Chinese equities slumped the most in five weeks in New York on concern growth in the world’s second- largest economy may weaken further after posting six quarters of deceleration, eroding corporate earnings.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in the U.S. slid 1.6 percent last week to 89.73, the most since the week ended July 20. Baidu Inc. (BIDU:US), owner of China’s most-popular search engine, sank 14 percent in the week after losing market share to Qihoo 360 Technology Co. Real estate websites E-House China Holdings Ltd. (EJ:US) and SouFun Holdings Ltd. (SFUN:US) fell amid concern China will keep curbs on the industry. Qihoo posted the biggest weekly rally in a year.
Forty-two companies reporting results since mid-July on the Bloomberg gauge have missed analysts’ earnings forecast by an average of 10 percent, Bloomberg data show. A preliminary index published by HSBC Holdings Plc last week suggested manufacturing may contract in China for a 10th month in August.
“The situation in China has gone beyond a soft landing already, and the next stage is that things will continue to get worse,” Michael Shaoul, the chairman of Marketfield Asset Management in New York, said by phone Aug. 24. “The move in local equity market signals that the actual corporate earnings are really deteriorating there. If that continues, at some point of time, it’ll really start to get the attention of global investors.”
China ETF Slumps
The Bloomberg measure of U.S.-traded Chinese stocks has fallen 0.4 percent this year while the Shanghai Composite Index has lost 4.9 percent to a three-year low.
The iShares FTSE China 25 Index Fund (FXI:US), the biggest Chinese exchange-traded fund in the U.S., dropped 1.4 percent last week to $34.01. The Standard & Poor’s 500 Index of the biggest U.S. shares retreated 0.5 percent for the week to 1,411.13, snapping a six-week stretch of increases.
The nation still faces “relatively big” pressure on economic growth, the Financial News reported Aug. 24, citing a speech by Central Bank Governor Zhou Xiaochuan at a meeting Aug. 22. The HSBC purchasing managers’ index’s preliminary reading of 47.8 released Aug. 23 compared with July’s final 49.3 figure. It would be the lowest level since November and the 10th month that the reading has been below 50, the longest run in the index’s eight-year history.
American depositary receipts of Beijing-based Baidu rebounded 0.5 percent to $115.72 on Aug. 24 after declines in the previous four days dragged the price down 14 percent.
Online Search Market
Competition is intensifying in China’s online search market, where Baidu used to dominate with a share of about 80 percent, as Qihoo, a developer of computer security and browsers, started online search services Aug. 16.
Alan Hellawell, an analyst at Deutsche Bank AG, wrote in an Aug. 23 note that Baidu lost search traffic market share by 4 to 8 percentage points to Qihoo, and the trend will continue in the next two quarters. He cut the recommendation on Baidu to hold from buy, and reduced the price target to $137 from $186.
“While Qihoo’s launch of search is a negative for Baidu, investors overestimate its potential negative impact,” Henry Guo, an analyst at ThinkEquity LLC said in a report Aug. 24.
Qihoo, also based in Beijing, declined 2.6 percent to $23.08 on Aug. 24, trimming last week’s advance to 24 percent. The weekly increase was still the biggest since July 2011.
E-House, which provides real estate agency services, dropped for a seventh consecutive day in New York, the longest losing streak this year. Its shares lost 13 percent last week in New York to $4.79, the steepest slump since mid-May.
SouFun, China’s biggest real estate information website, retreated 5.2 percent last week to $13.75, halting a two-week advance.
The Chinese government may expand a property tax trial and raise the “threshold” for home pre-sales if housing prices rebound too fast, Shanghai Securities News reported Aug. 20, citing unidentified people. The report came two days after statistics bureau’s data showing July home prices climbed from a month earlier in 49 of the 70 cities. That was the most since May 2011 and compared with 25 cities in June.
Yingli Green Energy Holding Co. slid 5.9 percent Aug. 24 to $1.93, the most in three weeks.
Yingli, the world’s sixth-largest silicon-based solar producer, may report Aug. 29 a net loss of $56 million for the second quarter, according to the average estimate (YGE:US) of 10 analysts surveyed by Bloomberg. That would compare with a profit a year ago and a loss of $45 million in the prior three months.
Trina Solar Ltd. (TSL:US), which reported a fourth quarter of losses last week, slumped 5.5 percent to $4.85 on Aug. 24, the biggest slump in three weeks. LDK Solar Co. (LDK:US) retreated 3.4 percent, its fourth day of declines, to $1.40. The company, which has yet to release its second-quarter earnings, has been losing money since the second quarter of 2011.
“Overcapacity in the solar industry hasn’t shown much improvement and there has been little consolidation,” Joshua Giordano, a managing director at Energistics LLC., which advices trading in energy companies, said by phone Aug. 24 from New York. “Chinese solar companies will continue to lose money within the next year. They are mostly insolvent without credit lines from the government.”
The Shanghai Composite Index (SHCOMP) fell 1.1 percent last week to 2,092.10, the lowest level since March 2009. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies lost 1.6 percent to a three-week low of 9,674.82.
International investors can hold as much as a 49 percent stake in a joint-venture securities firm, compared with the previous limit of 33 percent, the China Securities Regulatory Commission said in a draft of regulations of the industry’s foreign investments posted on the agency’s website on Aug. 24.
The draft, published to seek public opinions, includes revisions to the previous rules made in 2002, the regulator said. The changes reflect commitments made by the Chinese government in the annual China-U.S. Strategic and Economic Dialogue held last May, the commission said.
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