Bloomberg News

PetroChina Tops N.Y. Discounts as Lending Falls: China Overnight

February 13, 2012

Feb. 13 (Bloomberg) -- PetroChina Co. traded at the biggest discount to Hong Kong in two months and Chinese stocks in the U.S. slid as lower-than-expected lending and falling imports boosted concern the world’s second-largest economy is slowing.

The Bloomberg China-US 55 Index of the most-traded Chinese equities in the U.S. tumbled 1.1 percent to 105.07 in New York on Feb. 10, as all but one stock fell below shares traded in Hong Kong. The 1.3 percent drop last week was the first weekly retreat in two months. Solar module maker Yingli Green Energy Holding Co. fell 9.5 percent while Yanzhou Coal Mining Co. joined energy producer PetroChina to trade at the biggest discount to Hong Kong since December.

Speculation Chinese policy makers must further loosen monetary policy to spur the economy is mounting, after data released on Feb. 10 showed credit grew less than analysts estimated and imports and exports slumped for the first time in two years. New lending in January was the lowest for the month in five years, while money supply grew the least in more than a decade, a report released after Chinese markets closed showed.

“The striking thing on the trade data was how weak imports were,” Mark Williams, chief Asian economist at Capital Economics Ltd, said by phone from London. “China’s economy is still slowing and policy makers have not turned fully in the direction of easing.”

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., slipped 2.9 percent to $38.93 on Feb. 10, the lowest since Jan. 31. The fund slumped 3.9 percent last week.

‘Unsustainable’ Solar Rally

Imports to China declined 15.3 percent in January from a year earlier, missing the lowest estimate for a 14 percent drop in a Bloomberg survey of 30 economists. M2, the broadest measure of money supply, rose 12.4 percent, less than all 29 estimates in a Bloomberg survey. Banks extended 738.1 billion yuan ($117 billion) of new yuan-denominated loans last month, lower than 25 of 26 estimates.

The Hang Seng China Enterprises Index in Hong Kong fell 1.7 percent last week. Global stocks declined for the first week in six as concerns that a deal to bail out Greece may fail rattled investors.

Hebei, China-based Yingli led a decline among solar companies, paring its weekly advance to 23 percent.

Mark Bachman, an analyst at Avian Securities LLC -- whose “neutral” outlook for Yingli stock has not yet borne out with the stock up 41 percent this year -- said the rally in the companies’ stock is “unsustainable.” Trina Solar Ltd., a Changzhou-based maker of solar panels, lost 7.3 percent to $10.15 on Friday, cutting its weekly advance to 24 percent. Bachman also rates Trina’s stock “neutral.”

‘100 Percent of Utilization’

There has been no uptick in solar companies’ production targets and factories aren’t running at full capacity, Bachman said in an interview on Feb. 10, citing conversations with company officials in China.

“Every one of these companies coming out of China is likely to produce losses all the way through 2012,” he said.

Deutsche Bank AG’s Vishal Shah, a managing director based in New York, wrote in a Feb. 9 report that for “tier-one” solar companies in China, Taiwan and Korea, orders have been rising and they are “running at 100 percent of utilization.”

ADRs of PetroChina, the nation’s biggest oil producer, declined 3.4 percent to $146.63 on Feb. 10, widening the discount to Hong Kong to 1.6 percent, the most since Dec. 8. The U.S.-traded stocks slid 1.9 percent last week.

Cnooc, China’s biggest offshore energy producer, fell 1.9 percent to $221.41 in New York, paring its weekly gain to 1.4 percent, after its Hong Kong shares slipped 1 percent to HK$17.28, or $2.23. One American depositary receipt is the equivalent of 100 ordinary shares. The 0.6 percent discount was the widest since Feb. 2.

Falling Demand

Crude oil fell from a three-week high in New York trading Friday on concern euro-area finance ministers’ refusal to approve Greece’s second rescue package will worsen the European debt crisis and cut demand for fuel and commodities. Oil for March delivery gained 0.8 percent last week to settle at $98.67 a barrel on the New York Mercantile Exchange.

The International Energy Agency also cut its 2012 forecast for global oil demand on Feb. 10, citing a “darkening” economic outlook. Demand will drop in nations of the Organization of Economic Cooperation and Development as the European crisis hits economic growth, according to the IEA.

Yanzhou Coal, China’s fourth-biggest producer of the fuel, slipped 4.6 percent to $24.40, bringing its decline to 0.5 percent last week. The company’s Hong Kong shares fell 3 percent to HK$19.30, or $2.49, leaving the ADRs, worth 10 ordinary shares, to trade at a 2 percent discount, the cheapest since Dec. 28.

European Crisis ‘Staggers On’

Chinese economic data for January can be difficult to interpret because the Lunar New Year holiday closed many businesses in the last week of the month, Capital Economics’ Williams said. The holiday usually falls during February, complicating year-over-year comparisons, he said.

The People’s Bank of China lowered the amount banks are required to keep in reserve for the first time since 2008 in December and hasn’t altered the nation’s 6.56 percent lending rate since July. The International Monetary Fund said in a report this week that China’s economic expansion may be cut almost in half should Europe’s debt crisis worsen.

“As the European crisis staggers on with no firm resolution in sight, I think it will be fair to expect Chinese policy makers to start wondering whether they should do a little bit more,” Williams said.

Focus Media

Focus Media Holding Ltd., a digital advertising company in China, dropped 3.1 percent to $23.47 on Feb. 10, to lose 2.8 percent last week.

Shanghai-based Focus Media was the subject of a fifth report questioning its financials by short-sellers Muddy Waters LLC on Feb. 8. Muddy Waters reiterated a “strong sell” recommendation on the stock saying that Focus overstated the size of its LCD television network by counting some cardboard posters as LCD displays, according to the report last week.

Focus Media said on Dec. 22 that a survey by market research company Synovate showed the number of LCD screens and poster frames that it claimed to have was more than 99.95 percent accurate.

Some traditional picture frames, which contain static poster ads, are counted by its LCD network because the LCD display network division of the company installs them, not the Framedia poster frame network, Jing Lu, an investor-relations officer for Focus in Shanghai, said in a Feb. 10 phone interview.

--With assistance from Clyde Eltzroth and Arie Shapira in New York. Editors: Emma O’Brien, Marie-France Han

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

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


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