Markets have experienced a mixed week, with stocks gaining and losing on alternate days. The announcement that the Shanghai-Hong Kong trading link will begin in a week sent stocks upward on Monday. The Shanghai Composite Index declined on Tuesday after losses by mid-cap stocks negated gains made by bank stocks.
Gains made by brokerages and companies based out of Shanghai helped the benchmark index reach its highest level in three years on Wednesday. However, dismal economic data led to losses for stocks today, even as H-shares gained.
YY Inc. (YY) posted earnings of 78 cents per ADS in third quarter 2014, beating the Zacks Consensus Estimate of 77 cents. However, eLong Inc. (LONG) reported net loss per ADS of 26 cents per share in third quarter 2014, higher than net loss of 24 cents reported in the year-ago quarter.
Last Week’s Developments
Last Friday, the Shanghai Composite Index declined 0.3% following losses by industrial and material stocks ahead of the release of trade data. The benchmark index had gained nearly 1.2% earlier in the trading day to its highest level in 19 months. Meanwhile, the People’s Bank of China (PBOC) issued a confirmation saying it had injected 769.5 billion yuan ($126 billion) into China’s major banks through the newly created medium-term lending facility.
The CSI 300 declined 0.2% while the Hang Seng lost 0.4%. However, a sub-index of financial stocks gained 1.2%, emerging as the highest gainer among the index’s 10 industry groups. Additionally, the Hang Seng China Enterprises Index lost 0.3%, falling for the third successive day. The Shanghai Composite dipped 0.1% while the Hang Seng lost 1.9% over the week.
Markets and the Economy This Week
The announcement that the Shanghai-Hong Kong trading link will begin in a week sent stocks upward on Monday. Additionally, President Xi Jinping promised to increase expenditure on regional transport links and the government provided approval to $113 billion on building projects. The yuan gained versus the dollar after the PBOC increased its reference rate to its highest level since Jun 2010.
The Shanghai Composite Index jumped 2.3% to its highest level in three years. The Hang Seng gained 0.8% while the Hang Seng China Enterprises Index increased 0.7%. Analysts are of the view that the market will gain from the announcement of the date of the start of the trading link. Brokers are expected to gain the most from fund inflows.
The CSI 300 jumped 2.5%. However, the ChiNext index of small-cap stocks slipped 0.5%. This is an indication that small-cap stocks will lose from the trading link. Investors are likely to prefer cheaper stocks listed in Hong Kong instead.
The Shanghai Composite Index declined 0.2% on Tuesday after losses by mid-cap stocks negated gains made by bank stocks. The SSE 380 Index of mid-cap stocks declined 2.7%. This was its highest decline in two months. The SSE 380 had jumped 24% since April when regulators said the index would be part of the Hong Kong exchange link. This is significantly higher compared to a gain of 17% for the benchmark index over the same period.
The Hang Seng China Enterprises Index gained 0.3%. The Hang Seng also increased by a similar amount, riding on gains from casino operators. The CSI 300 declined 0.3%. This was due to losses in excess of 2% by its technology and industrial sub-indexes. The tech sub-index lost 2.9% while the gauge of financial stocks gained 1.9%, the highest among industrial stocks. The ChiNext lost 3.5%, the highest decline since Mar 2010.
Brokerages made substantial gains on Wednesday ahead of the beginning of the Hong Kong trading link. Additionally, companies based out of Shanghai also clocked up gains following indications that the government would initiate reforms of state-owned companies. These factors combined to help the benchmark index reach its highest level in three years. The Shanghai Composite Index gained 1%, increasing its yearly gains to 18%.
The Hang Seng gained 0.6% while the Hang Seng China Enterprises Index increased 0.7%. The CSI 300 moved up 1.4%, powered by material and consumer discretionary stocks. A sub-index of consumer discretionary shares gained 1.6%, emerging as the second highest gainer among the index’s 10 industry groups.
The Hang Seng China Enterprises Index gained 0.7% today to close at its highest level since Sep 17. The H-Share index increased to its highest level in nearly two months following a report that the PBOC will pump cash in China’s smaller banks. The country’s central bank is examining demand of city commercial banks for funds in order to boost lending to small enterprises.
The central bank’s initiative accompanied a decline in China’s industrial output growth in October. Further, fixed asset investment came in below estimates. The Shanghai Composite Index slipped 0.4%. The CSI 300 Index lost 0.6% while the Shenzhen Composite Index slumped 1.5%. Small-cap shares continued to take heavy losses ahead of the opening of the trading link. The ChiNext declined 2.2%, increasing losses to 7.6% compared to the highest level achieved this year on Oct 9.
Stocks in the News
YY Inc. posted earnings of 78 cents per ADS in third quarter 2014, beating the Zacks Consensus Estimate of 77 cents. Net revenue came in at $163.0 million, jumping 105.3% from the year-ago period. The significant increase in revenues was powered by a 114.6% rise in revenues from Internet value-added services (IVAS).
The increase in revenues was also an indication of growth in average revenue per user (ARPU) and number of paying users. However, cost of revenues also jumped 94.3% to $78.7 million from the year-ago quarter. This was because of a rise in revenue-sharing fees and content costs by nearly 125% to nearly $49.1 million.
Operating expenses also increased 73% to $34.2 million from the year-ago quarter. The increase was a result of growth in sales and marketing, as well as research and development expenses.
SouFun Holdings Ltd. (SFUN) reported earnings of 16 cents per ADS in third quarter 2014, missing the Zacks Consensus Estimate of 18 cents. Earnings also declined 30.4% from the year-ago period. Revenues increased 3% from the year-ago quarter to $190.5 million. Operating income plunged 36.1% to $70.7 million compared with the year-ago period.
Net income attributable to the company’s shareholders declined 40.6% from the year-ago period to $61 million. Operating expenses jumped 54.3% from $46.2 million in the year-ago quarter to $71.2 million. Selling expenses surged 61.4% from $25.4 million in the year-ago period to $41 million.
eLong Inc. reported net loss per ADS of 26 cents per share in third quarter 2014, higher than net loss of 24 cents reported in the year-ago quarter. Net revenue for the quarter came in at $49.1 million, up 2% from the $48.5 million reported in the year-ago quarter. eLong reported hotel commission revenue of $44 million, up 6% from the year-ago period figure of $41.7 million.
Hotel room nights jumped 22% to 9.4 million room nights. The company’s brand room nights made up 48% of mobile bookings. Cumulative downloads of eLong mobile apps touched the 100 million mark. The number of properties under contract to use the company’s hotel property management systems has grown from 10,000 in the second quarter to 20,000 in the third quarter. These cloud based and free multi-device systems are known as Zhuzhe and Yunzhanggui.
However, air ticketing commission plunged 24% compared to the year-ago quarter. This was due to a 21% decline in commission per segment as well as a 4% fall in air segments. Gross margin fell from 75% in the year-ago quarter to 70%.
Alibaba Group Holding Ltd. (BABA) Singles' Day sales soared 56.5% to $9 billion from $5.75 billion in 2013. The e-Commerce giant has already taken the lead in the race during the first hour of Nov 11 by generating more than $2 billion in sales.
Backed by attractive deals and promotions, Alibaba exceeded its own as well as industry tracker IDC’s estimates. This year, Alibaba’s $9 billion sale not only outshone its own expectation of $8.2 billion or 50 billion yuan but also IDC’s estimate of $8.65 billion. According to Alibaba, 43% of sales were generated via mobile devices.
In fact, Alibaba’s Singles' Day sales figures were higher than the Black Friday and Cyber Monday 2013 sales figures taken together.
Baidu Inc.’s (BIDU) wholly-owned subsidiary, Dianxin, has entered into an agreement with LightInTheBox (LITB), a Beijing-based e-tailer that could help both the companies grow their mobile businesses.
LightInTheBox sells consumer products like clothing and other general merchandise at affordable prices that are generally made in China to customers across 200 countries. It does this via its own website, mobile website and mobile apps in 27 different languages.
Baidu Dianxin is into app design and has created an array of mobile apps for consumers worldwide. Its most popular apps include the power-saving app, DU Battery Saver and mobile boosting app, DU Speed Booster. These have been downloaded by over 350 million users in China alone and by 200 million users worldwide.
Baidu Dianxin will get to monetize its apps better. Apps are generally monetized through advertisements, so the “alliance” likely means that LightInTheBox has agreed to place its ads inside Baidu Dianxin’s apps. The deal also increases Baidu's ability to compete with rival Alibaba Holdings.
China Unicom Hong Kong Ltd.’s (CHU) 2.5% ownership by Telefonica SA was sold for approximately $865 million. In Jun 2014, Telefonica sold a 4.56% stake in China Unicom for approximately $1.4 billion.
The motive behind the stake sell might be management’s strategy to concentrate on some select markets and exit the others. This is also evident from Telefonica’s recent exit from Ireland and the Czech Republic to focus more on Germany and Brazil.
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 |
+8.7% |
+25.9% |
|
JD |
+16% |
+32.3% |
|
VIPS |
+3.8% |
+63% |
|
TSL |
-5.3% |
-14% |
|
SFUN |
+3.4% |
-24.6% |
|
YOKU |
+7.4% |
+2.4% |
|
BIDU |
+5.7% |
+60% |
|
YGE |
-4.8% |
-10.2% |
|
JASO |
-2.3% |
-20.7% |
|
KNDI |
-11.1% |
+19% |
Next Week’s Outlook:
Stocks have had a mixed week, with the benchmark index declining the most today following dismal economic data. However, markets have responded positively to initiatives taken by the government to boost economic growth. This includes injection of a larger quantum of cash by the central bank as well as higher infrastructure spending by the government.
The announcement of the exchange trading link has been the most significant development this week. The opening up of the link on Monday will determine market movements to a great extent going forward. Data on manufacturing and housing prices is also slated for release next week. Any positive news on this front will also help stocks gain in the days ahead.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment