Markets enjoyed another good week, but for Monday when the benchmark index lost marginally. The benchmark index slipped on Monday, following dismal official manufacturing data. A massive increase in trading which bolstered brokerage profit outlooks and speculation about further monetary stimulus powered gains for stocks on Tuesday.
Commodity stocks and consumer companies helped the benchmark index move upward on Wednesday. The benchmark index gained the highest in two years today following speculation that the current rally will continue.
Qunar Cayman Islands Ltd’s (QUNR) shares gained 4.3% on Tuesday after reporting narrower than expected loss per share in third quarter 2014. Meanwhile, ReneSola Ltd. (SOL) declared that it will be expanding its North American operations. The company has opened offices and warehouse facilities in Mexico and Canada.
Last Week’s Developments
Last Friday, the Shanghai Composite Index gained 2% after declining oil prices boosted the profit outlook for transport stocks. Speculation about further monetary stimulus also boosted stocks. The benchmark index gained 7.9% over the week, the highest increase since Oct 2010. It also increased 11% during last month, the highest gains registered since Dec 2012.
Weekly gains hit a record high after the People’s Bank of China (PBOC) initiated a surprise decline in deposit and lending rates to lift a flagging economy. There is also speculation that the PBOC will reduce reserve-requirement ratios.
The Hang Seng China Enterprises Index advanced 1.2%, gaining 6.9% over the week. The CSI 300 increased 2%, gaining 8.7% over the week. In contrast the Hang Seng lost 0.1%, gaining only 2.4% over the week. A sub-index of financial stocks within the CSI 300 advanced 16% over the week. This was the highest increase over five days since Oct 2010.
Meanwhile, China moved ahead of Japan to become the second-largest stock market in the world. Market capitalisation advanced to $4.48 trillion following a 33% increase over the year. Japan’s market capitalisation has declined to $4.46 trillion. This is only the second time that China secured this position. It was the second largest stock market after a slump in markets following earthquakes in Japan in 2011.
Markets and the Economy This Week
The Shanghai Composite Index declined for the first time in eight days on Monday, losing 0.1%. The official Purchasing Managers’ Index slumped to 50.3 in November, its lowest level in eight months. This development raised fears of an economic slowdown and increased pressure on the PBOC to provide additional monetary stimulus.
The Hang Seng China Enterprises Index declined 2.9% following the slump in manufacturing index. This is the largest decline since February, which was aggravated following violent pro-democracy protests. The Hang Seng also declined, losing 2.6% as analysts remained worried over the impact of the protests. Meanwhile, the C3I 300 gained for the seventh consecutive day, advancing 0.4%.
Chinese stocks posted their highest increase in 15 months on Tuesday. Massive increase in trading, which bolstered brokerage profit outlooks, and speculation about further monetary stimulus fuelled the day’s gains. The Shanghai Composite Index gained 3.1%. Meanwhile, the Hang Seng China Enterprises Index recovered from its sharpest decline in nine months, advancing 2.8%.
The Hang Seng increased 1.2% following signs of declining public support for pro-democracy protests and differences inside the movement over strategy. Meanwhile, the CSI 300 gained 3.7%. A sub-index of financial stocks within the CSI 30 advanced 6.7%, the highest among the 10 industry groups.
Commodity stocks and consumer companies helped the benchmark index move upward on Wednesday. The Shanghai Composite Index advanced 0.6% after gaining 2.2% at one point and losing 1.1% at another time during the trading day. The CSI 300 increased 1.5%. The Hang Seng lost 1% while the Hang Seng China Enterprises Index slipped 0.6%.
The official non-manufacturing index moved up from 53.8 in October to 53.9 in November. These numbers seem to indicate that the services sector is helping China overcome a slowdown in the property markets. Services replaced construction and manufacturing as the largest contributor to the economy in 2012.
The benchmark index gained the highest in two years today. Enthusiasm for stocks of brokerages and China’s largest companies increased following speculation that the current rally will continue. The Shanghai Composite Index jumped 4.3%, increasing its monthly gains to 19% over the last month. These are the highest gains among the 93 global stock indices.
The CSI 300 surged 4.6%, touching its highest point since Jul 2011, propelled by energy and financial shares. Additionally, Hang Seng China Enterprises Index advanced 3.8% while the Hang Seng increased 1.7%. Sub-indexes of financial and energy stocks gained 7.1% or more, registering the highest gains among the 10 industry groups.
In contrast, the ChiNext advanced 1.1%, increasing the year’s gains to 24%. Large caps are outperforming small caps following concerns that IPOs will lure funds away from existing stocks.
Stocks in the News
Qunar Cayman Islands Ltd’s shares gained 4.3% on Tuesday after reporting loss per share of 46 cents in third quarter 2014, narrower than the Zacks Consensus Estimate of loss per share of 52 cents. A substantial jump in mobile revenues was the major reason for improved performance. Mobile revenues now make up 40.4% of total revenue, significantly higher than 15.4% in the same period last year.
Total revenue increased 107.8% on a year-over-year basis, amounting to $81.6 million for the third quarter. Mobile revenues jumped 445.1% to $33 million year-over-year. Pay-for performance or P4P revenues increased 119.3% to $77.6 million on a year-over year basis.
Non-GAAP operating margin rose from a negative 10.9% in the same period last year to a negative 54.6% in third quarter 2014. This jump was primarily due to an increase in workforce additions during 1H14. Qunar projects a year-on-year increase in revenues of 90%-95% for fourth quarter 2014.
ReneSola Ltd. declared that it will be expanding its North American operations. The company has opened offices and warehouse facilities in Mexico and Canada.
One major reason for setting up offices in Mexico and Canada is the recent developments in the region. Mexico expects to generate about 35% energy from renewable sources by 2024. In fact, it is expected that the solar market’s installed base will quadruple to 240 megawatts by 2014 end. Also, Canada has done away with the need for solar projects to be powered by domestic content in the third phase of its feed-in tariff program.
Apart from North America, the company is also gradually expanding its footprint in the Asian, African and European markets. Higher solar demand from European countries and Japan is currently driving the demand surge. In third-quarter 2014, module shipments to Europe and Japan comprised 72% of total shipments, up from 54.7% in the previous quarter.
China National Offshore Oil Corp. (CEO), also known as CNOOC, announced three of its Panyu gas fields in South China Sea have commenced production. The project, located in Pearl River Mouth Basin, consists of three gas fields, namely Panyu 34-1, Panyu 35-1 and Panyu 35-2.
The project is expected to reach a targeted production of around 150 million cubic feet per day in 2015. Panyu 34-1/35-1/35-2 is an independent project in which the company holds 100% interest.
The main production facilities include one comprehensive platform, two sets of underwater production system and 13 producing wells. There are currently two wells producing approximately 21 million cubic feet of natural gas per day.
LightInTheBox Holding Co., Ltd. (LITB) reported record retail sales during the Black Friday weekend. The online retailer experienced record sales on $2.65 million on Nov 30, 2014. This figure is 65.6% higher than the highest single day sales last achieved on Dec 1, 2013 during the same weekend last year. The number of orders received jumped 62% year-over-year to a figure higher than 56,000.
CFO of LightInTheBox Robin Lu said: “Even though this only reflects one single day of sales and we remain unchanged at this quarter guidance of $109 million to $111 million, we are very excited to set this new record high in terms of sales volume as it reflects the greatly improved capabilities of our business.”
PetroChina Co. Ltd. (PTR) will invest $4 billion along with three companies for drilling gas in China’s highest-yielding shale fields. The largest producer of energy in the country has partnered with Sinochem Group and two state owned companies. The project is expected to commence operations by the end of 2014. Commercial production will start in 2017.
The venture will be based in Chongquing, which according to the municipal government is endowed with more than 2 trillion cubic meters of exploitable shale gas. According to a report in the 21st Century Business Herald, PetroChina has a 40% stake in the new project. Chongqing Institute of Geology and Mineral Resources, Sinochem and Chongqing’s State Development and Investment Corp have stakes of 1%, 20% and 39%, respectively.
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 |
|
JD |
+3.5% |
+0.2% |
|
BABA |
+0.5% |
17.8% |
|
VIPS |
-5.9% |
+31.8% |
|
SFUN |
+0.7% |
-22.6% |
|
BIDU |
-6% |
+41.3% |
|
QIHU |
-11.3% |
-22.6% |
|
CTRP |
-10.1% |
-15.7% |
|
TSL |
-8.8% |
-24% |
|
NQ |
-10.8% |
-14.6% |
|
VNET |
-0.8% |
+27.5% |
Next Week’s Outlook:
Stocks have gone from strength to strength this week, boosted by speculation of further monetary stimulus from China’s central bank. Ultimately, the benchmark index ended the week on a high following speculation that the current rally will continue. Data on the manufacturing sector has been disappointing, leading to the only decline for the benchmark during the week. However, the services sector sparked some optimism.
In the absence of any significant negative events, the Bull Run is expected to continue in the days ahead. Next week also has several important economic reports lined up. This includes data on trade, inflation, new loans, retail sales and industrial production. Taken together, they may have a substantial impact on stocks in the days ahead. Any indications of further reform or monetary stimulus may also boost stocks in the days ahead.
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