Bloomberg News

Yanzhou Tumbles as Rate-Cut Doubts Sink ADRs: China Overnight

September 05, 2012

Chinese stocks fell for a fifth day in New York and Yanzhou Coal Mining Co. (YZC:US) plunged to a three-year low on concern the government isn’t taking enough steps to boost growth in the world’s second-largest economy.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. sank 1 percent to 86.29 at the close of trading in New York, posting the longest string of declines since May 18. Yanzhou Coal, China’s fourth-largest producer of the fuel, dropped to the lowest since July 2009. Trading in Ambow Education Holding Ltd. (AMBO:US)’s shares was halted after the company said it will start a probe into its units following a state television report.

China’s Ministry of Industry and Information Technology lowered its forecast for industrial output this year to about 10 percent growth from a December target of 11 percent. The revision comes as HSBC Holdings Plc and Markit Economics’ purchasing managers’ index for service industries fell to 52 from 53.1 in July, the third survey to show a slowdown this month. The People’s Bank of China has held off signaling further easing measures after two interest rate cuts this year.

“We’re seeing more data showing growth slowing in China but we’re also seeing very few signs that the central bank is interested in aggressive easing,” Timothy Ghriskey, the chief investment officer at Solaris Group LLC, which manages about $2 billion in assets, said in a phone interview from Bedford Hills, New York. “If the central bank stays on the sidelines, we don’t see a short-term catalyst that might send us in a different direction.”

Slowdown Accelerated

The iShares FTSE China 25 Index Fund (FXI:US), the biggest Chinese exchange-traded fund in the U.S., declined for a second day, declining 0.9 percent to $32.17. The Standard & Poor’s 500 Index (SPX) fell 0.1 percent to 1,403.44.

The Chinese ministry’s forecast indicates that the government recognizes that the slowdown has accelerated after growth dipped to a three-year low of 7.6 percent last quarter. Factory output increased 9.2 percent in July from a year earlier, bringing gains for the first seven months of the year to 10.3 percent.

HSBC Holdings Plc and Markit Economics’ report that showed a decline in new service sector orders raised concern China’s economy risks slowing for a seventh consecutive quarter. Service industries account for about 43 percent of China’s economy compared with about 90 percent in the U.S. Under China’s current five-year plan, the government aims to raise the share of services in gross domestic product to 47 percent by 2015, the official Xinhua News Agency said in May.

Curtail Speculation

Despite slowing growth, Chinese monetary authorities have resisted calls for further interest rate cuts in an effort to curtail speculation in their property and real estate markets, Ghriskey said.

“Evidently, they’ve been successful in holding down housing and property prices, so we don’t see the central bank reversing itself,” he said. “In a period of slowing growth, even at China’s comparatively high level, there is risk to the downside for stocks.”

American depositary receipts of Yanzhou Coal fell 6 percent to $13.20 after shares in Hong Kong declined 6.1 percent to HK$10.38, or $1.34. One ADR is equal to 10 ordinary shares.

Coal mines worldwide will be forced to curtail metallurgical production to stem falling prices for the steelmaking component, Raymond James Financial Inc. (RJF:US) said. Fourth-quarter benchmark prices will fall to $190 a metric ton, down 9.5 percent from a previous estimate of $210, the St. Petersburg, Florida-based investment bank said in a report yesterday.

The Standard & Poor’s GSCI Spot Index of commodities dropped 0.6 percent to 668.72.

Ambow Sinks

Ambow plunged 27 percent to $2.27, the most since the company’s initial public offering in the U.S. in August 2010, before trading was halted.

China’s Central Television said on Sept. 3 that Ambow’s one-on-one education unit exaggerated staff training results and that the schools’ registrations with industry regulators were incomplete, according to a statement by Ambow posted on Sept. 4. Ambow said it will start an investigation into the issues “immediately,” discipline the persons involved and take corrective steps.

Ambow Chief Strategy Officer Jenny Zhan, in a phone interview yesterday from Beijing, said it’s not the company’s policy to encourage staff to exaggerate training results. “The company’s investigation on the CCTV allegations is still ongoing, which doesn’t mean we admit everything the TV report said,” she said.

‘Disconcerting’

The company reported a $12.7 million net loss for the first quarter on July 4, compared with $2 million net income for the same period in 2011.

“It’s disconcerting,” Trace Urdan, an analyst at Wells Fargo & Co., said in a phone interview from San Francisco. “It’s not like they’re asserting financial fraud but this is coming from state television, which is serious. This definitely keeps Ambow in the penalty box for some additional period of time.”

The Shanghai Composite Index (SHCOMP) fell 0.3 percent yesterday to 2,037.68, its lowest since February 2009, while the Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong lost 1.9 percent, the most since July 23, to 9,020.34.

To contact the reporters on this story: Leon Lazaroff in New York at llazaroff@bloomberg.net; Belinda Cao in New York at lcao4@bloomberg.net

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


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Companies Mentioned

  • YZC
    (Yanzhou Coal Mining Co Ltd)
    • $7.82 USD
    • -0.05
    • -0.64%
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