Markets took losses over the week following dismal economic data which raised concerns about China’s economy. The Shanghai Composite Index gained on Monday following a rally from tech, consumer discretionary and healthcare stocks. The benchmark index moved lower on Tuesday following particularly dismal trade data.
The benchmark index slipped on Wednesday following disappointing data on producer prices. The Shanghai Composite Index took losses on Thursday following fears that China’s economic transformation into a consumer and services oriented economy was not happening fast enough.
Alibaba’s BABA relationship with Yahoo! YHOO remained unchanged following an announcement made by the latter this week. Yahoo! said that it won’t spin-off of its stake in China’s Internet giant due to the potential tax hits. WuXi PharmaTech (Cayman) Inc. WX and PRA Health Sciences, Inc. PRAH restructured their joint venture for providing clinical trial services.
Last Week’s Developments
Last Friday, the Shanghai Composite Index declined, losing 1.7%. Losses followed a decline in speculation of further monetary easing even as markets awaited the resumption of IPOs after five months. An index of financial companies declined for the first time during the trading week, losing 2.7%. The benchmark index gained 2.6% over last week on expectations that further monetary stimulus measures will be implemented.
The CSI 300 Index lost 1.9%. The Hang Seng dropped 0.8%. The Hang Seng China Enterprises Index moved 1.5% lower, losing out on weekly gains. The Hang Seng China AH Premium Index declined 1.3%. The Shanghai property index moved 2.8% lower, taking the heaviest losses of the week.
Markets and the Economy This Week
The Shanghai Composite Index gained 0.3% on Monday following a rally from tech, consumer discretionary and healthcare stocks. These gains helped to outweigh losses incurred by brokerages. Analysts took the view that new economy stocks were gaining popularity as the economic transition occurs. The government is making efforts to increase the importance of private enterprise, particularly those engaged in the tech and services sector.
The CSI 300 increased 0.3%. Sub-indexes of tech, healthcare and consumer discretionary stocks were the highest gainers, moving up by a minimum of 0.9%. The Hang Seng lost 0.2%, while the H-share index moved 0.4% lower.
The benchmark index moved 1.9% lower on Tuesday. Dismal trade data, indicating discouraging economic conditions pushed the broader markets lower. Meanwhile, a slump in crude prices resulted in losses for petroleum companies. Materials and energy stocks emerged as the biggest losers for the trading day. The yuan declined to a four-year low.
According to China's General Administration of Customs, the world’s second largest economy’s imports fell 8.7% year-over-year, last month. Decline in imports indicated fall in prices of commodities including oil, iron ore and copper. It also reflected sluggish demand for basic materials. Exports also declined 6.8% in November compared to a year earlier. Separately, the country’s trade surplus narrowed to $54.1 billion in November from $61.6 billion in October.
The CSI 300 lost 1.8%. Sub-indexes of material and energy stocks declined by a minimum of 2.7%. The Hang Seng moved 1.3% lower. The Hang Seng China Enterprises Index declined 1.4% following losses from insurance company stocks. The yuan dropped to its lowest level since Aug 2011 despite steps taken by the central bank last month to boost the currency.
The benchmark index slipped on Wednesday, losing 0.1%. Disappointing data on producer prices and a reduction in the reference rate of the yuan by the central bank led to the days’ losses. The producer price index suffered a year-over-year decline of 5.9% in November, marginally lower than the estimated 6% loss. The consumer prices index posted a year-on-year increase of 1.5%, coming in ahead of estimates.
Meanwhile, China’s central bank cut the onshore yuan’s daily reference rate. This decision came after exports and forex reserves declined more than expected. The CSI 300 increased 0.4%. Consumer discretionary and financial stocks were the largest gainers for the day. The Hang Seng lost 0.3%. The H-share index declined 1.1% to its lowest level since September.
The Shanghai Composite Index moved 0.5% lower on Thursday following fears that China’s economic transformation to a consumer and services oriented economy wasn’t happening at a pace necessary to outweigh the slump in commodities and industrial goods. The benchmark index lost out on gains of nearly 0.9% made earlier in the day.
Materials and industrial stocks suffered the largest declines for the day. The CSI 300 lost 0.4%. A sub-index of industrial stocks within the index lost 1.1%. The Hang Seng moved 0.5% lower, while the Hang Seng China Enterprises Index declined 1.1%.
Stocks in the News
Baidu Inc. BIDU has entered into a strategic partnership with e-commerce giant Amazon.com AMZN to become the default search engine for the latter’s Kindle and Fire hardware platforms operating in China
Alibaba’s relationship with Yahoo! remained unchanged following an announcement made by the latter this week. Yahoo! said that it won’t spin-off of its stake in China’s Internet giant due to the potential tax hits.
Instead, Yahoo!’s board said they would begin working to spin off the core business and their Yahoo! Japan stake. This would leave only the company’s stake in Alibaba as part of the “YHOO” stock. Yahoo!’s stake in BABA is worth an estimated $35 billion.
JA Solar Holdings Co., Ltd. JASO said that it has received a contract from Zimbabwe per which it will supply 100 MW PV modules. These modules will be utilized in one of three ground mounted solar power plants in the country. The solar power company will provide modules for the project being constructed by China MCC17 Group.
Located in Munyati, the project is expected to be completed by end 2017. China MCC17 Group has selected JA Solar after securing the bid for this facility. The order for PV modules received by JA Solar is worth $179 million.
Homeinns Hotel Group HMIN said it is planning to merge with its domestic competitor BTG Hotels Group’s subsidiary BTG Hotels Group (HONGKONG) Holdings Co., Limited. Following the agreement between the two hotel chains, Homeinns will be acquired by the BTG Hotels subsidiary for $35.80 per ADS.
The price being offered represents an 18.7% premium over the last closing price of Homeinns. BTG Hotels is paying a total amount of around 11 billion yuan ($1.7 billion) for this acquisition. Following the announcement, shares of Homeinns surged 7.3% to $34.50. BTG Hotels said it plans to make the acquisition using a loan of nearly $1.2 billion secured from the Industrial and Commercial Bank of China Ltd.
WuXi PharmaTech (Cayman) Inc. and PRA Health Sciences, Inc. have restructured their joint venture for providing clinical trial services in Macau, Hong Kong and China. The technology and research and development platform company formed this JV with the clinical contract firm in Mar 2013.
The part of the JV based in Mainland China will now be transformed into a WuXi subsidiary. Meanwhile, the part of the JV based in Hong Kong will become a PRA subsidiary. Additionally, PRA will continue to own the Strategic Solution part of it operations in both Hong Kong and China.
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 |
+2.8% |
-4.8% |
|
VIPS |
-5.7% |
-32.3% |
|
CTRP |
+97.5% |
+171.7% |
|
QUNR |
+7.2% |
+0.7% |
|
JD |
+5.4% |
-13.3% |
|
SFUN |
+5.9% |
-16.7% |
|
BIDU |
-2.5% |
-1% |
|
YOKU |
+1.1% |
-8.7% |
|
TSL |
+2.2% |
-18.7% |
|
JMEI |
+2% |
-60.5% |
Next Week’s Outlook:
Dismal economic data and a plunge in oil prices have plagued the markets through this week. Data on trade has been extremely dismal, raising concerns about the country’s economic future. Meanwhile, a reduction in the yuan’s reference rate has also dampened investor sentiment.
Several important economic reports are scheduled for release over the next few days. This includes data on industrial production, retail sales, new yuan loans, housing prices and fixed asset investment. Given the heightened concerns about China’s economy, it is likely that these reports will determine the direction of markets in the days ahead.
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