Bloomberg News

ADR Premium to BRICs Narrows on Europe Concerns: China Overnight

May 20, 2012

Chinese companies traded in the U.S. fell to the lowest valuations versus the biggest emerging markets in a year as Europe’s debt crisis deepened and growth in the world’s second-largest economy slowed.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. dropped 7.2 percent in New York last week to 90.7, the biggest five-day decline since September. Suntech Power Holdings Co. and Yingli Green Energy Holding Co. (YGE:US) tumbled more than 20 percent last week after the U.S. imposed tariffs on Chinese-made solar cells. Yanzhou Coal Mining Co. (YZC:US) traded at a 2.2 percent discount to its Hong Kong shares.

China’s home prices fell in a record number of cities last month and car dealers reported inventory levels that signal deeper price cuts. Moody’s Investors Service lowered debt ratings at 16 Spanish banks last week while Greece’s credit was reduced one level by Fitch Ratings. Companies in the China-US gauge traded at the smallest premium to the average member of the MSCI BRIC Index of Brazil, Russia, India and China since March 2011, according to data compiled by Bloomberg.

“While there are legitimate economic concerns about China, the elephant in the room is the European sovereign situation,” Lewis Kaufman, a Santa Fe, New Mexico-based money manager at Thornburg Investment Management, who helps manage $79 billion, said in a phone interview. “It’s a difficult environment for risk markets, which means emerging markets including China.”

$4 Trillion

About $4 trillion has been wiped from global equity markets in May amid mounting concern that Greece will have to leave the euro currency union after elections next month.

The iShares FTSE China 25 Index Fund (FXI:US), the biggest Chinese exchange-traded fund in the U.S., slid 6.6 percent last week to $33, the lowest level since Oct. 20.

The Shanghai Composite Index of mainland stocks slumped 2.1 percent last week, while the Standard & Poor’s 500 Index (SPX) of U.S. shares lost 4.3 percent, the steepest weekly drop since November.

American Depositary receipts of Yanzhou fell 10 percent last week in New York to $16.77, the lowest since November 2009. The Hong Kong shares fell 9 percent over that period.

China’s new homes prices fell from a year earlier in 46 of the 70 cities tracked by the National Bureau of Statistics, the agency said May 18. Goldman Sachs Group Inc. last week lowered its estimate for China’s growth this year to 8.1 percent from 8.6 percent.

Companies in the China-US gauge traded at 16 times estimated earnings, compared with an average of 8 of the MSCI BRIC Index, according to data compiled by Bloomberg.

Youku Tumbles

Youku Inc. (YOKU:US), the largest online video operator in China, dropped 14 percent last week to $20.27. The company reported a 22 cents loss per share in the first quarter, above the 20 cents median estimate of seven analysts surveyed by Bloomberg.

Of the 40 companies in the China-US index that have reported earnings since the beginning of the quarter, 15 missed analysts’ estimates, including Yanzhou and China Telecom Corp. (CHA:US)E-Commerce China Dangdang Inc. (DANG:US), an online retailer, lost 23 percent last week to $5.45 as it joined Baidu Inc. (BIDU:US) and Sohu.com Inc. in forecasting slower revenue growth in the second quarter.

Tudou Holdings Inc. (TUDO:US) and Qihoo 360 Technology Ltd. (QIHU:US) are among the Chinese companies that are scheduled to release earnings this week.

Renren Sinks

Renren Inc. (RENN:US) tumbled 21 percent on May 18, the most on record, as Facebook Inc. (FB:US)’s initial public offering failed to boost investors’ confidence in the Chinese social networking website that won’t turn profit until late 2013.

Beijing-based Renren, which went public a year ago, fell 13 percent last week to $4.93. The slump halted a 76 percent gain this year on speculation the Facebook IPO may prompt investors to put a higher valuation on social media companies, Echo He, an analyst at Maxim Group LLC in New York, said by phone last week. Facebook, the world’s most popular social-networking site, gained 0.6 percent in its trading debut.

Yingli Green, China’s third-biggest solar-energy equipment maker, lost 29 percent last week to a record low of $2.52. Suntech Power, the world’s largest solar-panel maker, based in Wuxi, China, declined 22 percent to $2.

The U.S. Commerce Department ruled that Chinese manufacturers sold cells in the U.S. at prices below the cost of production and announced preliminary antidumping duties ranging from 31 percent to 250 percent. The decision is meant to provide a boost to the U.S. solar manufacturing industry, where four companies filed for bankruptcy in the past year.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Leon Lazaroff in New York at llazaroff@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net


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Companies Mentioned

  • YGE
    (Yingli Green Energy Holding Co Ltd)
    • $3.08 USD
    • -0.03
    • -0.97%
  • YZC
    (Yanzhou Coal Mining Co Ltd)
    • $7.96 USD
    • -0.17
    • -2.14%
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