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Chinese stocks rally as construction companies advance

Hong Kong - Chinese stocks rallied in Hong Kong and Shanghai as insurers gained with construction firms amid speculation the outlook for earnings is improving.

The Hang Seng China Enterprises Index rose 0.9% as of 07:22, while the Shanghai Composite Index headed for its biggest advance since November 11. China Life Insurance and New China Life Insurance were among the best performers amid optimism a rising equity market will boost their returns. China Railway climbed in Hong Kong after HSBC Holdings Plc recommended buying the shares.

Until Monday, Chinese shares in Hong Kong had been diverging from the bullish path of their mainland counterparts. While the Shanghai gauge is up more than 7% this quarter, the H-share measure is down 1%.

Construction companies have led the rally on the mainland as investors bet the government will lift fiscal spending to stimulate growth.

Insurers are gaining as the rally in mainland shares will improve the outlook for their investments and some of the companies’ operating figures have been positive, said Linus Yip, a Hong Kong-based strategist at First Shanghai Securities. "Infrastructure shares are still being favored as some speculate there will be more policies to stabilize the economy."

The Shanghai Composite Index added 0.8%, while the Hang Seng Index gained 0.1%.

China Life Insurance surged 7.1% in Shanghai, and New China Life Insurance jumped 5.7%.

Speculation new products will be released also spurred the rally by insurers. Long-awaited tax-deferred commercial retirement products may soon get approval from the State Council and could be launched by end of this year, according to China Merchants Securities analyst Jerry Li.

Shanghai may launch a trial of these products by end of the year, said  Grace Zhou, an analyst at ICBC International Services.

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