Bloomberg News

Focus Drives Drop as Economy Hits Index: China Overnight

January 24, 2013

Chinese stocks traded in New York fell for a second day on concern the nation’s economic recovery won’t be sustained. Focus (FMCN:US) Media Holding Ltd. dropped amid a Securities and Exchange Commission probe and as Muddy Waters LLC called the company a fraud.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. declined 0.7 percent to a two-week low of 100.53. Shanghai-based Focus, which disclosed the investigation into possible violations of securities law Jan. 18, sank the most since September. China Unicom (Hong Kong) Ltd. traded at the widest discount (CHU:US) to Hong Kong in three months.

While a private survey released yesterday showed Chinese manufacturing is expanding at the fastest rate in two years, economic growth will probably slow in the second half should policy makers refrain from easing monetary policy, Li Daokui, a former central bank adviser, said in an interview in Davos, Switzerland. The China-US gauge trades at an average 13.6 times estimated earnings, from a two-month high of 14 times Jan. 10.

“Investors are perhaps finding that shares have moved too far, enough to discount the good news that we’ve seen,” Tony Hann, who oversees $400 million of assets as head of emerging- market equities at Blackfriars Asset Management Ltd., said by phone from London. “Recent economic data looks better but I still have some concerns about sustainability and also what the growth trajectory is.”

China’s economy arrested a seven-quarter slowdown in the three months to Dec. 31, posting growth of 7.9 percent, the fastest pace since th first quarter of 2012.

Securities ‘Violations’

The iShares FTSE China 25 Index Fund (FXI:US), the largest Chinese exchange-traded fund (FXI:US) in the U.S., held at $41.53 in New York, after declining 0.5 percent Jan. 23. The Standard & Poor’s 500 Index was also little changed at a five-year high of 1,494.82, as the worst slump for Apple Inc. in four years pulled technology shares lower and overshadowed better-than-forecast company earnings.

Focus, which slid as much as 8 percent, ended the day 3.1 percent lower at $24.99, the biggest one-day decline since Sept. 24. The Chinese digital advertising company agreed to be bought by a consortium of investors led by Carlyle Group LP (CG:US) in a $3.7 billion privatization deal last month.

The company, which short seller Muddy Waters LLC said in 2011 overstated its ad network, said in a regulatory filing Jan. 18 that the U.S. Securities and Exchange Commission is probing potential “violations” of securities law, with special attention to the purchase and resale of companies including Allyes Online Media Holding.

‘Long-Standing Fraud’

Randall Whitestone, a spokesman for the buyout consortium, said by e-mail that they were aware of the SEC probe and will move ahead with the transaction. Focus is a “long-standing fraud” and the Carlyle-led group will see a “significant loss” on the buyout, according to a report posted today on Muddy Waters’ website.

Focus Chief Executive Officer Jason Nanchun Jiang and media manager Jing Lu didn’t immediately respond to e-mails seeking comment. Phone calls to Lu made outside of business hours in Shanghai weren’t returned.

Sohu.com Inc. (SOHU:US), which owns the fifth-most visited website in China, rallied for a fourth day, adding 0.9 percent to $50.26, the highest close since May 1. Youku Tudou Inc. (YOKU:US), owner of China’s most-used video websites, climbed 0.5 percent to a seven-month high of $22.60.

‘Negative Impact’

“The issue with Focus Media will cast some negative impact on sentiment toward U.S.-listed Chinese equities and perhaps cause some daily volatility,” Henry Guo, a San Francisco-based senior analyst at research firm ABR Investment Strategy LLC, which focuses on technology and media companies, said by phone yesterday.

“The recovery in China’s macro-economy is helping drive up Internet companies, especially those names that can benefit from the growth in the online advertising market this year,” he said.

China Unicom’s American depositary receipts sank 4.7 percent to $15.98 in New York, the steepest one-day slump since June 21. The ADRs, each representing 10 underlying shares in China’s second-largest wireless network operator, traded 2.3 percent below (CHU:US) its Hong Kong stock, the widest discount since Oct. 25.

ADRs of Beijing-based China Mobile, the world’s biggest mobile-phone company, slid for a third day, losing 0.9 percent to a two-month low of $55.15. China Telecom Corp., the smallest of the three companies, sank 2 percent to $54.77 in New York, the lowest price in a month.

4G Network

China Mobile starting a commercial service with its homegrown 4G network in Hong Kong in December is “very clever positioning” that should help the company win government approval for the rest of China, HSBC Holdings Plc analyst Tucker Grinnan said last month.

“There was some chatter about China Mobile releasing a 4G network, and that was probably sooner than people expected,” Jun Zhang, an analyst at Wedge Partners Corp., said by phone from San Jose, California yesterday. “That would be really positive for China Mobile and I don’t think China Unicom has the resources for a 4G network right now.”

E-House China Holdings Ltd. (EJ:US), a Shanghai-based real estate developer, was the biggest decliner on the China-US gauge, dropping 6.2 percent to $5, the steepest slide in a month. Chinese new home prices rose in December in the most cities in 20 months, stoking concern the government may issue new controls on the property market.

The Hang Seng China Enterprises (HSCEI) measure slid 0.6 percent to 12,095.77 in its second day of declines. The Shanghai Composite Index (SHCOMP) of domestic Chinese shares dropped 0.8 percent to 2,302.60 yesterday.

The Bloomberg Chinese Reverse Mergers Index (CHINARTO), which tracks a basket of companies that gained U.S. listings after buying firms that already trade, sank 1.3 percent to 78.16, declining the most in three weeks.

To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net


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Companies Mentioned

  • CHU
    (China Unicom Hong Kong Ltd)
    • $16.95 USD
    • -0.09
    • -0.53%
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