Markets gained on every single day during a week of volatile trading, but for Wednesday. Stocks gained on Monday, following indications from the government that it was satisfied with the speed of the rally in equity markets.
The benchmark index increased again on Tuesday after weak manufacturing numbers sparked speculation of further monetary easing. The benchmark index snapped its record-breaking rally on Wednesday. Markets rebounded on Thursday, led by industrial and energy stocks.
China Petroleum and Chemical Corp. SNP, also known as Sinopec, reported 2014 net income of 47.4 billion yuan (US$7.71 billion) or 0.406 yuan per diluted share, compared with 67.2 billion yuan (US$10.84 billion) or 0.543 yuan per diluted share reported a year ago. China Mobile Ltd. CHL, the largest wireless operator of China, reported disappointing financial results for the fourth quarter of 2014.
Last Week’s Developments
Last Friday, the Shanghai Composite added 1%, rising to its highest level in nearly seven years. Stocks moved up as brokerages gained following speculation that the bull run will boost earnings. Gains made by tech shares also extended the rally into an eighth successive day.
A gauge of tech stocks within the CSI 300 increased 2.4%. The tech-heavy ChiNext gained 1.4% to reach a record level. Gains came after Premier Li Keqiang promised to stimulate investment in the sector to help the country decrease its dependence on manufacturing and the real estate sector.
The CSI 300 advanced 1.4%. The Hang Seng China Enterprises Index increased 0.3%. However, the Hang Seng lost 0.3%. A sub-index of financial stocks within the CSI 300 added 3%, the highest among the index’s 10 industry groups.
The benchmark index added 7.3% over the week, the highest since Dec 5.Speculation regarding possible additional monetary stimulus powered weekly gains. This conjecture in turn was sparked off by comments from Premier Li that more measures would be taken if the economy slowed further.
Markets and the Economy This Week
Stocks gained again on Monday, following indications from the government that it was satisfied with the speed of the rally in equity markets. The benchmark index added 2%, and had gained 12% over nine successive days of increases. The Hang Seng increased 0.5% while the H-share index gained 0.2%. The property sub-index of the Shanghai Composite increased 2.2%.
The CSI 300 also advanced 2%. A sub-index of tech stocks within the CSI 300 surged 3.8%, the highest among the 10 industry groups. On Friday, the China Securities Regulatory Commission had warned investors to evaluate risks carefully. However, it also said current equity market gains indicated belief that economic growth would be satisfactory. Analysts believe these statements indicate the rally would extend over the medium-term and even over a longer period.
The Shanghai Composite Index increased 0.1% on Tuesday. The benchmark index negated a loss of 2.4% to extend its gains into a tenth successive day, the longest since May 1992. HSBC Markit flash PMI declined to 49.2 in March, its lowest level in 11 months. Investors were buoyed by this weak report, believing that it will spur the government to ease monetary conditions further.
The CSI 300 advanced less than 0.1%. Sub-indexes of energy and financial stocks lost 1.2% and 1.5%, the highest among the 10 industry groups. Meanwhile, the index’s tech and material gauges both advanced 1.9%. The Hang Seng lost 0.4% while the Hang Seng China Enterprises Index declined 1.4%.
At this point, the Shanghai Composite Index had moved up 14% for the year. However, the benchmark index’s 14-day RSI had touched a three-month high of 79.4 by Tuesday. A reading above 70 indicates a price fall was imminent.
The benchmark index snapped its record-breaking rally on Wednesday. Fears that the economic slowdown would affect earnings led to the Shanghai Composite Index losing 0.8%. This 10-day rally, during which the benchmark gained 12%, is second only to 14-successive days of gains which occurred nearly 23 years ago.
The CSI 300 also lost 0.8%. Sub-indexes of financial and utility stocks within the CSI 300 declined 2% and 2.4%, the highest among the 10 industry groups. Huaneng Power International, Inc. HNP lost 2.9% after its earnings fell well below estimates. China’s largest power producer’s stock lost 4% in Hong Kong. The H-share index declined 0.3% while the Hang Seng increased 0.5%.
Stocks rebounded on Thursday led by industrial and energy stocks. A sharp increase in oil prices combined with comments from the government that it would encourage industries such as transport equipment led to these gains. The Shanghai Composite Index advanced 0.6% and has gained 11% till now in March.
The CSI 300 increased 0.2%. A sub-index of energy stocks within the CSI 300 surged 3.6%, the highest among the 10 industry groups. This occurred after crude futures gained nearly 5.8%, and looked set to the gain the most in five days. A measure of industrials within the CSI 300 moved up 1.5%, to emerge as the second-largest gainer.
On a different note, though the ChiNext has increased 56%, there are concerns over small-cap trading. Regulatory action is likely considering questions over valuation after the price-to-earnings ratio of the small-cap index touched a record high of 87.2 on Wednesday. Meanwhile, the RSI of the benchmark index increased to 75.9 on Thursday, indicating another set of losses was in the offing.
Stocks in the News
China Petroleum and Chemical Corp., also known as Sinopec, reported 2014 net income of 47.4 billion yuan (US$7.71 billion) or 0.406 yuan per diluted share, compared with 67.2 billion yuan (US$10.84 billion) or 0.543 yuan per diluted share reported a year ago. Earnings per ADR came in at $6.60 (exchange rate: US$1.00 = 6.14 yuan; 1 ADR = 100 shares), which lagged the Zacks Consensus Estimate of $7.16.
For 2014, revenues declined 1.9% to 2,825.9 billion yuan (US$459.5 billion) from 2,880.3 billion yuan (US$471.2 billion) in 2013. This was owing to a fall in the price of crude oil and petrochemical products. Revenues, however, beat the Zacks Consensus Estimate of $458.4 billion.
China Mobile Ltd., the largest wireless operator of China, reported disappointing financial results for the fourth quarter of 2014. Both total revenue and net earnings declined year over year. This marked the sixth successive quarter of net profit decline.
Quarterly total revenue was approximately $25.8 billion, down 4.2% year over year. Net earnings were around $4.3 billion, down 12% year over year. Quarterly earnings before depreciation, amortization, interest and tax (EBITDA) were $9.6 billion, reflecting a decline of 6.1% year over year.
For fiscal 2014, total revenue was approximately $103.3 billion, up 1.8% year over year. Net earnings were around $17.6 billion, down 10.2% year over year. EBITDA in fiscal 2014 was about $37.88 billion, reflecting a decline of 2.1% year over year. EBITDA margin came in at 36.7% compared with 38.2% in fiscal 2013.
Yingli Green Energy Holding Co. Ltd. YGE reported fourth quarter net loss of 48 cents per share, wider than the Zacks Consensus Estimate of net loss of 14 cents per share. Yingli Green posted revenues of $555.5 million in fourth quarter, compared to our consensus estimate of $602 million.
The company expects total PV module shipments to be in the range of 3.6 GW-3.9 GW in fiscal 2015. Though it continues to witness a growing order book, Yingli Green may be adversely affected by weakness seen in Chinese solar market.
JinkoSolar Holding Co., Ltd. JKS announced that it will supply PV modules to Swinerton Renewable Energy. The 75 megawatt direct current (MWdc) modules are required for the Red Horse 2 Wind and Solar project in Cochise, AZ.
In Aug 2014, this project was acquired by an affiliate of D. E. Shaw Renewable Investments, L.L.C. (DESRI), a member of D. E. Shaw group, which, together with its affiliates, acquires long-term contracted renewable energy assets in North America.
The project will employ 248,750 of JinkoSolar's high-efficient 72-cell polycrystalline solar panels and power 13,500 homes. Swinerton Renewable Energy will develop and construct the project while providing the ongoing operations and maintenance services to this hybrid wind and solar project.
Youku Tudou Inc. YOKU reported fourth quarter loss of 26 cents per diluted ADS, wider than the Zacks Consensus estimate of loss of 12 cents. Youku posted net revenues of $203.8 million, compared to our estimate of $196 million.
For fiscal 2014, the company reported loss per ADS of 76 cents, compared to the Zacks Consensus estimate of loss of 61 cents. Net revenues came in at $649.5 million, compared to our estimate of $627 million.
Ctrip.com International Ltd. CTRP reported fourth quarter net loss per ADS of 26 cents, lower than the Zacks Consensus estimate of a loss of 31 cents. Ctrip posted net revenues of $308 million in line with our estimate.
For fiscal 2014, the company reported earnings per ADS of 26 cents, compared to the Zacks Consensus estimate of 19 cents. Net revenues came in at $1.2 billion, in line with our estimate.
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 |
|
BABA |
+2.3% |
-5.8% |
|
JD |
+2.4% |
+11.8% |
|
SFUN |
+9.6% |
-38.6% |
|
YGE |
-3.8% |
-42% |
|
VIPS |
+1.6% |
+41.8% |
|
BIDU |
+1.6% |
-4.5% |
|
YOKU |
-12.8% |
-23.1% |
|
QIHU |
+12.9% |
-27.9% |
|
CTRP |
+36.3% |
+0.7% |
|
TSL |
+6% |
-8.1% |
Next Week’s Outlook:
Stocks experienced gains during a volatile week of trading, with comments from the government guiding markets. Speculation abounded that further monetary stimulus was in the offing after weak PMI numbers. On Monday and Thursday, positive comments by the government on equity markets and reassurances about support to industry powered gains.
However, a variety of technical measures indicate that a correction may be in the offing. In fact, analysts expressed their satisfaction following losses on Wednesday. They believed such a correction was good for the markets, following the recent flurry of gains. At the very least, markets will continue to experience volatility.
Several important economic reports are slated for release in the days ahead. This includes key official and HSBC data on manufacturing and services. The nature of these reports could guide markets to a significant extent next week.
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