Chinese stocks traded in New York fell to the lowest level in nine months, led by solar and Internet companies, on concern that a slowdown in the world’s second-largest economy will erode earnings.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. sank 2.1 percent to 84.32 in New York, the lowest close since Oct. 4. Yingli Green Energy Holding Co., (YGE:US) the world’s fourth-biggest maker of solar cells, and LDK Solar Co. (LDK:US) lost at least 6 percent. Elong Inc. (LONG:US), an online travel company, tumbled while Baidu Inc., (BIDU:US) China’s largest online search engine, surged in after-hours trading as its second-quarter earnings beat analysts estimates.
China’s economic growth may ease to 7.4 percent this quarter from a year earlier, the slowest pace in more than three years, Song Guoqing, an academic member of the central bank’s monetary policy committee, said July 21 in Beijing. Net income of 52 companies on the Bloomberg China-US gauge that reported from mid-February to mid-May missed analysts’ estimates by 19 percent on average, according to data compiled by Bloomberg. Stocks fell across the world on concern the European crisis is deepening.
“With all the headwinds, it’s hard for the market to break out,” said Erik Lam, director of Asian equity sales at Auerbach Grayson & Co. in New York, by phone. “The Street expects Chinese Internet companies’ earnings to deliver somewhat slower profit growth. If you are a bear, China is too dangerous altogether.”
The iShares FTSE China 25 Index Fund (FXI:US), the biggest Chinese exchange-traded fund in the U.S., lost 2 percent to $32.60. The Standard & Poor’s 500 Index (SPX) declined 0.9 percent to 1,350.52.
Baidu surged 5.5 percent to $113 at 4:33 p.m., from yesterday’s close of $107.1. The company reported adjusted earnings of $1.26 per share, compared with the mean estimate of $1.13 by 14 analysts surveyed by Bloomberg. Shares fell 2.8 percent yesterday prior to the earnings announcement.
Cnooc Ltd. (883), China’s largest offshore oil and gas explorer, fell 4.3 percent to $193.96 in New York. The ADRs traded 2.6 percent lower than its equivalent shares listed in Hong Kong, the biggest discount in a month, data compiled by Bloomberg show.
Cnooc agreed to pay $15.1 billion in cash to acquire Canada’s Nexen Inc. (NXY) in the biggest overseas takeover by a Chinese company. Beijing-based Cnooc will pay for the acquisition using existing cash funds and external financing.
The Shanghai Composite Index (SHCOMP) of domestic shares dropped 1.3 percent to close at the lowest level since March 2009.
Semiconductor Manufacturing International Corporation (SMI:US), the world’s third-largest contract manufacturer of chips, rose 12 percent to $1.67. It was the biggest one-day gain since November.
Tal Education, Ctrip
Sales for the three months ended June 30 may increase as much as 26 percent, the Shanghai-based chipmaker said, revising its forecast from the maximum 21 percent it predicted at the end of March.
TAL Education Group (XRS:US), which provides after-school tutoring services, and Ctrip.com International Ltd. (CTRP:US), the largest online travel agency in China, are scheduled to release their quarterly earnings today.
Solar companies were among the biggest decliners in the Bloomberg China index today. Yingli tumbled 8.1 percent to $2.28, while LDK sank 6.4 percent to $1.62.
LDK and Yingli have dropped at least 40 percent this year as a global supply glut and European subsidies cuts reduced prices. Chinese module prices have tumbled to a record low of 77 cents a watt as of July 2, a 47 percent decline from a year earlier, according to Bloomberg New Energy Finance.
Beijing-based Elong fell 6 percent to $11.25, while Sohu.com Inc. (SOHU:US) lost 4.3 percent to $33.91.
China’s four-month decline in producer prices will hurt profits, restrict investment and slow economic growth, the central bank’s Song told a forum in Beijing during the weekend. Industrial profits dropped 5.3 percent in May from a year earlier, following a 2.2 percent decline in April and 4.5 percent gain in March, the National Bureau of Statistics said on June 29.
The Bloomberg China index has lost 6.4 percent this year, compared with a gain of 7.4 percent in the S&P 500 index. The China index is valued at 16.8 times estimated profit, near the lowest level since March 2009, according to data compiled by Bloomberg.
Valuations of Chinese companies are attractive as record low bond yields in the U.S., U.K. and Germany may prompt investors to search for alternatives to boost returns, according to Jeff Papp, a senior analyst at Oberweis Asset Management Inc., which manages $700 million.
The yield on the 10-year U.S. Treasury note reached an all- time low of 1.40 percent, while two-year German yields slumped to as low as minus 0.08 percent.
“With valuations so low and China taking matters into their own hands, I believe money can flow from the developed world to China,” said Papp in an e-mail. “There is very little left in bonds. Therefore, the risk-reward for a place like China, is appealing.”
The central bank cut its benchmark interest rate for a second time in a month on July 5 and has reduced banks’ reserve requirement ratio three times starting in November to shore up the economy. Premier Wen Jiabao said during a two-day meeting with economists and company executives ended July 10 that promoting investment growth is key to stabilizing the economic expansion.
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