Markets enjoyed a good week following three successive weeks of losses. Stocks moved upward on Monday as financial and consumer staples stocks led gains. The Shanghai Composite Index surged on Tuesday after speculation increased that further monetary stimulus was in the offing.
Stocks gained again on Wednesday following speculation that telecom companies would gain from the settlement of a major antitrust dispute. The Shanghai Composite Index moved up today as well after consumer shares surged following the prospect of higher sales before the Chinese New Year holiday.
Baidu, Inc. (BIDU) reported adjusted fourth-quarter 2014 earnings of $1.45 per share, missing the Zacks Consensus Estimate of $1.60. Sohu.com Inc. (SOHU) reported a loss of 52 cents per share in the fourth quarter of 2014, wider than the Zacks Consensus Estimate of a loss of 46 cents per share.
Last Week’s Developments
Last Friday, the Shanghai Composite Index declined for the second consecutive day, losing 1.9%. Concerns that an economic slowdown was intensifying and IPOs will lure away funds from older stocks led to losses for stocks. The CSI lost 1.6% while the Hang Seng moved down 0.4%. The Hang Seng China Enterprises Index declined 0.8%.
Stocks failed to hold on to gains made on Thursday following a long expected cut in reserve ratio requirements. A senior central bank official told the Xinhua News Agency that this cut was not the beginning of vigorous economic stimulus. A sub-index of financial stocks declined though brokerages mopped up gains.
The benchmark index suffered a weekly loss of 4.2%, marking its third consecutive weekly decline. Stocks slumped following dismal manufacturing and services data which indicated that the economic slowdown was intensifying. Fears that new share sales would divert money from existing stocks also triggered losses.
Markets and the Economy This Week
Stocks moved upward on Monday as financial and consumer staples stocks led gains. Speculation that recent losses were excessive in nature and the beginning of options trading will increase demand for large caps led to the first gains for stocks in four days. Analysts opined that the economy remained weak and additional monetary stimulus was likely in the near future.
The benchmark index moved up 0.6% at the end of the trading session, negating a near 0.9% loss triggered by disappointing trade data. Imports slumped 19.9% while exports slipped 3.3% year-over-year. While exports were projected to increase, imports fell more than expected. The CSI 300 moved up 1%.
Sub-indexes of consumer staples and financial stocks gained a minimum of 1.9%, the highest among the 10 industry groups. The Hang Seng moved down 0.6% while the H-share index declined 0.4%.
The Shanghai Composite Index surged 1.5% on Tuesday. Property and technology stocks rallied after inflation declined more than expected. This led to speculation that additional monetary stimulus will be utilized to boost the Chinese economy. Consumer prices increase at the slowest pace in nearly five years even as factory-gate prices declined.
The CSI 300 moved up 1.8% while the Hang Seng ended nearly flat. The Hang Seng China Enterprises Index advanced 0.4%. A sub-index of property companies within the benchmark index increased 2.7%, the highest among the five industry groups. Meanwhile, 17 new share sales began, the highest number for any single day since the suspensions of IPOs was revoked at the end of 2014.
Stocks gained again on Wednesday following speculation that telecom companies will gain after QUALCOMM Inc. (QCOM) reached a settlement with regulators. Meanwhile consumer shares advanced before the Chinese New Year holiday, boosting investor sentiment. Market watchers took the view that trading will be light ahead of the holiday with consumer stocks benefiting the most.
The CSI 300 advanced 0.8% while the Hang Seng declined 0.9%. The H-share index lost 0.4%. Sub-indexes of tech, phone and consumer discretionary stocks within the CSI 300 moved up at least 1.4%, emerging as the highest gainers among the 10 industry groups. Meanwhile China’s central bank said that it would not introduce monetary stimulus to counter fluctuations in oil prices unless the trend price changed or prices affected inflation.
The Shanghai Composite Index increased 0.5% today, gaining for the fourth successive day. Consumer shares moved up following the prospect of higher sales before the Chinese New Year holiday. Additionally, phone stocks advanced following rumors that China Unicom (CHU) and China Telecom (CHA) would merge to more effectively compete with China Mobile (CHL).
The CSI Index advanced 0.3%. The Hang Seng increased 0.4% while the H-share index advanced1.1%. Sub-indexes of industrial and telecom stocks within the CSI 300 surged 1% and 2.7% respectively, the most among the 10 industry groups. However, financial stocks declined ahead of the release of data on money supply and new lending for January.
Stocks in the News
Baidu, Inc. reported adjusted fourth-quarter 2014 earnings of $1.45 per share, missing the Zacks Consensus Estimate of $1.60 on higher operating expenses and poor operating performance. The adjusted earnings per share exclude one-time items but include stock-based compensation expense.
Baidu reported revenues of RMB14.1 billion ($2.3 billion) in the fourth quarter, up 3.9% sequentially and 47.5% from the year-ago period. Fourth-quarter revenues exceeded the Zacks Consensus Estimate of $2.2 billion due to solid growth in mobile business. Mobile revenues accounted for 42% of Baidu’s total fourth-quarter revenues, up from 36% reported in the previous quarter.
Revenues from Online marketing services were RMB13.8 billion ($2.2 billion), up 46.3% from the year-ago quarter and represented 98.5% of total revenue. The upside was attributable to active online marketing customers, up 16% year over year and 1.4% sequentially to 523,000.
For the first quarter of 2015, Baidu expects total revenue in the range of RMB12.6 ($2.0 billion) to RMB13.1 billion ($2.1 billion), representing a year-over-year increase of 33.2-37.6%. Analysts polled by Zacks expect revenues of $2.2 billion.
Sohu.com Inc. reported a loss of 52 cents per share in the fourth quarter of 2014, wider than the Zacks Consensus Estimate of a loss of 46 cents per share. In the prior year quarter, Sohu had reported earnings of 6 cents per share. The fourth quarter loss was due to a surge in operating expenses especially in its video business, which weighed on the company’s margins thereby reducing profitability.
Revenues increased 24% year over year to $477 million and also surpassed the Zacks Consensus Estimate of $459 million. The year-over-year increase was primarily driven by strong performance in all the segments.
Total online advertising revenues, which include revenues from brand advertising and search and others businesses, were $258 million, up 37% year over year.
For the first quarter of 2015, Sohu expects revenues in the range of $425 million–$440 million while the Zacks Consensus Estimate for the same is pegged at $436 million.
eLong, Inc. (LONG) reported loss of 94 cents per share in the fourth quarter of 2014, wider than the loss of 22 cents per share reported for the same period last year. Loss for the full year of 2014 was $1.22, higher than loss of 80 cents reported in 2013. Revenues for the fourth quarter came in at $39.7 million, 6% lower than $43.1 million in the same period last year.
Hotel room nights stayed over the fourth quarter went up 27%, from 7.4 million in the year-ago period to 9.4 million in 2014. Mobile bookings made up nearly 55% of room nights in the fourth quarter of 2014, 27% higher than 7.4 million in the same period last year.
Revenues for 2014 came in at $175.1 million, 8% higher than $166.8 million in 2013. Meanwhile, hotel revenue went up 9%, from $141.8 million in 2013 to $151.3 million in 2014. Hotel room nights stayed over the year increased from 25.8 million room nights in 2013 to 34.2 million in 2014, up 32%. The number of domestic hotels covered increased by 186%, from 70,000 at the end of 2013 to more than 200,000 at the end of last year.
Alibaba Group Holding Ltd. (BABA) has acquired a minority stake in Meizu, a Chinese phone maker for $590 million. Though the size of the stake remained undisclosed, the development is significant since it marks the beginning of a strategic alliance between the two companies.
In January, 1.5 million smartphones using the Android OS were sold by Meizu. Meizu has recently released a model which uses Android Kit-Kat and others running on Lollipop are slated for release. However, it is likely that its devices will now utilize Alibaba’s own Yun OS.
Based on Linux, this OS is used on both smart TVs and smartphones. In a statement, Jian Wang, Chief Technology Officer of Alibaba said: “The investment in Meizu represents a significant expansion of the Alibaba Group ecosystem and an important step in our overall mobile strategy.”
CNOOC Ltd. (CEO) has inked production sharing contracts (PSCs) with SK Innovation Co. Ltd. for two blocks in the South China Sea. These blocks, namely Block 04/20 and Block 17/03, are located in the Pearl River Mouth basin. Both wells have a water depth of 50-100m. While Block 17/03 spans a total area of 7686 sq km, Block 04/20 has a total area of 5138 sq km.
Per the terms of the PSCs, both the blocks will be operated by SK Innovation. While 20% of the exploration costs will be borne by CNOOC, SK Innovation will bear 80% of the costs as a share of the participating interest. CNOOC holds the right to take part in 60% of the working interest in any commercial discoveries made in these blocks.
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 |
|
SFUN |
+9.5% |
-46.4% |
|
BABA |
-3.5% |
-8.4% |
|
JD |
+6.5% |
-6.2% |
|
VIPS |
-3.5% |
-0.3% |
|
BIDU |
-1.5% |
-1.5% |
|
TSL |
+13% |
-14% |
|
CTRP |
-3.7% |
-32.3% |
|
NQ |
+12.2% |
-42.3% |
|
YOKU |
+3.5% |
-19.9% |
|
JKS |
+17% |
-19% |
Next Week’s Outlook:
Stocks have notched up impressive gains this week buoyed by a number of factors. Weak data has once again raised the prospect of additional monetary stimulus. Meanwhile, phone and consumer discretionary companies have gained ahead of the Chinese New Year. Telecom stocks gained after Qualcomm reached a settlement with regulators. Rumors of a merger between two of China’s largest telecom companies have also boosted these stocks.
Looking ahead to next week, stocks are expected to trade inside a narrow range ahead of the Chinese New Year holiday. Consumer and telecom stocks are also expected to notch up gains during this period. Markets seem to have overcome the fear that IPO sales have sparked off and have been largely unaffected by this development.
Some important economic reports are slated for release before the market closes for holidays next week. These will provide data on new loans, FDI and housing prices. The nature of these reports could well determine whether markets continue to move upward in the days ahead.
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