Chinese stocks dropped in New York, led by Internet companies, on concern a failure by U.S. lawmakers to raise the debt ceiling will hurt the economy of China’s second-largest trading partner.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. slid 0.5 percent to 101.49 yesterday, trimming its gain this year to 2.3 percent. Social networking website Renren Inc. (RENN:US) and online retailer E-Commerce China Dangdang Inc. (DANG:US) dropped the most in a week. China Unicom (Hong Kong) Ltd. (CHU:US) slipped to a one-week low after Fitch Ratings said the nation’s proposal to open up telecommunications networks will reduce the operator’s profitability. Melco Crown Entertainment Ltd. (MPEL:US) climbed to the highest level since 2007.
The China-US measure shrugged off the 0.6 percent advance in the Shanghai Composite Index of domestic Chinese shares as U.S. President Barack Obama said the world’s biggest economy faced fiscal and social calamity if the $16.4 trillion debt limit isn’t lifted. Congressional Republicans are calling for spending cuts in exchange for the higher debt threshold.
Chinese U.S.-listed equities “reacted negatively to a lack of progress in debt ceiling talks,” Frederick Ziegel, an analyst who covers Chinese companies listed in the U.S. at brokerage Topeka Capital Markets Inc., said by phone in New York. “That has some indirect influence on Chinese companies traded in the U.S. People want to see some progress for sure.”
The U.S. replaced the European Union as China’s largest export market in 2012, Zheng Yuesheng, head of China’s customs statistics said at a press briefing on Jan. 10 in Beijing. The two markets together accounted for one-third of China’s overseas sales last year, customs data showed.
The iShares FTSE China 25 Index Fund (FXI:US), the largest Chinese exchange-traded fund in the U.S., was little changed at $41.28 yesterday, after rallying 0.5 percent in the previous day. The Standard & Poor’s 500 index added 0.1 percent in New York after a rally in retail sales overshadowed debt ceiling concerns.
The Hang Seng China Enterprises Index (HSCEI) was little changed yesterday at a five-month high of 12,006.82, while the Shanghai Composite (SHCOMP) jumped to 2,325.68, the highest level since June 1.
American depositary receipts of Renren slid 3.2 percent to $3.64, cutting its increase this year to 5.5 percent. Beijing- based Dangdang, China’s biggest online book retailer, declined 3.5 percent to $4.62, its 2013 advance to 11 percent. Youku Tudou Inc. (YOKU:US), China’s biggest video website operator, fell 2.3 percent from a seven-month high to $22.06. The Beijing-based company’s first loss in four days trimmed its jump this year to 21 percent.
“We had a great run since the beginning of the year, and people are taking a step back and reevaluate the growth opportunity here,” Derrick Irwin, a portfolio manager at the Wells Fargo Advantage Emerging Markets Equity Fund, said by phone from Boston yesterday.
ADRs of China Unicom, the nation’s second-largest wireless network carrier, slid 2.3 percent to $16.78, the lowest level in a week. China Mobile Ltd. (941), the biggest wireless operator, dropped 1.5 percent to $57.06. China Telecom Corp., the nation’s largest fixed-line phone company, trimmed 0.6 percent to $56.27.
China’s Ministry of Industry and Information Technology has proposed a two-year trial to allow Chinese non-state owned companies to purchase mobile network bandwidth from existing operators and rebrand the services to end users, according to a posting on its website on Jan. 8.
The proposed network opening signals the beginning of a series of regulatory moves that may add pressure on the existing operators’ profitability, Fitch Ratings said in a Jan. 14 statement.
Baoding-based Yingli Green Energy Holding Co. (YGE:US), China’s fourth-largest solar-panel maker, sank for a fourth day, losing 2.4 percent to a one-week low of $2.9. LDK Solar Co. (LDK:US), the second-largest manufacturer of wafers globally, lost 2 percent to $2 in New York, also extending its slump into a fourth day.
A “secular decline” in solar pricing will continue, driving down the stocks of the producers, Aaron Chew, a New York-based senior analyst at Maxim Group LLC said in a research note yesterday.
China Lodging Group Ltd. (HTHT:US), a budget hotel chain based in Shanghai, fell 3.5 percent to $18.14. Trading volume on the stock was 1.8 times the daily average over the past three months, data compiled by Bloomberg showed.
The stock retreated after a four-day rally that drove the stock to a six-month high. Investors should “take profits” on China Lodging stock at these levels, Ella Ji, a New York-based analyst at Oppenheimer & Co. who has rated China Lodging the equivalent of buy since 2011, said on Jan. 14. Business in the hospitality sector may not reflect China’s economic rebound until after the first quarter, Ji said by phone.
Melco, which operates gambling facilities in Macau, the only Chinese city where casinos are legal, climbed 3.3 percent to $19.81 in New York, the highest close since February 2007. Its ADRs, each representing three underlying shares in the company, traded 3.2 percent above its Hong Kong shares, the widest premium (MPEL:US) since Jan. 2.
Credit Suisse Group AG raised Melco’s price estimate by 43 percent yesterday to $25.4, maintaining the stock’s rating of outperform, or the equivalent of buy.
Thirty-day volatility on the China-US measure index fell to 17 yesterday from 17.3 the previous day, and compared with an average of 21.6 over the past year. The Bloomberg Chinese Reverse Mergers Index (CHINARTO), which tracks a basket of companies that gained U.S. listings after buying firms that already trade, advanced 0.5 percent to 78.73 on its second day of gains, rising 4.2 percent this year.
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