Bloomberg News

Stocks Curb Weekly Gain as Focus Falls on Suit: China Overnight

January 24, 2012

Jan. 21 (Bloomberg) -- Chinese stocks in the U.S. fell, paring their fifth weekly gain, as policy makers didn’t act to invigorate the world’s second-largest economy by cutting bank reserve requirements before the Lunar New Year holiday.

The Bloomberg China-US 55 Index of the most-traded Chinese stocks in the U.S. dropped 0.3 percent to 100.91 by 2:49 p.m. in New York, trimming its advance in the week to 1.3 percent. Focus Media Holding Ltd. slid the most in two weeks after investors commenced legal action against the company. Software provider AsiaInfo-Linkage Inc. surged after a Chinese state-owned fund offered to buy out the company at a premium.

A government report showing Chinese economic growth eased to the slowest pace since 2009 in the last quarter stoked speculation that the central bank would follow last month’s reduction in the amount lenders must keep in reserve with further monetary loosening. The People’s Bank of China injected $353 billion yuan ($55.7 billion) into the market this week through open-market operations, the most since at least 2008.

“There was disappointment that there was not a reserve ratio cut from the PBOC going in the new year,” said Dave Lutz, head of exchange-traded funds trading and strategy at Stifel Nicolaus & Co. in Baltimore, Maryland. “They’ve flooded the market with a little bit of liquidity with some moves made lately.”

The central bank, which lowered banks’ reserve ratios for the first time since 2008 last month, hasn’t moved the nation’s 6.56 percent lending rate since July. The monetary authority will let the five biggest banks increase first-quarter lending by as much as 5 percent from a year earlier, two people at state lenders who declined to be named because the move hasn’t been announced said this week.

Roubini Sees Stimulus

China’s securities regulator said on Jan. 9 that it will “actively” push pension and housing funds to begin investing in capital markets, and encourage long-term investors such as insurers and corporate pension funds to buy more shares in local companies.

The Standard & Poor’s 500 Index fell 0.2 percent to 1,311.95, reducing its advance in the week to 1.8 percent. The Shanghai Composite Index climbed 1 percent to 2,319.12 yesterday and ended the week up 3.3 percent.

China’s economy will see a “significant” slowdown in 2012 as home prices fall and exports decline, Nouriel Roubini, the economist who predicted the 2008 financial crisis, said in a Bloomberg TV interview yesterday. Policy makers will be forced to reduce interest rates and ease lending restrictions, he said.

American depositary receipts of Focus Media, a digital advertising company based in Shanghai, sank 4.6 percent to $20.24, reducing its increase this week 6.5 percent.

Muddy Waters

New York law firm Bernstein Liebhard LLP has commenced a class action in the U.S. District Court on behalf of people who purchased Focus ADRs, according to a statement released by Business Wire yesterday.

Short-selling firm Muddy Waters LLC questioned the company’s acquisition of a ginseng plantation on the Russia- North Korea border on Jan. 6, after saying in November that Focus overstated the size of its advertising network and was overpaying for purchases.

AsiaInfo, a telecommunications software provider, jumped to the highest level since August after saying it received a buyout proposal from a private-equity fund. The stock gained 17 percent to $11.59.

‘Seeking Value’

The Beijing-based company got a “non-binding” proposal from Power Joy (Cayman) Ltd., a unit of CITIC Capital China Partners II LP, to acquire all outstanding shares of the company in cash at “a premium over the current stock price,” according to a PRNewswire statement issued by AsiaInfo yesterday. CITIC Capital is a private-equity fund owned by China’s biggest state- owned investment company and the sovereign wealth fund, according to its website.

“Private equity investors are seeing value here where public investors aren’t willing to take the risk,” said Brendan Barnicle, an analyst at Pacific Crest Securities in Portland who rates the stock “outperform.”

AsiaInfo’s U.S. shares trade at 6.9 times projected earnings, compared with 10.8 times for Chesterfield, Missouri- based competitor Amdocs Ltd., data compiled by Bloomberg show. The company’s high cash levels, at $3.10 per share, would also be a lure to private equity investors, Barnicle said.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., fell 0.2 percent yesterday to $38.54, after rising every other trading day this week. U.S. markets were closed on Jan. 16 for the Martin Luther King Jr. holiday. The iShares fund rose 4.8 percent in the week.

--With assistance from Zachary Tracer and Ye Xie in New York. Editors: Emma O’Brien, Brendan Walsh

To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net


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