Chinese stocks traded in the U.S. dropped last week, led by Yingli Green Energy Holding Co. (YGE) and E- Commerce China Dangdang Inc. (DANG), as the slowing economy ate into company profits and fraud concerns resurged.
Solar module maker Yingli had its biggest weekly slump since November, Trina Solar Ltd. (TSL), China’s fifth-biggest solar- panel supplier, tumbled 19 percent, and E-commerce, an online bookseller known as Dangdang, dropped for the third week this month after all three companies reported worse-than-expected earnings results. The Bloomberg China-US 55 Index (CH55BN) of the most- Chinese stocks in the U.S. slid 1.3 percent to 107.48 last week.
China’s economy grew at the slowest pace for 10 quarters in the last three months of 2011, as Europe’s debt crisis eroded demand for exports and contributed to easing sales for companies like Dangdang, which reported a bigger-than-estimated net loss in the period. In echoes of Sino-Forest Corp. (TRE), a Chinese timber company short sellers accused of overstating its assets last year, two executives of U.S.-listed Chinese miner Puda Coal Inc. (PUDA) were charged by the Securities and Exchange Commission with defrauding investors on Feb. 22.
“Chinese stock multiples will generally remain low,” William Wells, chief executive officer at Memphis-based Pope Asset Management LLC, which manages about $500 million including investments in Chinese stocks, said on Feb. 24. “There will be a lot of risk and opportunity until rule of law is better established to protect the investors.”
Cheaper Than S&P
The China-US 55 Index has gained 12 percent this year, reversing an 8.3 percent decline in 2011, on prospects China will further loosen monetary policy to bolster the economy. The measure is trading at 12.7 times reported earnings, compared with 14 for the Standard & Poor’s 500 Index.
Yingli, a solar-panel maker based in Baoding city in northern China, sank to a 2012-low after reporting on Feb. 22 that fourth-quarter shipments probably fell 30 percent from a year ago, down from previous guidance for a “low to middle 20s percent” decline. The company is scheduled to report results for the fourth quarter before markets in New York open on Feb. 29.
Miller Tabak & CO LLC downgraded Yingli to “sell” from “neutral,” lowering the 12-month price target to $2.
Chinese solar companies also declined in response to plans by Germany, the world’s biggest solar market, to cut aid to the industry by as much as 29 percent from March 9, dimming the sales outlook for manufacturers in China where the world’s three largest panel makers are based.
Trina, based in Changzhou in China’s eastern Jiangsu province, sank 19 percent last week, the biggest weekly loss since September, to a six-week low of $7.80 in New York.
The company said on Feb. 23 that it incurred a net loss of $65.8 million in the fourth quarter of 2011, compared with net income of $145.3 million in the same period a year earlier. The average estimate of 13 analysts surveyed by Bloomberg was for a loss of $30.9 million.
Wells Fargo Securities LLC downgraded Trina to “market perform” from “outperform” while Susquehanna Financial Group lowered its rating to “negative” from “neutral” on Feb. 24.
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., fell 0.2 percent to $40.16 last week and was little changed on Feb. 24. The S&P 500 (SPX) added 0.3 percent in the week to 1,365.74, the highest close since June 2008.
American depositary receipts of Cnooc Ltd. (883), China’s largest offshore oil explorer, declined for the first week in six, dropping 3.3 percent last week to $225.25. The ADRs, each representing 100 common shares, traded 1.1 percent higher than stock in Hong Kong, the largest premium since Feb. 1.
ADRs of China Petroleum and Chemical Corp., Asia’s biggest refiner known as Sinopec, dropped 0.9 percent to $113.04 on Feb. 24, extending the weekly loss to 6.3 percent, the biggest since the week ended Aug. 5. Each ADR stands for 100 common shares. Crude oil for April delivery jumped 1.8 percent on Feb. 24 to $109.77 a barrel on the New York Mercantile Exchange, the highest settlement price since May 3.
Sinopec’s Shanghai-traded stock rose 0.3 percent last week to 7.63 yuan, the equivalent of $1.21 per share.
The SEC charged Puda chairman Ming Zhao and former Chief Executive Officer Liping Zhu, saying they defrauded investors into believing they were investing in a Chinese coal business when they were investing in an empty shell company, according to the regulatory body’s statement on Feb. 22.
The chairman cheated U.S. investors by secretly transferring control of the company’s sole source of revenue to himself before selling shares to the public, securities regulators alleged in a lawsuit filed Feb. 22 in federal court in Manhattan.
Allegations of fraud and asset embellishment from short sellers including Muddy Waters LLC’s Carson Block have helped shave more than $5 billion of market value from Chinese stocks. U.S.-listed Chinese shares are “untouchable” because of the taint of the fraud allegations, Daniel Arbess, a partner at Perella Weinberg Partners LP in New York, said on Feb. 1.
Puda traded at 30 cents at the end of last week after falling to as low as 20 cents on Feb. 23, down from as high as $16.97 a share in December 2010.
The Shanghai Composite Index (SHCOMP) climbed for the sixth week, rising 3.5 percent to 2,439.63, the highest level since Nov. 17.
Dangdang, China’s biggest Internet-based book seller, sank 10 percent last week after reporting a net loss in the fourth quarter widened from the previous three months as profit margin shrank and marketing expenses rose amid competition. The decline trimmed its advance this year to 44 percent.
Dangdang dropped 5 percent to $6.32 in New York on Feb. 24, the lowest level since Jan. 17. Seven analysts recommended to “hold” the stock, four rated it a “buy” while two ranked it “sell,” according to data compiled by Bloomberg.
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