Stocks have had a mixed week up to now, primarily due to declines in tech, healthcare and small cap stocks. Markets declined on Monday, following fears that a slump in earnings will deter investors.A rally in utilities stocks propelled the benchmark to a three-week high on Tuesday. However, the Shanghai Composite slumped to its lowest point in nearly three weeks on Wednesday, after concerns over earnings returned to plague investors.
Gains made by power producers ensured that the benchmark experienced marginal losses today. Baidu, Inc.’s (BIDU) financial services branch launched an A-share index while Trina Solar Limited (TSL) secured its largest order of the year till date.
Last Week’s Developments
Stocks gained for the fourth successive day on Thursday, marking the longest series of gains since May. Port operators and shipping companies were boosted by the State Council’s decision to approve the establishment of a transportation and logistics center in the city of Dalian.
Services sector data was mixed. The official non-manufacturing PMI declined in June while HSBC’s services gauge increased. The Shanghai Composite Index increased 0.2% while the CSI 300 moved up 0.4%. The Hang Seng China Enterprises Index gained 0.1%.
The Shanghai Composite Index decreased 0.2% on Friday, after shares of port operators took losses. They had ended in the green on Thursday. However, the benchmark gained 1.1% over the week after official figures suggested China’s manufacturing sector expanded to its highest level in six months in June.
Additionally, HSBC’s China services PMI moved up to its highest level since March 2013. The CSI 300 lost 0.1% while the Hang Seng China Enterprises Index gained 0.3%.
For the week, the Hang Seng moved up 1.4%, while the Hang Seng China Enterprises Index increased 1.8%.
Markets and the Economy This Week
The benchmark index ended nearly flat on Monday, following a decline in shares of technology and small cap companies. The declines were a result of concerns that upcoming earnings will disappoint investors. Analysts are of the view that growth in small cap stocks would not measure up to their current valuations. These losses negated gains made by real estate companies and train manufacturers.
The Shanghai Composite Index gained less than 0.1%. For every four shares that gained, five closed in the red. The ChiNext lost 1.3% while the CSI 300 declined 0.1%. The Hang Seng China Enterprises Index also lost 0.1%. The Bloomberg China-US Equity Index declined 1.3%.
The Shanghai Composite Index increased 0.2% to a three-week high on Tuesday. This was primarily due to a rally in utilities stocks. The ChiNext gained for the first time in three days, increasing 1.2%. Energy stocks took losses with Yanzhou Coal Mining Co. Ltd. (YZC) leading declines. The CSI 300 increased 0.2% while the Hang Seng China Enterprises Index also gained 0.2% to close on a three-week high. The Bloomberg China-US Equity Index declined 1.6%.
Stocks experienced the highest losses in nearly three weeks on Wednesday. Technology and healthcare stocks declined following concerns that earnings growth will disappoint investors. Technology and healthcare sub-indexes within the CSI 300 lost 2.7% and 1.8% respectively. These were the highest losses among the 10 industry groups.
The ChiNext slumped 1.9% while the Shanghai Composite Index lost 1.2%. The CSI 300 declined 1.5% while the Hang Seng China Enterprises Index lost 1.6%. Official inflation data came in below estimates. The Bloomberg China-US Equity Index increased 0.2%.
The Shanghai Composite Index lost less than 0.1% today following gains made by power producers. Technology shares continued to lose while export data came in below estimates. Seven stocks chalked up gains for every four that declined.
A sub-index of utilities within the CSI 300 gained 0.5%. This increase takes the year’s gains to 1.8%, making utilities the best performer among the 10 industry groups. On the other hand, the sub-index for tech stocks lost 1.6%. This gauge has now declined 12% this year. The CSI 300 declined 0.3% while the Hang Seng China Enterprises Index gained 0.1%.
Stocks in the News
Baidu, Inc.’s financial services branch launched an A-share index in Shanghai on Tuesday. The CSI Baidu Baifa Strategy 100 Index is the first financial investment tool which uses big-data to analyse the A-share market. This index has been launched by GF Fund Management Co Ltd, China Securities Index Co Ltd and Baidu.
The tool will allow investors to buy and sell stocks by analyzing price changes. Analysts believe that this is a move designed to integrate channel sales and internet technology applications. Baidu launched its online wealth management platform Baifa in November 2013.
Li Mingyuan, vice-president of Baidu said: "Baidu has established several big-data centers across China and will invest some 10 billion yuan ($1.6 billion) in the next few years into big-data center operation and development."
Trina Solar Ltd. will supply modules with capacity of 200 MW to Zonergy Co. These modules will be utilised for projects in five provinces in China. The company said shipments for the projects in Sichuan, Xinjiang, Shandong, Qinghai and Jiangsu will be completed by December.
Zhiguo Zhu, Module Business Unit President of Trina Solar said: "We are thrilled to win this order with premium price and be the key module supplier for Zonergy in 2014. This record order is by far the largest single order Trina has been awarded this year," he added.
China Mobile Ltd. (CHL), China Telecom Corp. Ltd. (CHA) and China Unicom (Hong Kong) Ltd. (CHU), have been asked by the Chinese government to reduce marketing expenses. This is because of the massive expenditure incurred by them on advertising and subsidies used to promote smartphones like Apple Inc.’s (AAPL) iPhone.
The State-owned Assets Supervision and Administration Commission (SASAC) has asked the carriers to reduce promotional expenditure by 40 billion yuan ($6.4 billion) over three years. A cut in subsidies would push up the cost of premium products such as the iPhone or Samsung’s Galaxy S5. This in turn would be advantageous for Chinese companies such as Lenovo, Xiaomi Corp. and Coolpad Group Ltd. which sell cheaper phones.
eLong Inc. (LONG) led decliners among Asian ADRs on Monday. Price of the online travel website’s ADR dropped 6.2% to $20.23 following a statement from Expedia Inc. (EXPE). Expedia said news that it was planning to sell its equity stake and voting rights in eLong to Ctrip.com International Ltd. (CTRP) was inaccurate.
In its statement, the company said: "Expedia remains a long-term investor in eLong and supports eLong's drive to become the leading Chinese travel site." Media reports had said Ctrip was planning to acquire Expedia’s stake in eLong using a share swap agreement which could be valued at a maximum of $1 billion.
PetroChina Co Ltd. (PTR) is holding discussions with Total SA (TOT) to purchase its 22.4% interest in China-based West Pacific Petrochemical refinery as per Reuters. The petrochemical plant, which can process and refine crude oil at a rate of 200,000 barrels every day, is being operated and managed by PetroChina.
The refinery commenced operations in 1996. At that time, it was the first and only refinery in China that was allowed to export its product. However, it incurred considerable losses after the Chinese government started levying heavy export taxes on its products. Hence, Total – the first foreign company invested in the Chinese refinery market − thinks it is high time to sell its stake in West Pacific Petrochemical refinery.
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 |
|
NQ |
-32.00% |
-69.43% |
|
SFUN |
-9.09% |
-46.75% |
|
JD |
-12.43% |
NA |
|
DANG |
-15.06% |
+20.92% |
|
TSL |
-10.65% |
-29.83% |
|
YGE |
-10.30% |
-51.96% |
|
QIHU |
-9.77% |
+8.06% |
|
BIDU |
-3.74% |
+2.94% |
|
JASO |
-9.29% |
-1.51% |
|
SINA |
-8.13% |
-45.52% |
Next Week’s Outlook:
Most economic reports released this week have been on the positive side. Services sector data has come in mixed, but retains a positive tone. On the other hand, manufacturing has expanded in a satisfactory manner. Inflation has come in below estimates but most analysts believe that deflation is not a worry at this point.
However, trade data is a cause for concern. Even though exports have grown at the fastest pace in five months, the increase has come in below most estimates. This has strengthened expectations that the government will unveil more stimulus measures to meet its growth targets.
Further, tech and healthcare stocks are declining, giving rise to speculations that the behavior of “new economy” stocks is mimicking that of older stocks, primarily those of state run companies. Given these factors, markets may experience more volatility ahead of earnings reports.
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