An index of Chinese equities traded in the U.S. retreated from a five-week high, led by Internet companies, as data signaled service-sector growth in the world’s two largest economies is slowing.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. lost 1.4 percent to 103.44 in New York yesterday, after reaching the highest level since March 27 on May 2. E-Commerce Dangdang Inc. (DANG:US), an online bookseller known as Dangdang, slumped while social networking website Renren Inc. slid the most in more than a week. Semiconductor Manufacturing International Corp (SMI:US) fell to trade at the biggest discount (SMI:US) of dual-traded companies to its Hong Kong shares.
Service industries in China grew last month at the slowest pace since January, while a similar gauge for the U.S. non- manufacturing sector expanded the least in four months. China’s government is predicting the weakest economic growth since 2004 as exports slow and property prices fall. Of the 17 companies that have reported earnings since April 16, nine have come in short of analysts’ estimates, including Yanzhou Coal Mining Co. and China Telecom Corp., data compiled by Bloomberg show.
“Today’s non-manufacturing PMI was a huge drop compared to March and reflects concerns about European demand but also that Chinese real estate prices continue to come down,” Daniel Lenz, the chief emerging-markets strategist at DZ Bank AG in Frankfurt, said in a phone interview. “These changes in the economy will have a negative impact on service-sector earnings estimates.”
SouFun Holdings Ltd. (SFUN:US), the nation’s biggest real-estate website owner, fell the most in almost three months, falling 6.4 percent to $17.25 in New York, the biggest decliner on the Bloomberg China-US gauge.
Chinese home prices in April fell to a 14-month low, according to Beijing-based SouFun, which began compiling the figures in July 2010. Residential values dropped 0.3 percent last month from March, the eighth month-on-month decrease, SouFun said on May 2. Premier Wen Jiabao reiterated in March that China will “resolutely” maintain curbs on the property market even as the economy slows.
The iShares FTSE China 25 Index Fund (FXI:US), the biggest Chinese exchange-traded fund in the U.S., lost 1 percent to $37.92, paring its gain this year to 8.7 percent. The Standard & Poor’s 500 Index (SPX) declined to the lowest level since April 25.
A U.S. non-manufacturing index fell to 53.5 in April from 56 in March, the Institute for Supply Management said yesterday. China’s purchasing managers’ index was at 56.1 last month, from 58 in March, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in a statement yesterday in Beijing.
European Central Bank President Mario Draghi held off adding more monetary stimulus yesterday, saying that the recent economic data showing recessions in the Netherlands and Spain isn’t enough to change the bank’s view about a gradual recovery this year in the region.
Internet companies fell as slowing growth in China will prompt advertisers to pare spending, said Qi Guo, an analyst at ThinkEquity Partners LLC in San Francisco.
“Investors see a slowdown in advertising and remain concerned about just how much Chinese growth is slowing,” Guo, who covers Chinese Internet companies, said in a phone interview yesterday. “The fact that the U.S. also showed signs of slowing didn’t help Chinese Internet stocks either.”
Dangdang dropped 4.7 percent to $8.26, the biggest one-day drop since April 24. Renren Inc. (RENN:US), a Chinese social networking website, fell 3.9 percent to $6.34. Sohu.com Inc. (SOHU:US), operator of China’s third-biggest online video site, fell to a one-month low, declining 2.7 percent to $48.41.
The Bloomberg China-US index has gained 15 percent this year, and Dangdang and Renren have each jumped more than 75 percent.
Investors should be cautious buying big-name Chinese Internet stocks following this year’s rally, said Kevin Pollack, a fund manager at Paragon Capital LP.
“Today isn’t the best timing to invest in large-cap Internet stocks,” Pollack, who holds Chinese stocks traded in the U.S., said by phone from New York. “There’s significant downside risk for the global markets.”
Chinese Vice Premier Li Keqiang, in Brussels yesterday after a Europe-China meeting on energy, said the global economy is going through “deep adjustments” as the financial crisis continues.
“Although there are some signs of recovery in the world economy, the underlying impact of the international financial crisis lingers,” Li said.
Chinese policy makers lowered their 2012 economic growth target to 7.5 percent on March 5 from an 8 percent target over the previous seven years.
Semiconductor Manufacturing, a Shanghai-based circuit maker, fell 4.7 percent to $2.41 in New York. The ADRs traded at a 4.1 percent discount to its shares in Hong Kong, the most since April 10.
Spreadtrum Communications Inc. (SPRD:US), a Shanghai-based chip designer, surged 15 percent to $15.51 by 5:09 p.m. in trading after markets closed. The stock slipped 2.3 percent to $13.43 during normal hours.
The company said revenue in the second quarter will be between $170 million and $175 million, according to earnings results released after the New York close. The median of seven analysts’ estimates is for $161.7 million of sales in the quarter, data compiled Bloomberg show.
Seaspan Corp. (SSW:US), a Hong Kong-based container ship operator, declined 3.2 percent to $17.14. The company is scheduled to report earnings today.
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