Bloomberg News

N.Y. Stocks Slide on Prospect PBOC Must Do More: China Overnight

February 22, 2012

Feb. 22 (Bloomberg) -- Chinese equities traded in the U.S. slipped the most in two weeks on speculation the second reduction in banks’ reserve requirements in two months won’t be enough to bolster credit in the world’s second largest economy.

The Bloomberg China-US 55 Index of the most-traded Chinese stocks in the U.S. sank 2 percent to 106.66 yesterday in New York, the biggest decline since Feb. 6. Refiner China Petroleum and Chemical Corp. tumbled the most since May 2009 as the price of oil surged to a nine-month high. Software developer AsiaInfo- Linkage Inc. surged 11 percent after a report that KKR & Co. and TPG Capital may bid for the company.

The People’s Bank of China said on Feb. 18 that the amount lenders must keep in reserve will be cut by 50 basis points, following a similar reduction in December. This won’t be enough to alleviate a cash shortage that started in the fourth quarter, and China’s slowing housing market may force further monetary easing, according to Credit Agricole CIB. Home prices posted their worst performance in at least a year in January, government data on Feb. 20 showed.

“The incremental nature of this recent announcement underlines the slow pace with which the PBOC intends to loosen policy,” Michael Shaoul, chairman of New York-based Marketfield Asset Management, which manages $1.5 billion, including Chinese stocks, said in an interview. “This is a very moderate easing that still keeps the reserve requirements far above the levels that were seen prior to the massive build-up in local liquidity during 2009 to 2010.”

China ETF Drops

China’s monetary authority had raised the reserve- requirement ratio for the biggest banks by 600 basis points, or 6 percentage points, between the end of 2008 and June last year in a bid to tame inflation and prevent a price bubble in the housing market. Standard Chartered Plc predicts at least three more cuts to the ratios this year, while HSBC Holdings Plc sees a minimum of two.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., declined 0.8 percent to $39.93, the biggest one-day drop since Feb. 10. The Standard & Poor’s 500 Index was little changed at 1,362.21. U.S. markets were closed Feb. 20 for a public holiday.

American depositary receipts of China Petroleum, Asia’s biggest oil refiner known as Sinopec, sank 7.4 percent to $111.76, the biggest slump since May 11, 2009, on speculation rising oil prices may see losses for the company’s refining business.

The ADRs, each representing 100 common shares in the company, traded 1.1 percent below Sinopec’s Hong Kong-traded stock, which has declined 6.4 percent over the past two trading days to HK$8.76, the equivalent of $1.13 per share.

Oil Surge

Crude oil for March delivery climbed to $105.84 a barrel on the New York Mercantile Exchange, the highest settlement price since May 4. Euro-area finance ministers agreeing on a second bailout for debt-stricken Greece and Iran halting sales of oil to France and Britain on Feb. 20, according to an official news website, bolstered prices.

Graham Cunningham, a Hong Kong-based analyst at Citigroup Inc., downgraded Sinopec to “neutral” from “buy” on Feb. 20, while cutting its 12-month price target to HK$9.90 from HK$10.90.

Cnooc Ltd., China’s largest offshore oil explorer, fell 4.7 percent to $221.85 in New York, the biggest one-day drop since Nov. 21.

The Shanghai Composite Index climbed 0.8 percent to 2,381.43 yesterday, the highest level since Dec. 1. The yuan strengthened 0.1 percent to 6.2964 per dollar, according to the China Foreign Exchange Trade System.

Shrinking Margin

ADRs of online travel agency Ctrip.com International Ltd. fell the most in two months tumbled 7 percent to $22.96 in New York, the biggest one-day drop since Dec. 8. Each ADR represents 0.25 common shares in the Shanghai-based company. Ctrip’s competitor Elong Inc., whose biggest shareholder is U.S. online travel agency Expedia Inc., climbed 1.5 percent to $17.37 in New York, the highest level since September.

Operating margin, a measure of profitability, excluding stock compensation will decline to 30 percent this year, from 35 percent in 2011, Ctrip’s Chief Financial Officer Jie Sun said on a conference call on Feb. 20. First-quarter sales will rise between 15 percent to 20 percent from a year earlier, the company said in a Feb. 20 statement, slowing from 30 percent growth a year ago.

“The stock may come under pressure in the near term given unfavorable margin trends and heightened competition,” Andy Yeung, a New York-based analyst at Oppenheimer & Co Inc. wrote in a note yesterday, cutting his 12-month price target for the stock to $34 from $42 while maintaining an “outperform” rating.

Stock Downgrades

Fawne Jiang, an equity analyst at Brean Murray Carret & Co., cut her recommendation on Ctrip to “sell” from “hold” yesterday. Jin Yu, a Shanghai-based analyst at China International Capital Corp., downgraded Ctrip to “hold” from “accumulate.”

Sina Corp., which provides a Twitter-like service in China, retreated 5.5 percent to a more-than three-week low of $64.05 as analysts forecast fourth-quarter profitability may have declined, with the company’s earnings report due on Feb. 27.

Gross margin dropped to 55.7 percent last quarter, from 56.1 percent in the third quarter of 2011 and 57.8 percent a year ago, according to the average estimate of nine analysts surveyed by Bloomberg. Fourth-quarter sales gained 23 percent to $129.6 million, compared with the company’s forecast of $128 million to $131 million provided on Nov. 8.

AsiaInfo Bidders

AsiaInfo, which sells telecommunications software to China’s biggest wireless carriers, jumped 11 percent to $12.95, the highest level since Aug. 3. Private-equity firms including KKR and TPG are lining up potential bids for Beijing-based AsiaInfo in a deal that may be worth more than $1 billion, Reuters reported today, citing people they didn’t identify with direct knowledge of the matter.

Jessica Barist Cohen, who is responsible for AsiaInfo’s investor relations in New York, didn’t return a call seeking comment. Owen Blicksilver, a spokesman for TPG, declined to comment on the report, while Kristi Huller, a spokeswoman for KKR, also declined to comment.

HSBC Holdings Plc and Markit Economics are scheduled to release their preliminary Chinese manufacturing index for this month, known as the Flash PMI, today. The gauge was at 48.8 in January, below the 50 threshold for expansion.

--Editors: Marie-France Han, Emma O’Brien

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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