Chinese equities traded in New York extended their July slump on concern existing stimulus measures aren’t sufficient to stem a six-quarter slowdown. New Oriental (EDU:US) Education & Technology Group Inc. posted its worst monthly tumble on record.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies fell 0.2 percent to 86.77 yesterday in New York for a monthly retreat of 4.9 percent. Suntech Power Holdings Co. (STP:US) extended its drop this month to 40 percent, leading solar companies lower, as Maxim Group LLC said it will need government intervention to avoid bankruptcy. New Oriental posted a 53 percent tumble in July following a regulator investigation of its accounting practices and short-selling firm Muddy Waters LLC’s fraud allegations.
Chinese Premier Wen Jiabao said downward pressure on the economy is “relatively large” and pledged to use different monetary policy tools to ensure stable growth in money supply and bank credit, the official Xinhua News Agency reported yesterday, citing his speech on July 26. A slowdown in the world’s second-largest economy as well as fraud concerns in some Chinese companies damped stocks, Solaris Group LLC said.
“The overall economic backdrop globally and in China is still questionable,” Timothy Ghriskey, chief investment officer at Solaris, which manages about $2 billion in assets, said in a phone interview from New York. “You also have accounting issues with Chinese companies, and right now the accounting issue is a difficult overhang. These things capture headlines and take down the whole Chinese market.”
China ETF Gains
The iShares FTSE China 25 Index Fund (FXI:US), the biggest Chinese exchange-traded fund in the U.S., climbed 0.4 percent to $34.21, extending its monthly gain to 1.6 percent. The Standard & Poor’s 500 Index of the biggest U.S. shares declined 0.4 percent to 1,379.32 yesterday as investors awaited the Federal Reserve’s monetary-policy decision today. The measure gained 1.3 percent in July, the second month of increase.
China has cut interest rates twice since early June, reduced banks’ reserve requirements by 1 percentage point this year, and sped approvals for investment projects as economic growth weakened. Jim O’Neill, chairman of Goldman Sachs Asset Management, said he expects China’s central bank to continue cutting interest rates to shore up the economy.
“I think they need more interest-rate cuts,” O’Neill said in an interview with Bloomberg Radio from London yesterday. “Inflation has come down sharply, probably more than they expected, and the economy of course has weakened quite a bit, too. It’s pretty obvious we’re going to get more rate cuts.”
Suntech, the world’s largest solar-panel maker based in Wuxi of China’s Jiangsu province, tumbled 16 percent to $1.13, after declining 15 percent a day earlier. Its July tumble sent the stock price to the lowest level since the company’s initial public offering in 2005, when it sold shares at $15 each.
Suntech said in a July 30 statement that 560 million euros ($689 million) of German bonds as collateral for payment of a loan to its affiliate Global Solar Fund S.C.A. Sicar may have never existed. It’s suing Javier Romero, a former Suntech sales representative who manages GSF, it said.
Chairman Shi Zhengrong defended the decision to funnel business in Europe through GSF yesterday. The affiliate “got better returns from developing downstream years ago when tariffs were higher,” Shi said in an interview.
Aaron Chew, a New York-based analyst at Maxim, reduced the company’s 12-month price target yesterday to zero from 50 cents, adding Suntech will need government intervention to avoid bankruptcy. Daiwa Securities Group Inc. analysts also lowered the price target for Suntech to 88 cents from $1.5 yesterday.
“The government will orchestrate some sort of buyout,” probably by a state-owned enterprise, Chew said by phone yesterday. China doesn’t “want to see Suntech go away. But it’s not a viable operation right now. It’s not solvent. It needs to re-cap.”
Yingli Green Energy Holding Co. (YGE:US), the world’s sixth-largest silicon-based solar module producer dropped 13 percent to a record low of $1.60. The company, based in Baoding of China’s Hebei province, tumbled 42 percent for the month.
Trina Solar Ltd. (TSL:US), the fourth-biggest photovoltaic panel maker, retreated 2.5 percent to $4.72, the lowest level since February 2009, extending its July decline to 26 percent, while LDK Solar Co., the world’s second-largest maker of wafers, also lost 26 percent for the month.
New Oriental, China’s largest private-education provider, climbed 4.8 percent to $11.42 yesterday in New York, trimming its tumble in July to 53 percent, the most since its IPO in 2006.
The Beijing-based company said July 17 the U.S. Securities and Exchange Commission was investigating it, and Muddy Waters followed with a report on July 18 to question the ownership of some of New Oriental’s schools, saying the company may have inflated its financial statements.
AsiaInfo-Linkage Inc. (ASIA:US), which sells telecommunication software to China’s biggest wireless carriers, fell 1.6 percent to $10.24, the lowest price in seven weeks. It lost 13 percent in July.
The Beijing-based company said yesterday in a statement that while it continues to consider buyout proposals “there can be no assurance that any definitive offer will ultimately be made, that any agreement will be executed, or that any transaction will be approved or consummated.”
AsiaInfo received a buyout offer in January from a unit of Citic Capital China Partners II, a private-equity fund owned by China’s state-owned investment company.
The Shanghai Composite Index (SHCOMP) of mainland stocks slipped 0.3 percent to 2,103.64 yesterday, the lowest level since March 2009. The gauge sank 5.5 percent in July, a third monthly loss in a row.
China’s Purchasing Managers’ Index probably climbed to 50.5 in July from 50.2 in June, according to the median estimate of 24 economists in a Bloomberg News survey before a government report due today.
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