Solar companies led a rally in Chinese stocks traded in New York after Deutsche Bank AG said the outlook of demand for the renewable energy is improving.
The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. climbed 1.2 percent to 93.09 yesterday, rising for the first time in five days. Trina Solar Ltd., the world’s fourth-largest solar module producer, jumped 10 percent while Yingli Green Energy Holding Co. (YGE:US) advanced for a third day. Suntech Power Holdings Co. and LDK Solar Co. rose to one-week highs. Web fashion retailer Vipshop Holdings Ltd. (VIPS:US) tumbled the most in 14 months after the stock was downgraded.
The outlook of the solar industry is improving due to “strong” demand from Japan, the U.S., China and other emerging markets while supply cuts have accelerated, Deutsche Bank analysts led by Vishal Shah wrote in a note dated May 27. European Union Trade Commissioner Karel De Gucht yesterday defended a plan to impose provisional duties on Chinese solar manufacturers, two days after German Chancellor Angela Merkel said she’ll strive to ensure no permanent tariffs will be set.
“We’re starting to see more project activity globally rather than just Europe, which will be instrumental in driving supply lower,” David Smith, manager of the Gabelli Green Fund at Gamco Investors Inc. (GBL:US), said by e-mail from Purchase, New York yesterday. “If the margins are on the upswing, then it’s time to own those names that have been so beaten down.”
The iShares FTSE China 25 Index Fund (FXI:US), the largest Chinese exchange-traded fund (FXI:US) in the U.S., surged 1.6 percent in New York to $37.16, the steepest gain in five weeks. The Standard and Poor’s 500 Index added 0.6 percent to 1,660.06 after data showed U.S. consumer confidence climbed to the highest level since 2008 and home values jumped the most in seven years.
Trina Solar’s American depositary receipts surged to $6.79, rising the most since May 20.
The Guangzhou, China-based company is scheduled (TSL:US) to release first-quarter figures today before markets open. Shipments for the quarter will be 390 megawatts to 400 megawatts compared with an earlier estimate of 420 megawatts to 430 megawatts, it said in a statement May 14. It may revise its 2013 shipment forecast of 2 gigawatts to 2.1 gigawatts on a conference call to discuss the results today, according to the statement.
Supply cuts at China’s second- and third-tier solar makers have accelerated over the past 18 months and supply from large companies, including Suntech and LDK, decreased “sharply,” Deutsche’s Shah said in the note.
“We believe solar rally has legs,” he wrote. “EU/US/China tariff outcome uncertainty remains the primary policy overhang for the solar sector -- a positive outcome on this front with gradual profitability improvement could act as the next set of catalysts for solar stocks.”
Chinese premier Li Keqiang said he “decisively” rejected the imposition of EU duties at a joint press conference with Merkel in Berlin May 26. The U.S. government is also engaged in preliminary talks with the EU and China to settle the solar dispute, according to people familiar with the discussions.
Yingli, the largest solar-panel maker globally, climbed 8.2 percent to $3.45 in New York on its third day of gains.
The company, based in Baoding of Hebei province, is due to report first-quarter earnings tomorrow. Shipments for the quarter will decline about 6 percent to 7 percent from the prior three months, it said in a May 21 statement. That compared with its March forecast for a slump in the “low to mid-teen percentage.”
Suntech, which was forced into bankruptcy in March after defaulting on a bond payment, increased 3.5 percent to $1.02. LDK Solar, based in Xinyu of Jiangxi province, gained 4.2 percent to $1.73. LDK said yesterday it plans to release first-quarter earnings on June 11.
Vipshop (VIP:US) tumbled 13 percent to $29.53, the biggest one-day slide since March 2012. Trading volume on Vipshop’s ADRs was more than three times the daily average over the past three months, data compiled by Bloomberg showed.
The company had the steepest loss on the China-US gauge. The ADR’s slide cut its advance this year to 66 percent.
Deutsche Bank cut its recommendation (VIPS:US) on the stock to hold from buy on May 27, citing the shares’ valuation and intensifying competition in the Internet flash sales market. Vipshop shares are trading at 27 times 12-month estimated profit, from 20 at the beginning of this year, according to data compiled by Bloomberg.
Vipshop “may be misleading in its customer counts,” according to a report by Greenwich Research Group posted on the Seeking Alpha website May 24.
“While we view much of the analysis to be questionable, we believe the article could trigger greater scrutiny around the company,” Deutsche Bank analyst Alan Hellawell said in the note yesterday.
Guangzhou-based Vipshop issued a statement after markets closed yesterday, saying the allegations “contain numerous errors, unsupported speculation and a general misunderstanding of the company’s business model.”
The Shanghai Composite Index (SHCOMP) of domestic Chinese shares advanced 1.2 percent to a two-month high of 2,321.32, while the Hang Seng China Enterprises Index (HSCEI) in Hong Kong climbed 1.6 percent to 10,920.58, the biggest rally in a month.
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