China Shares Surge After Beijing Boosts Reserve Ratios but Nixes Interest Rate Hike


Asian markets headed north Monday. China's Shanghai Composite Index climbed 2.9% to 2,923 and Hong Kong's Hang Seng Index rose 0.7% to 23,317. In Japan the Nikkei 225 Index advanced 0.8% to end the day at 10,294.

China instituted the sixth reserve ratio hike of the year on Friday, pushing the reserve ratio up another 50 points as of Dec. 20. "China is doing the right thing to curb the inflation by raising interest rate and commercial banks' required reserve ratio," investment guru Jim Rogers told Xinhua News Agency. But Beijing also refrained from raising interest rates today fearing higher inflation in the coming year if higher guaranteed bank returns were to attract additional foreign investments, which Rogers says are partly to blame for the sky-high inflation. "The massive money coming both domestically and abroad caused the excessive liquidity in the market and pushed up prices," he said. So far this year, prices in China are up 5.1% from last year -- the fastest increase in more than two years.

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Commodities companies, which benefit from inflated prices, scored big gains in Shanghai. Jiangxi Copper hit the daily maximum gain of 10%, Nonferrous Metals shot up 8.6% and Zijin Mining advanced 3.2%. Steel companies also benefited with Baoshan Iron & Steel, which announced they were raising the price for some of their products today according to Bloomberg, advancing 4.5% and Maanshan Iron & Steel adding 2.3%.

Chinese oil-related companies were among the big winners with Offshore Oil and China Oilfield both surging to the 10% limit and PetroChina, leaping 4.4%.

Property company China Vanke climbed 3.7%, Poly Real Estate reaped a 4.5% gain and Gemdale jumped 2.4%. Some predict that China's red hot property market will take a breather in 2011, and hopeful home buyers will keep their eyes peeled for the cut in prices anticipated by the Chinese Academy of Social Sciences, a respected Chinese think tank that has drawn attention to the 30% to 50% premium buyers are paying for homes in the People's Republic.

Hong Kong Market Benefits from China Rate News

Positive investor sentiment boiled over the South China Sea to Hong Kong where China Resource Power soared 6.3%. Sinopec leaped 2.7%, oil company Cnooc advanced 1.4% and China Shenhua, a coal-based power company, gained 1%. China Coal rose 1.2%.

In the property sector, Midland Holdings, a property broker that also deals in mortgages and web advertising services, rocketed up 8.8% in today's trading. Property developers also surged with Sino Land gaining 2.3%, Hang Lung and New World Development both rising 1.5% and Cheung Kong up 1.4.

In Japan, word is out that the government may extend a 10% capital gains tax break in order to give the ailing economy a fighting chance. Among the winners, brokerages saw big gains. Daiwa Securities surged 4% and Nomura climbed 2.8%.

Japanese exporters also advanced on a general feeling that positive economic data will send U.S. shoppers back to the stores. Car companies advanced with Honda increasing 1.1%, Mazda adding 0.8% and Toyota edging up 0.6%. Hino Motors, a maker of diesel buses and trucks climbed 1.9%.