our equity allocation.''

The CSI 300 Index, which tracks yuan-denominated shares traded in Shanghai and Shenzhen, rose 134.50, or 6.5 percent, to 2,207.61, its highest close since Sept. 4. The measure has lost 59 percent this year, making it the worst performing major benchmark index, as government measures to control inflation hurt economic growth and corporate profits.

The CSI 300 Index's gain today was the most of any benchmark index in Asia today. The measure was valued at 14.8 times earnings at the end of last week, the lowest since December 2005, according to Bloomberg data. All 10 industry groups advanced on the gauge today, with 276 of the 300 constituents posting gains.

``Valuations have reached new lows and the A-share markets now possess investment value,'' according to a report from Nanjing-based Huatai Securities Co. today.

Global Rescue

China is joining other governments and central banks in acting to prevent a collapse in global financial markets. The U.S. Treasury proposed buying $700 billion of bank assets to avert a financial meltdown, while regulators in Australia followed their counterparts in the U.S. and U.K. banning short selling. The Bank of Japan added 1.5 trillion yen ($14 billion) to its financial system in a fifth day of fund injections.

Chinese companies can start the buyback process after two- thirds of shareholders approve it, and disclose details the next working day without seeking prior approval from the China Securities Regulatory Commission, according to a statement of the draft rules posted on its Web site yesterday. The regulator is seeking public feedback on the draft rules until Sept. 28.

Banks Advance

Last week, the government cut interest rates for the first time in six years, allowed most banks to set aside smaller reserves and scrapped a tax on equity purchases. Central Huijin Investment Co., a unit of China's sovereign wealth fund, said it will increase its stakes in the three largest lenders, while the agency overseeing state assets said it supported stock buybacks by state companies.

Bank of China rose 10 percent to 3.70 yuan. China Construction Bank Corp. rose 10 percent to 4.61 yuan. Industrial & Commercial Bank of China Ltd. jumped 10 percent to 4.16 yuan. Citic Securities also advanced by the daily limit to 19.67 yuan.

China Life added 10 percent to 22.96 yuan, while Ping An added 10 percent to 37.10 yuan.

The Shanghai Composite Index rose 7.8 percent to 2,236.41, while the Shenzhen Composite Index advanced 3.8 percent to 618.34.

To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net