China shares hit 3-year high ahead of economic summit

China’s onshore market had its best day in three years on Friday on speculation policies next year for Chinese economy would be more pro-growth, as the new leaders is due to set the tone for 2013 at the central economic conference to be held this weekend.

Meanwhile, better-than-expected manufacturing data also boosted investors’ confidence that China’s economy is on the track for a meaningful cyclical recovery.

Investors were busying buying cyclical shares including banks, insurers and material sectors amid speculation the new leaders would conduct a more aggressive fiscal boost to the Chinese economy. The nation’s new leader Xi Jinping last week said Beijing would maintain proactive fiscal policy for next year, after it approved infrastructure projects worth more than a trillion yuan this year.

The Shanghai Composite Index rose 89.15 points, or 4.32 per cent, to finish at 2150.63 on Friday. On a forward-earnings basis, the gauge is trading at around 9 times 2013 estimated earnings, compared with around 11.5 times for the Hong Kong market and 11 times for the Asia Pacific ex-Japan markets on average.

“Investors were building position around some themes that are likely to be mentioned during the conference: urbanisation, consumption, which has supported the market,” said Wang Aochao, Shanghai-based analyst with UOB Kay Hian Holdings. “Meanwhile, today’s strong manufacturing data erased some people’s concern over the economy.”

China’s manufacturing in November came better than expected, with the Flash China Manufacturing PMI reaching a fourteen-month high at 50.9 from December 5 to December 12, compared with 50.5 in November. A Bloomberg survey shows investors were only expect the gauge to rose to 50.8.

Insurers, banks and brokerages were among the biggest gainers. Bank of Nanjing surged by a single-day limit of 10 per cent to finish at 9.13 yuan while Industrial Bank (601166.CN) added 9.12 per cent to finish at 15.2 yuan.

Cement shares also rallied on spelculation the boost in infrastructure spending would lead demand for the material.  Shaanxi Qinling Cement (600217.CN) surged by 9.9 per cent to finish at 5.87 yuan.