Markets experienced further losses this week as intervention measures taken by the government proved to be inadequate. Stocks declined on Monday following disappointing data on manufacturing which once again hinted at an economic slowdown. The Shanghai Composite staged a strong comeback on Tuesday after certain brokerages stopped short-selling activities.
Stocks took losses again on Wednesday following a drop in turnover and fears that state intervention was keeping investors away from the bourses. The Shanghai Composite declined again on Thursday as trading volumes continued to fall.
Ctrip.com International Ltd. CTRP reported adjusted second-quarter 2015 earnings of 15 cents per share. This was a marginal improvement over earnings of 14 cents per share reported in the same period last year. Noah Holdings Ltd. NOAH reported adjusted second-quarter 2015 earnings of 46 cents per share, higher than earnings of 41 cents per share reported in the same period last year.
Last Week’s Developments
The Shanghai Composite declined 1.1% last Friday, weighed down by energy and industrial stocks. The day’s losses are attributable to reports that regulators were seeking stocks-trading records from financial institutions in Hong Kong and Singapore. This is part of a wider initiative to identify investors who were attempting to benefit from the losses of China’s equity markets.
The benchmark index declined 15% in July, marking its worst monthly losses since Aug 2009. Margin traders retreated from the market and the number of fresh equity accounts opened nosedived. This was a result of fears that valuations were unsustainable in nature.
Significant efforts from the government to prop up the markets resulted in a rebound of 18% from the low the benchmark had hit on Jul 8. However, volatility made a comeback last Monday when the index slumped 8.5%. Margin debt on mainland exchanges had fallen nearly 40% at that point. Fresh stock investors have refrained from entering the markets. The majority of these are usually made up of individuals.
The Hang Seng moved up 0.6% while the Hang Seng China Enterprises Index declined 0.1%. The H-share index lost 14% over last month. The CSI 300 ended Friday nearly flat.
Markets and the Economy This Week
Stocks declined on Monday following disappointing data on manufacturing which once again hinted at an economic slowdown. The benchmark index fell 1.1% to its lowest level since Jul 8, weighed down by tech stocks.
China’s official PMI declined from 50.2 recorded in June to 50 in July. The non-manufacturing PMI moved marginally higher, from 53.9 in July to 53.8 in June. Caixin final manufacturing PMI dipped to 47.8 from a preliminary reading of 48.2. This is the lowest level experienced in two years.
Tech stocks were the largest decliners for the day. PetroChina PTR declined 4.7%. The oil major is the stock with the heaviest weightage on the benchmark index and has become a speculative bet in recent times. This is because it has become a prime target for funds with government linkages which are attempting to boost the markets.
The CSI 300 increased 0.3%, powered by financial stocks. A sub-index of financial stocks increased 1.8%. Gauges of tech and phone stocks within the CSI 300 declined the most, losing a minimum of 3.2%. The Hang Seng declined 0.9% with the Hang Seng China Enterprises Index losing 1.1%.
The Shanghai Composite staged a strong comeback on Tuesday, increasing 3.7%. This ended three consecutive days of declines during which the benchmark lost 4.4%. Certain brokerages stopped short selling activities following major government intervention to stem the rout, leading to the day’s gains.
Attempts to reduce short selling have been one of the major moves taken by the government to stop market losses. The CSI 300 gained 3.1%. All of the index’s 10 industry groups moved upward. Oil prices hovered near the lowest level in six-months leading to gains for airline stocks. The Hang Seng lost less than 0.1% while the Hang Seng China Enterprises Index increased 0.1%.
Stocks took losses again on Wednesday following a drop in turnover and fears that state intervention was keeping investors away from the bourses. The benchmark index declined 1.7% at the end of day after swinging between gains and losses on several occasions.
Trading volume remained 35% lower than the 30-day average. Tech and phone stocks were the day’s largest losers. Analysts opined that curbs on short selling and the decline of margin trading with borrowed money were deterring new investors from entering the market.
The CSI 300 declined 2.1%. All of the index’s 10 industry groups suffered losses. Its gauges of tech and telecom stocks lost a minimum of 2.7%. In contrast, the Hang Seng increased 0.4% while the H-share index moved up 0.5%.
The Shanghai Composite declined 0.9% on Thursday as telecom and healthcare shares led the losers. Trading volume on the benchmark declined 51% below the 30-day average. This decline in turnover was seen as the primary reason for the day’s losses.
At this point the benchmark has declined 29% from the high it hit on Jun 12. The day’s decline was also a result of fears that the government would withdraw some of its support measures. The fact that new share sales will resume soon is what has triggered these concerns.
The CSI 300 lost 0.9% as all its 10 industry groups declined. The Hang Seng lost 0.6% while the Hang Seng China Enterprises Index declined 0.3%. The combined number of companies suspended from trading on the Shenzhen and Shanghai exchanges increased marginally from 515 on Wednesday to 517.
Stocks in the News
Ctrip.com International reported adjusted second-quarter 2015 earnings of 15 cents per share, contrary to the Zacks Consensus Estimate of a loss of 3 cents. This was a marginal improvement over earnings of 14 cents per share reported in the same period last year.
However, this was significantly better than loss of 15 cents reported in the first quarter of 2015. Accommodation reserve volume jumped 55% year-over-year. As a result, accommodation reservation revenues rose 47% year over year to $178 million.
Ctrip.com reported revenues of $408 million, in line with the Zacks Consensus Estimate. This was 9.4% higher than the first quarter 2015 figure. Moreover, revenues jumped 46.8% compared to the same period last year.
Noah Holdings reported adjusted second-quarter 2015 earnings of 46 cents per share, higher than 37 cents reported in the last quarter. This was also marginally higher than earnings of 41 cents per share reported in the same period last year.
Noah Holdings reported revenues of $93 million, higher than the $72 million in the first quarter of 2015. Revenues increased 31% compared to the same period last year. Net income attributable to shareholders increased 19.4% from the same period last year to $27.3 million.
The company’s projection for non-GAAP net income attributable to shareholders for 2015 remained unchanged at $90-$95 million. This is 15.9%-22.3% higher year over year.
eLong, Inc. LONG reported adjusted loss of $1.55 cents per share in the second quarter of 2015, wider than the loss of $1.01 cents reported in the first quarter of 2015. In the prior-year quarter, eLong had reported earnings of 15 cents per share.
eLong reported revenues of $35 million, marginally lower than revenues of $36 million reported in the first quarter of 2015. Revenues were also 25.5% lower compared to the same period last year.
Baidu, Inc. BIDU recently approved a share repurchase authorization of up to $1 billion, according to reports. The company expects this program to be completed over the next 12 months.
The number of shares to be repurchased and the timing will depend on the prevailing market conditions and other corporate considerations. China’s largest search engine plans to use its existing cash balance to fund the buyout.
Alibaba Group BABA has a new president — Michael Evans. Evans, a Canadian finance executive, had served as a partner at Goldman Sachs GS for two decades. He left the company last year.
Evans has been an independent board member of Alibaba Group since the company’s Initial Public Offering (IPO) in September.
Evans will initially focus on Alibaba’s global expansion strategy, looking to build partnerships with brands, retailers and product owners in the U.S., Europe and Asia to help them sell in China. Additionally, he will continue to serve on the board as a management member.
Alibaba already has a president who works with domestic government and takes care of public relations. Evans will report to Daniel Zhang, Alibaba Group’s CEO.
Yingli Green Energy Holding Company Ltd. YGE or Yingli Solar said that it has sold a solar power plant located in Essex, United Kingdom. The 18.8 MW facility has been purchased by specialist investment company NextEnergy Solar Fund. This company is a prominent owner of solar power plants in the country. The facility has the potential to generate enough power for around 5,700 households per year.
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 |
-3.4% |
+6.3% |
|
VIPS |
+7% |
-6.4% |
|
BABA |
-3.9% |
-8.3% |
|
JD |
-0.9% |
+28% |
|
BIDU |
-16.3% |
-20.3% |
|
CTRP |
+9.1% |
+59.8% |
|
TSL |
+1.8% |
-7.1% |
|
YOKU |
-1.7% |
+9.9% |
|
SINA |
-4.1% |
+9.4% |
|
JMEI |
+0.4% |
+40.9% |
Next Week’s Outlook:
Over the last two months, China’s government has pumped $145 billion into equity markets to arrest stocks’ downfall, estimates Goldman Sachs. The effects of these measures seem to be fading and some analysts believe that they are becoming counterproductive. The number of new equity account openings and trading volumes has been declining rapidly. Curbs on short selling have also reduced market activity.
Meanwhile, economic data continues to be uninspiring. Data on manufacturing released this week has been disappointing in nature, indicating underlying economic weakness. One section of analysts opines that the market needs to rebound by itself for investor sentiment to improve.
Despite such concerns, some analysts believe that the long-term outlook for stocks continues to be bright. Economic data to be released tomorrow and over the weekend may have a significant impact on stocks going forward. This includes trade data to be released on Friday and the inflation report scheduled for Saturday. Any good news on this front will deliver a much needed boost to stocks in the days ahead.
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