Builders’ gains erase earlier stock losses

SHANGHAI: China stocks rose in afternoon trading to erase earlier losses as investors bet on state-backed builders after the government announced a spending plan for public works that include 5,000 kilometres of new highway next year.

The Shanghai Composite Index rose 0.4% to 3,122.57 at the close, reversing a loss of as much as 1.3%. China Communications Construction Co surged 7.9% for its biggest gain since Nov 3. Other large state-owned builders of housing, ships and nuclear plants also jumped. The Shenzhen Composite Index erased an earlier loss to add 0.4%.

China will spend 1.8 trillion yuan ($259 billion) on highway and waterway projects next year, the Ministry of Transport said in a statement on its website. Shanghai’s benchmark index has gotten a boost in the last quarter of 2016 from China’s “old economy”, namely industrial, infrastructure and state-backed firms. A gauge of mainland industrial companies has risen 11% in the fourth quarter, outpacing the 3.9% gain by the Shanghai Composite Index.

“The 1.8 trillion-yuan plan is huge, and the actual investments could be a bit more,” said He Minliang, a Taipei-based analyst at Capital Securities Corp.

Hong Kong’s financial markets are closed again today for the holiday. The Hang Seng Index has lost 5.3% in December and tumbled 7.4% in the fourth quarter. The index is down 1.6% this year.

The Shanghai Composite Index is headed for an annual loss of 12%, its worst year since 2011. Shanghai’s benchmark will climb to 3,800 by the end of next year, according to the median forecast in a Bloomberg poll of 12 strategists and fund managers, implying a gain of more than 20%.

The Shenzhen gauge is is poised for a 14% retreat. China State Construction Engineering Corp, China Shipbuilding Industry Co and China Nuclear Engineering Group Co rose more than 2.7%.

President Xi Jinping is open to China’s growth slowing below the government’s 6.5% target due to rising debt and concern about an uncertain global environment after Donald Trump’s election win, according to a person familiar with the situation. Mr Xi told a meeting of the Communist Party last week that the country doesn’t need to meet the objective if doing so creates too much risk.