Bloomberg News

Chalco Leads Index’s Drop From Four-Month High: China Overnight

January 31, 2012

Jan. 31 (Bloomberg) -- Chinese stocks in the U.S. slid from a four-month high, led by Aluminum Corp of China Ltd., on speculation policy makers are reluctant to undertake monetary easing required to bolster the economy and company earnings.

The Bloomberg China-US 55 Index of the most-traded Chinese equities in the U.S lost 1.5 percent to 102.61 in New York after closing at the highest level since Sept. 15 on Jan. 27. U.S. shares of Aluminum Corp., also known as Chalco, had their biggest tumble in three months and traded at a 4.5 percent discount versus those in Hong Kong, after the company reported net income probably plunged more than 50 percent in 2011.

While Barclays Plc and JPMorgan Chase & Co. economists predicted China would cut bank reserve requirements for the second time in two months before the week-long Lunar New Year holiday, the central bank didn’t move to alter monetary policy as markets on the mainland opened yesterday. Adding to concern that a global slowdown is looming, Greece signaled it may oppose oversight of its budget in exchange for aid and a report showed U.S. consumer spending stalled last month.

“Some people who were expecting some type of announcement about a reduction in the reserve-requirement ratio out of China may be disappointed,” Greg Lesko, who helps manage $700 million as managing director at Deltec Asset Management in New York, said by phone yesterday. “The market has been up quite a bit, it’s not surprising to see it correct.”

The Shanghai Composite Index of domestic shares lost 1.5 percent in its first day of trading after the holiday, while the Hang Seng China Enterprises Index, which tracks Chinese companies trading in Hong Kong, tumbled 2.6 percent in its biggest drop since Dec. 9. Markets in Hong Kong opened on Jan. 26 after a three-day break.

Chalco Profit Drops

The Standard & Poor’s 500 Index declined 0.3 percent while the IShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., sank 2.9 percent, the most since Dec. 12, to $38.47.

Chalco, China’s biggest aluminum producer, slumped 9.2 percent to $12.1, trimming its advance this year to 12 percent. Net income probably fell last year as aluminum prices “dropped sharply” and higher electricity bills increased costs, the company said in a statement. Profit was 778 million yuan ($123 million) in 2010, or 0.06 yuan per share, Chalco said.

Melco Crown Entertainment Ltd., which operates casinos in Macau, lost 7.4 percent to $10.85, the biggest decline since Nov. 10, on speculation casinos in the only Chinese city where public gambling is allowed didn’t take in as much as some analysts expected in January.

Renren Surges

Macau’s gambling revenue will probably increase 8 percent in the first two months of this year from the same period in 2011, slowing from annual growth of 25 percent in December, Cameron McKnight, an analyst at Wells Fargo & Co. wrote in a research note. Melco has 13 percent of Macau’s gaming market, according to the report.

Renren Inc., the Beijing-based social networking site, jumped 20 percent to $6.31, extending its gain since Jan. 27 to 52 percent, amid speculation that a reported initial public offering of Facebook Inc. this week will boost the valuation of companies in the same industry. The trading volume of 54 million shares was the most since Renren’s IPO in May.

“Good headlines from Facebook may benefit Renren as people buy comparable companies, even though the fundamentals of the two companies are different,” said Echo He, an analyst at Maxim Group LLC in New York. “People are betting on a market momentum run-up. At a certain point, people will compare the fundamentals and the higher the stocks go, the more downside it has.”

Net Loss

Facebook, the world’s largest social-networking service, is aiming to file for its IPO as early as this week, raising $75 billion to $100 billion, two people with knowledge of the matter said on Jan. 28, declining to be identified as the proposal hasn’t been made public.

Renren, which raised $855 million in its IPO last year, reported a net loss of $1.2 million for the third quarter. The company probably posted $120 million in revenue last year, compared with Facebook’s $4 billion, according to Maxim Group’s He. Renren’s 135 million users are equal to one-sixth of Facebook’s.

China’s economy grew 8.9 percent in the fourth quarter from a year earlier, the slowest pace since the first half of 2009 as expansion in the housing market eases and export growth decelerates. The International Monetary Fund pared its forecast for China’s growth this year on Jan. 24 to 8.2 percent from a previous estimate of 9 percent, warning that Europe’s crisis could trigger another global recession.

Home Sales

Home transactions in China’s four biggest cities of Beijing, Shanghai, Guangzhou and Shenzhen declined 66 percent to 109 units during the week-long Chinese New Year, from the same holiday period last year according to an e-mailed report from Centaline Property Agency Ltd., the nation’s biggest real-estate broker.

Barclays Capital, JPMorgan and Industrial Bank Co. predicted this month that policy makers will cut the amount lenders must keep in reserve for a second time to stimulate the economy. The central bank instead used reverse-repurchase contracts to add money to the financial system. Policy makers have left benchmark interest rates unchanged for the past six months, while cutting reserve requirements by 50 basis points, or 0.5 percentage point, to 21 percent last month in the first reduction since 2008.

‘Modest Easing’

In Europe, Greek Finance Minister Evangelos Venizelos has rejected reports of plans to appoint a commissioner to oversee the nation’s budget, while German Chancellor Angela Merkel said yesterday that the Greek rescue program won’t be finalized because talks with banks over debt reduction aren’t completed.

“Clearly, the government is going to introduce some modest easing on the monetary front,” said Fred Hu, founder and chairman of Beijing-based financial advisory firm Primavera Capital Group and a former chairman of Greater China for Goldman Sachs Group Inc., in an interview on Bloomberg Television. “The reserve requirement is way too high.”

The Bloomberg China index has risen 7.1 percent this month, following a decline of 8.3 percent last year.

Hong Kong’s Hang Seng China Enterprises Index trades at 8.3 times analysts’ earnings estimates for member companies, compared with 9.9 times for Brazil’s Bovespa gauge and 15 for the BSE India Sensitive Index. The Shanghai Composite Index trades for 9.4 times estimated earnings.

The yuan gained 0.1 percent to close at 6.3310 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency has advanced 4 percent in the past 12 months.

--With assistance from Allen Wan in Shanghai and Susan Li in Hong Kong. Editors: Marie-France Han, Emma O’Brien

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

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


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