Kweichow Moutai Co, China's largest maker of baijiu liquor, added 1.3 percent to 205.93 yuan ($31.83) on Wednesday on prospects that the earnings of consumer staples producers will weather a growth slowdown. [Photo / Provided to China Daily]

Chinese equities rise for second day, led by ICBC and Kweichow Moutai

SHANGHAI - Stocks on the Chinese mainland rose for a second day, capping the Shanghai Composite Index's longest winning streak in two weeks, on speculation this month's declines have been excessive given the outlook for economic growth.

Industrial and Commercial Bank of China Ltd and China Construction Bank Corp led an advance for the nation's largest lenders after their valuations approached the lowest levels in four years. Kweichow Moutai Co, the biggest maker of baijiu liquor, advanced more than 1 percent on prospects the earnings of consumer staples producers would weather a growth slowdown.

"China's stocks are close to bottom in terms of valuation so there is limited room below the current level," said Mei Luwu, a Shenzhen-based fund manager at Lion Fund Management Co, which oversees more than $7.8 billion. "Valuations for some industries like banks are at bottom levels."

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The Shanghai Composite Index added 2.8 points to 2649.32 at the 3 pm close. The gauge has slumped 3.4 percent this month, driving down estimated price earnings to 12.3 times, compared with the four-year average of 19.6. The CSI 300 Index was little changed at 2,908.58 on Wednesday.

The Shanghai index has lost 5.7 percent this year, extending the 14 percent retreat in 2010, after the central bank raised reserve requirements 12 times and interest rates four times since the start of 2010.

Shenyin & Wanguo Securities Co Chief Economist Li Huiyong expects China's economy to grow 10 percent this year with an annual inflation rate of 4.9 percent. Economic growth is likely to pick up in the third and fourth quarters, Li said at an investment conference on Wednesday in Guiyang, southwestern China.

The Shanghai Composite Index may rise by as much as 500 points in the second half of the year as inflation cools, Shenyin & Wanguo said in a statement. The brokerage raised its earnings forecast for this year to 26 percent from 22 percent.

Foreign banks are "surprisingly confident" about their prospects in the Chinese market despite increasing funding constraints, PricewaterhouseCoopers LLP said in a statement distributed at a news conference in Shanghai on Wednesday, citing a survey of 42 banks.

The nation's money-market rate climbed on speculation a cash crunch will worsen as banks seek to meet capital requirements by quarter-end.

The seven-day repurchase rate, which measures interbank funding availability, more than doubled in the past six days since the People's Bank of China ordered lenders to set aside more money as reserves for a sixth time this year. A total of 372 billion yuan ($57.5 billion) of central-bank bills and repurchase agreements will mature next month, compared with 601 billion yuan in June, according to China Merchants Bank Co.

Kweichow Moutai, China's largest baijiu liquor maker, added 1.3 percent to 205.93 yuan. Wuliangye Yibin Co, the second biggest, gained 1.6 percent to 35.18 yuan.

Bloomberg News