Chinese main index climbs

Chinese main stock index climbed almost 2 percent to a fresh record high on Thursday as financials and other large-cap stocks surged, while steel and base metals recovered from a tumble on Wednesday. Investors were encouraged by the continued strength of Industrial & Commercial Bank of China, which gained 2.67 percent in heavy trade to a record close of 6.54 yuan after soaring 9.83 percent on Wednesday.
The rise of ICBC, which is China's biggest bank and accounts for about 9 percent of the Shanghai market's capitalisation, prompted buying throughout the financial sector and among other large-cap blue chips. Traders suspect ICBC's leap was triggered by institutions which aimed to keep the market's bull run going by boosting the index.
But many local analysts say ICBC, which last month estimated its net profit ballooned more than 50 percent for the first half of this year, remains undervalued compared to other Chinese banks. So money continued to pour into the stock on Thursday.
The Shanghai Composite Index closed up 1.95 percent at 4,754.095 points, its fifth straight record high close, bringing its gains from the July low to 33 percent. Earlier on Thursday, it set an intra-day record of 4,768.886.
Gaining Shanghai stocks outnumbered losers by 541 to 297, though turnover in Shanghai A shares shrank further to 136.8 billion yuan ($18.1 billion) from Wednesday's moderate 157.4 billion. "It looks like the index may stay volatile as it rises on strong profit announcements in the near term. I don't foresee any major pull-back in August, though the market may face a correction in the medium term," said Li Wenhui, analyst at Huatai Securities.
Thursday's jump boosted the combined capitalisation of the Shanghai and Shenzhen stock exchanges to 21.14 trillion yuan, or 90 percent of China's forecast Gross Domestic Product in 2007, when the economy is expected to grow 11 percent, according to Reuters calculations.
That means the ratio of China's stock market capitalisation to GDP is now roughly in line with the rest of the world - Credit Suisse estimated in a report in late 2006 that the international average was 85 percent. At the end of 2006, China's stock market was only 42 percent of its GDP that year. July inflation data is due next Monday and the headline figure is now widely rumoured to be 5.6 percent, up sharply from June's 4.4 percent and economists' forecasts of 4.9 percent.
But the market's ability to digest this rumour over the past two days without much difficulty suggests even bad data for July might not affect stocks much, analysts said.
"At most, there may be a mild correction if inflation is significantly above expectations. But I think the market has largely absorbed these expectations for a high inflation rate," said Li. Among financial stocks, Ping An Insurance rocketed 7.41 percent to 94.95 yuan and Merchants Bank, due to announce first-half earnings late on Thursday, gained 5.49 percent to 36.10 yuan.
After falling steeply on profit-taking on Wednesday, the metals sector regained strength on expectations for excellent interim profit reports in the next few weeks. Baosteel climbed 7.03 percent to 16.28 yuan.
Aluminium giant Chalco gained 5.49 percent to 32.66 yuan. Shanghai Diesel Engine Co jumped 10 percent for the second straight day to 18.17 yuan after confirming on Wednesday a Reuters report that its parent was discussing co-operation with SAIC, parent of China's biggest car maker, Shanghai Automotive Co.