Chinese equities rose for the first time in five days after Qihoo 360 Technology Co.’s outlook for the third quarter beat estimates and China Telecom Corp.’s second-quarter profit exceeded projections on new iphone users.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in the U.S. advanced 0.4 percent to 90.08 yesterday. Internet software developer Qihoo surged 16 percent, extending a three-day rally. China Telecom, the country’s biggest fixed-line carrier, jumped the most in a year. Airlines declined after Credit Suisse Group AG reduced its recommendation on the sector.
Fifty-one percent of the 35 companies that have reported earnings (CH55BN:US) since mid-July beat analysts’ estimates, data compiled by Bloomberg showed. Minutes from the Federal Reserve’s last gathering released yesterday showed that “many members” believed more monetary accommodation would be needed fairly soon unless the pace of the economic recover picks up. China’s Governor Zhou Xiaochuan said yesterday adjustments to interest rates and banks’ reserve requirements are still possible after adding cash in open-market operations.
“Everything, including commodities and stocks, reacted to the Fed’s minutes,” Michael Gayed, the chief investment strategist at Pension Partners LLC, which advises on more than $150 million in assets, said by phone yesterday from New York. “It just confirmed the notion that the Fed is looking to step in once again. The world is still awaiting some aggressive actions from China.”
China ETF, S&P 500
The iShares FTSE China 25 Index Fund (FXI:US), the biggest Chinese exchange-traded fund in the U.S., was little changed at $34.28 after sliding in previous five days. The Standard & Poor’s 500 Index of the biggest U.S. shares was also little changed at 1,413.49, erasing earlier losses, after the Fed minutes were released.
The Fed’s document showed it “will do anything to maintain growth,” Jeff Papp, a senior analyst at Oberweis Asset Management Inc., said by phone yesterday from Lisle, Illinois. “In China, we really haven’t seen the type of government involvement that we would need to make growth more certain.”
Qihoo’s ADRs jumped 16 percent to to $24.58, adding its gains this week to 33 percent, the biggest three-day rally since its U.S. initial public offering in March 2011.
The Beijing-based company said on Aug. 21 third-quarter revenue (QIHU:US) will rise as much as 73 percent from a year earlier to $82 million, after jumping 107 percent to $72.8 million in the previous three months. The company’s estimate beat the average $80.3 million projected by seven analysts surveyed by Bloomberg.
Qihoo, which develops computer security software and desktop products, started a new search engine last week, entering a market that is 80 percent dominated by Baidu Inc. The company is looking to be a “major player” in China’s online search market in the long term, Chief Executive Officer Zhou Hongyi said on a conference call Aug. 21.
“We are impressed by the strong debut of Qihoo’s search and believe it has significant opportunity in China’s large search market,” Henry Guo, an analyst at ThinkEquity LLC, wrote in a note yesterday. “Qihoo is well-positioned and we see significant monetization potential going forward.”
ADRs of China Telecom climbed 9 percent to a five-month high of $56.24. The ADRs, each representing 100 underlying shares, traded 4.6 percent above (CHA:US) its Hong Kong shares, the highest premium since November.
The Beijing-based phone operator’s second-quarter net income fell 10 percent to 4.55 billion yuan ($716 million), from a restated 5.05 billion yuan a year earlier, it said in a statement yesterday. That exceeded the 4.4 billion yuan median of seven analysts’ estimates in a Bloomberg News survey.
China Eastern Airlines Corp., the nation’s second largest carrier, slid 2.6 percent to a one-month low of $16.38. China Southern Airlines Co., Asia’s biggest carrier by passenger number, dipped 1.3 percent to $23.52, the lowest level since July 12.
Credit Suisse yesterday cut the rating on the Asian airline industry to underweight, citing rising jet fuel prices and currency depreciations. It lowered price targets for the two Chinese airlines.
Ctrip.com International Ltd. (CTRP:US), China’s largest online travel agency, advanced 5.8 percent to $15.98, the highest level since July 5. Its smaller competitor Elong Inc. (LONG:US) retreated 1.4 percent to $15.73.
Ctrip announced last month a $500 million products sales plan to boost its market share and Elong followed, joining a price war among Chinese online travel agencies, The China National Radio reported on its website yesterday, citing ads on the companies’ websites and social media platforms.
The Shanghai Composite Index (SHCOMP) dropped 0.5 percent to 2,107.71 yesterday, the most in a week. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies slumped 1.3 percent to a two-week low of 9,698.83.
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