CHINA’S stocks surged yesterday as speculation that the government will accelerate mergers among State-owned enterprises overshadowed worse-than-expected economic data.

    The benchmark Shanghai Composite Index finished up 4.92 percent at 3,928.42, its best day since July 9, while the Shenzhen Composite Index was up 4.49 percent at 2,274.84.

    Investors focused on sector-specific news and brushed off gloomy China data at the weekend on trade and inflation, which reinforced expectations that the government will need to roll out more support measures for the economy.

    Exports in July slid 8.3 percent from a year earlier, reversing a gain of 2.8 percent in June, and imports fell for the ninth month in a row, dropping 8.1 percent, after a decline of 6.1 percent in June. The government also announced factory prices in July extended more than three years of declines, with the producer-price index taking its biggest year-over-year tumble in nearly six years.

    “China’s economic indicators are not very good, which means monetary policy will continue to be accommodative,” said Du Changchun, an analyst at Northeast Securities in Shanghai.

    “Investors are also betting that SOE [State-owned enterprise] reforms will inject life into the market. Trading volumes in the stock market today picked up, which is a good sign to show that funds are flowing into the market,” Du said.

    Shipping, railway and cement counters all saw strong buying on expectations of policy support and sector reforms, analysts said.

    Trading in some major shipping stocks, including China Shipping Development, China Shipping Container Lines and China COSCO Holdings, was suspended yesterday pending announcements, adding to speculation they may be merged.

    “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. “Foreign investors pay more attention to economic data and fundamentals, while local investors are more sensitive to policies.”

    China is banking on increased infrastructure spending to support the economy in the second half of the year, while its top economic planning body said yesterday the property market was likely to continue to improve in the second half of this year.

    Close to 300 China funds that oversee more than 1 trillion yuan (US$161 billion) are sitting on the sidelines with “ammunition” to enter the stock market at any time, Shanghai Securities News reported Friday, citing its own calculations.

    In recent weeks, China has rolled out an unprecedented series of support measures to prevent a full-blown market crash, including asking brokerages and pension funds to buy stocks and cracking down on short-selling, which helped send the Shanghai index up more than 2 percent for the week.

    Regulators didn’t announce fresh measures to support the market yesterday, although analysts estimate the government funds have bought hundreds of billions of yuan worth of shares to stabilize the stock market.

    Goldman Sachs analysts estimate that the “national team” has potentially spent 860-900 billion yuan supporting the stock market in June and July and the potential aggregate size of market-support funds is probably around 2 trillion yuan.

    Still analysts believe the main benchmark faces pressure at the 4,000 level, with investors eager to take profits on quick rises. The index has traded between 3,500 and 4,000 since July 28. It hit a seven-plus-year peak of 5,166.35 June 12 before a massive selloff that wiped out nearly a third of the market’s value. (SD-Agencies)