Stocks had a mixed week as positive economic news was offset by sectoral losses. Markets moved downwards on Monday after ending last week on an upbeat note. Dismal data on home prices had triggered concerns over the property sector.
However, stocks recovered on Tuesday after investors learnt that the number of IPOs this year would be lower than expected. Speculation that investors with government linkages were purchasing equities took stocks higher on Wednesday. Positive PMI data boosted stocks in Hong Kong today. Trina Solar Ltd. (TSL) beat profit estimates by a wide margin while SINA Corporation’s (SINA) losses increased.
Last Week’s Developments
The benchmark index closed marginally higher last Friday. Gains were limited by weakness in technology stocks. The property sector made gains, recouping losses ahead of April house pricing data to be released on Sunday. Even so, the Shanghai Composite Index and the CSI 300 each gained 0.1%. However, the Hang Seng closed 0.1% lower.
Shares experienced their first weekly gains following four weeks of losses. The Shanghai Composite Index gained 0.8% over the week. Despite losses on Friday, the Hang Seng gained 3.9% over the week. This was the largest weekly gain for the index since September last year. The China Enterprises Index, which is made up of offshore Chinese companies, also gained 2.8% over the week.
Markets and the Economy This Week
Markets declined on Monday due to apprehensions that the economic situation would worsen. Weakness in the property markets and restrictions on interbank borrowing contributed to such speculation. The property markets took a hit after data released on Sunday revealed new home prices increased in the lowest number of cities since October 2012.
The Shanghai Composite Index lost 1.1% to close at its lowest point since the last week of April. At one point, the benchmark index had even dropped below the 2,000 mark. The CSI 300 declined 1.4% while the Hang Seng China Enterprises Index lost 0.7%.
Stocks recovered on Tuesday and the Shanghai Composite Index gained 0.2%. Technology and small cap shares led the gains for the day. Investor sentiment received a boost after the government said the number of IPOs this year would be lower than expected. According to a statement on the website of China’s security regulator, 100 IPOs are scheduled for the last six months of 2014.
The benchmark index has declined 5.1% this year due to concerns that IPOs would reduce liquidity and the announcement will possibly ease market concerns. The CSI 300 ended nearly flat. However, its sub-index of technology shares gained 0.8%. The Hang Seng China Enterprises Index ended 0.3% lower. The Bloomberg China-US Equity Index declined 0.6%.
The Shanghai Composite Index gained 0.8%, its highest increase in a week to close above the key 2,000 level on Wednesday. Stocks gained following speculation that investors with government linkages were purchasing equities. This factor overshadowed concerns that the economy was undergoing a slowdown. China Petroleum and Chemical Corp., or Sinopec (SNP), gained 2.2%, following reports that it would invite private investment into its shale gas business.
The CSI 300 gained 1% while the Hang Seng ended nearly flat. The Hang Seng China Enterprises Index gained 1.1%.
The Hang Seng China Enterprises Index gained 1.1% today after HSBC PMI numbers exceeded expectations. This was the index’s highest increase in five weeks. Indications of further policy measures to support the economy also lifted markets. The preliminary HSBC PMI reading came in at 49.7, reducing apprehensions over a slowdown in the economy and weakness in the property market in particular. This was the highest PMI reading in five months.
However coal producers dragged down the Shanghai Composite Index. The benchmark index lost 0.2% while the CSI 300 declined 0.2%. The CSI 300 has now lost 8.5% over the year. Meanwhile, Russian natural gas giant Gazprom and China National Petroleum Corporation finally signed a natural gas supply agreement. Per the agreement, Gazprom will supply 38 billion cubic meters of natural gas to China annually from 2018 for the next three decades.
Stocks in the News
Trina Solar Ltd. reported earnings of 37 cents per American Depositary Shares (ADS) in the first quarter of 2014 as against a loss of 90 cents per ADS in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by a whopping 3700.0%. The higher-than-expected earnings propelled the shares by 30.9% on May 21, 2014.
This not only reversed the year-ago loss but also marked the third quarterly profit in a row. The upside was driven by an increase in solar panel prices and higher shipments.
Trina Solar posted revenues of $444.8 million in the first quarter, up 70.9% from the prior-year quarter owing to higher shipment volume. However, the quarterly figure missed the Zacks Consensus Estimate of $486.0 million by 8.5% and was down 15.4% sequentially, primarily due to a seasonal slowdown in China.
SINA Corporation reported a higher first quarter loss for 2014 even though revenue increased by more than 35%. The company recorded a loss of $33.2 million, or 52 cents a share for the first quarter of 2014 compared to the year ago loss of $13.2 million, or 20 cents a share. The higher loss was attributed to operating costs and one-time expenses.
A non cash loss of around $40 million related to microblog Weibo Corp. (WB) was also recorded over the period. Weibo became a listed company last month. Sina expected adjusted revenue for the current quarter to come in between $177 million to $182 million. This figure does not include the deferred license revenues of $2.6 million to be received from its investment in E-House (China) Holdings Ltd. (EJ).
Sinopec’s oilfield services arm Sinopec Oilfield Service Company (SOSC) has teamed up with Weatherford International Ltd (WFT) and Shengli Highland Petroleum Equipment to form a joint venture (JV) to focus on development of unconventional oil and gas resources in China. Shengli is a JV between Weatherford and a subsidiary of Sinopec that produces drilling tools.
The move will give the Chinese state energy firm, Sinopec, the lead in exploring the nation’s uncharted vast shale resources. The JV aims to combine Weatherford’s expertise in technology and management with the Chinese oil major’s ability to extend its upstream business.
According to sources, the JV has registered capital of more than $50 million. Initially, the JV intends to focus on development of high-end products such as those used for high-temperature and high-pressure shale gas drilling. Sinopec, which will manage the JV, will cover overseas operations as well.
Performance of Most Actively Traded US-Listed Chinese Stocks
The table given below shows the price movements of 10 Chinese companies with the highest three-month average trading volume on U.S. exchanges. Price movements over the last five days and during the last six months have been included.
|
Ticker |
Last 5 Day’s Performance |
6 month performance |
|
TSL |
+24.52% |
-14.77% |
|
YGE |
+5.37% |
-43.32% |
|
EJ |
+16.92% |
-4.14% |
|
JASO |
+1.93% |
-10.30% |
|
SFUN |
-2.01% |
-83.47% |
|
JKS |
-4.85% |
-27.12% |
|
BIDU |
+5.54% |
+3.72% |
|
SINA |
+0.86% |
-38.40% |
|
SOL |
+3.63% |
-44.61% |
|
DANG |
-1.31% |
+9.66% |
Next Week’s Outlook:
Dismal data on home prices were released over the preceding weekend, which had a negative impact on property stocks on Monday. Since then, most developments have been on the positive side. Tuesday’s announcement on IPOs is possibly the most significant, since it ends apprehensions which had been plaguing markets for quite some time. Today’s unexpectedly high PMI reading has added to market optimism.
Next week is almost completely devoid of economic reports. Barring specific sectoral weaknesses investor sentiment has improved. The benchmark index remains above the key level of 2,000 and next week could possibly be a good one for the markets.
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