China Stock Index Doubles From Low; Sichuan Expressway Jumps

China’s Shanghai Composite Index rose to twice the level of last year’s low as Sichuan Expressway Co. tripled on its first day of trading, underscoring investor demand for equities.

The benchmark gauge added 1.9 percent to 3,435.21, the highest close since June 2008. It reached a low on Nov. 4 of 1,706.7. Toll-road operator Sichuan Expressway’s 204 percent gain is China’s biggest debut rally since March 2008.

Individual investors are rushing to buy stocks as a government stimulus plan and record bank lending spur a rebound in the economy. Almost half a million stock accounts were opened in the week to July 17, data from the nation’s clearing house showed, the most since January 2008.

“We’ve entered an extremely loose monetary policy environment where money is flowing into the system at unprecedented levels,” Xue Lan, Citigroup Inc.’s Hong Kong- based head of China research, said in a Bloomberg Television interview today. Whether “we can continue the current momentum or not is still very dependent on whether the liquidity tap is on,” Xue said.

The Shanghai Composite has gained 89 percent this year, the world’s best performing stock market after slumping 65 percent in 2008. The index, which doubled in 2006 and 2007, remains 2,657.4 points below its peak of October 2007.

Premier Wen Jiabao unveiled his 4 trillion yuan ($585 billion) stimulus package on Nov. 9 as collapsing international demand for the country’s exports threatened to derail growth in the world’s third-largest economy. China also slashed interest rates and reserve requirements in the final four months of 2008, while dropping quotas that limited total lending by banks.

Bank Lending

Banks reacted by tripling loans in the first half of 2009 to 7.37 trillion yuan from a year earlier. Fixed asset- investment rose 33.5 percent to 9.13 trillion in the same period.

Gains in the stock market allowed regulators to lift a nine-month moratorium on initial public offerings in June. They imposed the ban last year to help stem the rout in equities.

Sichuan Expressway surged to 10.90 yuan at the close, more than three times the price of its Hong Kong-listed stock. It earlier jumped as much as 324 percent and was halted from trading twice. The company raised 1.8 billion yuan selling 500 million new shares at 3.60 yuan apiece.

Sichuan Expressway’s debut is the first in Shanghai since China South Locomotive & Rolling Stock Corp. listed in August 2008, and follows three IPOs in Shenzhen.

The value of shares traded on China’s two stock exchanges today exceeded 356 billion yuan, the most since May 30, 2007, the official Xinhua News Agency reported, without saying where it obtained the statistics.

More Than Russia

China State Construction Engineering Corp. starts trading in Shanghai on July 29 after drawing 1.85 trillion yuan of orders. That’s more than the market capitalization of Norway, Russia and at least 48 other advanced and developing nations. The company raised 50.16 billion yuan in the world’s biggest initial public offering in 16 months.

“There is still a lot of hot money that’s coming to the market to chase hot stocks,” said Zhang Ling, who helps oversee about $7.21 billion at ICBC Credit Suisse Asset Management Co. in Beijing. “Still, with lots of IPOs coming to the market, the negative impact of absorbing liquidity will gradually emerge.”

Commodity and financial stocks have been the biggest beneficiaries of stimulus spending this year, as demand for energy, construction materials and housing recovered.

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