Bloomberg News

Consumer Stocks Climb as Wen Bolsters Outlook: China Overnight

April 25, 2012

Chinese equities in the U.S. rose for the first time in four days, led by consumer stocks, on prospects the world’s second-largest economy will maintain growth as domestic demand climbs.

Air carriers China Eastern Airlines Corp. (CEA:US) and China Southern Airlines Co. (ZNH:US) rallied in New York, while online travel agency Elong Inc. (LONG:US) rose the most in three weeks. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. added 1.1 percent to 101.74 in New York. Macau casino operator Melco Crown Entertainment Ltd. (MPEL:US) traded at a premium (MPEL:US) over its Hong Kong stock for the first time in four days.

The world’s biggest exporter will sustain “steady and robust” economic growth, Premier Wen Jiabao told reporters in Stockholm on April 24, more than a month after releasing the lowest annual target for expansion since 2004. While demand outside of China is waning, growth in the domestic market will bolster industrial output in this quarter, after the pace picked up in the first three months of 2012 from the least in two years, Zhu Hongren, spokesman for the Ministry of Industry and Information Technology, said yesterday in Beijing.

“A lot of consumer stocks are on a rebound as there’s been a lot of data recently supporting the views of the soft landing crowd,” Erik Lam, director of Asian equity sales at Auerbach Grayson & Co. in New York, said by a phone yesterday. “Growth is already coming from domestic demand, and as a result, stocks viewed as benefiting from increased consumption, Internet, airlines, casino, are getting a boost.”

China ETF Rises

The IShares FTSE China 25 Index Fund (FXI:US), the biggest Chinese exchange-traded fund in the U.S., climbed 0.9 percent to $37.53 in its second day of gains. The Standard & Poor’s 500 Index (SPX) jumped 1.4 percent to 1,390.69 yesterday, after Apple Inc. (AAPL:US) said quarterly earnings almost doubled and Federal Reserve Chairman Ben S. Bernanke said he remains prepared to do more to stimulate growth if needed.

E-Commerce China Dangdang Inc. (DANG:US), the nation’s biggest Internet bookseller, surged 9.7 percent to $8.23 in New York yesterday, extending its advance this year to 87 percent.

American depositary receipts of Shanghai-based China Eastern, the nation’s second-largest carrier by passenger numbers, rose 3.5 percent to $15.96 in New York, the highest close since April 9.

Goldman Sachs Group Inc. (GS:US) reiterated its buy rating on China Eastern on April 23, saying it expects the airline to make a “small profit” in the first quarter. China Eastern is due to report results for the period tomorrow.

Guangzhou-based China Southern, Asia’s biggest air carrier by passenger numbers, advanced 2.4 percent to $21.25 in New York, the biggest one-day rally in two weeks. The company’s ADRs traded 0.6 percent above (ZNH:US) its Hong Kong stock, which climbed 1.9 percent to HK$3.28 yesterday, the equivalent of 43 U.S. cents. The premium in the ADRs, each representing 50 Hong Kong shares, was the highest since April 12.

Acquity IPO

Acquity Group Ltd. (AQ:US), a Hong Kong-based digital marketing firm, will push ahead with its U.S. initial public offering, even as the second Chinese company to try and sell shares in New York this year postponed its IPO.

Acquity plans to raise as much as $55.6 million today, selling American depositary receipts in the company in a price range of $8 to $10 apiece, according to an April 23 filing. Beijing-based China Auto Rental Holdings Inc. delayed its IPO on April 24 because of “the current capital market conditions” according to an e-mailed statement from the car rental company’s public relations firm.

“We are still on schedule,” Audrey Ling, Acquity’s investor relations manager, said by phone yesterday in New York, after China Auto’s announcement. The IPO will be priced today and the shares will start trading on the New York Stock Exchange tomorrow, she said.

Low Valuations

Chinese companies listed in the U.S. on the Bloomberg gauge are trading at 18.9 times analysts earnings estimates, near the lowest valuation in nine months. The Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian companies in the U.S. has a price to earnings ratio of 6.5 times estimates, near the lowest in 12 weeks.

“China is a really cheap market in search of a catalyst, which is going to be improvement in non-inflationary growth, but it will come slowly,” Nicholas Smithie, a New York-based emerging market strategist at UBS AG, said in a phone interview. “For the moment, investors want exposure to Chinese consumer stocks because that’s an area of growth, and also a sector that is very scarcely represented in the indices.”

Beijing-based Elong, whose biggest shareholder is U.S. online travel agency Expedia Inc. (EXPE:US), increased 1.4 percent to $14.37, the biggest one-day jump since April 5.

Melco Crown -- which operates casinos in Macau, the only place in China where they are legal -- climbed 4.6 percent to $15.78 in New York, trading 2.1 percent above its Hong Kong stock, the widest premium in four days.

The Shanghai Composite Index (SHCOMP) advanced 0.8 percent to 2,406.81 yesterday, while the Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong was little changed at 10,812.79.

To contact the reporters on this story: Belinda Cao in New York at lcao4@bloomberg.net; Leon Lazaroff in New York at llazaroff@bloomberg.net

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


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Companies Mentioned

  • CEA
    (China Eastern Airlines Corp Ltd)
    • $23.62 USD
    • -0.24
    • -1.02%
  • ZNH
    (China Southern Airlines Co Ltd)
    • $23.47 USD
    • -0.19
    • -0.81%
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