Markets rebounded towards the end of the week as government efforts to boost stocks finally met with success. The Shanghai Composite Index declined on Monday following disappointing data on manufacturing and services. The benchmark index declined again on Tuesday on fears that the government would continue to crack down on illegal activities in the equity markets.
The Shanghai Composite Index registering its largest gain since the middle of September on Wednesday after the government unveiled its new five year plan. The benchmark index gained on Thursday as government efforts to shore up equity markets finally met with success.
Baidu, Inc. BIDU reported adjusted third-quarter 2015 earnings of $1.25 per share, which exceeded the Zacks Consensus Estimate of $1.20 backed by higher revenues. PetroChina Co. Ltd. PTR reported third quarter 2015 earnings of RMB 5.2 billion or RMB 0.03 per diluted share, compared with RMB 27.9 billion or RMB 0.15 per diluted share in the year-earlier period.
Last Week’s Developments
Last Friday, the Shanghai Composite Index lost 0.1% following disappointing earnings numbers. However, the benchmark index gained 11% over October. Commodity producers suffered a significant decline during the session, with PetroChina sustaining heavy losses. China’s largest oil and gas producer declined four times last week.
Infant formula producers gained following the government’s announcement of a two child policy. The CSI 300 advanced by around 0.1% on Friday and gained 10% in October. A sub-index of tech shares on the CSI 300 declined 0.5% and surged 22% during October. The Hang Seng lost 0.8% on Friday. The Hang Seng China Enterprises Index declined 0.4%, reducing October’s increase to 11%.
Markets and the Economy This Week
The Shanghai Composite Index dropped 1.7% on Monday, declining for the second consecutive day. Data from the government on the manufacturing and services sectors was disappointing in nature. The government’s manufacturing PMI was flat at 49.8 in October. However, the non-manufacturing PMI declined from 53.4 to 53.1 in September. This was its worst reading since Dec 2008.
Meanwhile, authorities conducted a raid on a leading hedge fund. As a result, the constituent companies of the fund suffer an average loss of 4.5%. PetroChina sustained a loss of around 2.5%. The CSI 300 lost 1.6%. Sub-indexes of phone, material and energy companies moved lower, losing a minimum of 2%. The Hang Seng China Enterprises Index declined 1.5%, sustaining losses for the fifth successive day. The Hang Seng moved lower, losing 1.2%.
The benchmark index declined again on Tuesday, losing 0.3%. Child products and drug stocks led the decliners. The day’s losses were primarily a fallout of fears that the government would continue to crack down on incidents where markets had been manipulated. Insider trading activities would also be thoroughly investigated. The president of Agricultural Bank of China Ltd was questioned by government agencies in connection with such an enquiry.
The CSI 300 lost 0.3% while the Hang Seng increased 0.9%. Meanwhile, the Hang Seng China Enterprises Index gained 0.4%, following five successive days of losses. This was the longest series of losses since the first half of September. Analysts opined that mainland shares listed in Hong Kong were still worth investing in, given their valuation levels.
The Shanghai Composite Index jumped 4.3% on Wednesday, registering its largest gain since the middle of September. Financial and tech stocks led gains as the government announced the details of a new five year plan which aims to boost the economy.
The government is targeting a minimum growth rate of 6.5% for every year till 2020. It aims to increase GDP and per capita income by twice the current amount by the end of that period. Efforts will also be made to increase the convertibility of the yuan.
Meanwhile, speculations over a trading link between the Hong Kong and Shenzhen exchanges increased. This was a result of the publication of an old statement made by governor Zhou Xiaochuan.
The Hang Seng China Enterprises index gained 2.7%, recovering from a decline of nearly 4%. The CSI 300 surged, gaining 4.6%. The ChiNext also gained the most since mid-September, increasing 6.4%. The Hang Seng advanced 2.2%. Stocks of brokerages were the highest gainers for the day.
The benchmark index increased 1.8% on Thursday as government efforts to shore up equity markets finally met with success. Unprecedented steps had been taken to support equities. This included bans on share sales, efforts to reduce short selling as well as equity purchases by state backed funds.
The Hang Seng China Enterprises Index gained 0.7%. Analysts took the view that the government’s efforts to curb short selling had worked. This is because the exit of short sellers means that the market will now move upward.
Monetary policy is expected to be the primary tool of government stimulus. This is why market watchers believe that sectors sensitive to interest rates such as banks and real estate are likely to gain. An index of financial stocks gained 3.3%.
Stocks in the News
Baidu, Inc. reported adjusted third-quarter 2015 earnings of $1.25 per share, which exceeded the Zacks Consensus Estimate of $1.20 backed by higher revenues. Adjusted earnings per share exclude one-time items but include stock-based compensation expense.
Baidu reported revenues of RMB18.4 billion ($2.89 billion), up 10.9% sequentially and 36% year over year which beat the Zacks Consensus Estimate of $2.72 billion. Mobile revenues accounted for 54% of total third-quarter revenue as against 37% in the year-ago quarter.
For the fourth quarter of 2015, Baidu expects total revenue in the range of RMB18.200 billion ($2.864 billion) to RMB18.750 billion ($2.950 billion), representing a year-over-year increase of 29.5–33.4%. Analysts polled by Zacks expect revenues of $2.806 billion.
PetroChina reported third quarter 2015 earnings of RMB 5.2 billion or RMB 0.03 per diluted share, compared with RMB 27.9 billion or RMB 0.15 per diluted share in the year-earlier period.
Earnings per ADR came in at 47 cents (exchange rate: US$1.00 = RMB 6.35, 1 ADR = 100 shares), failing to beat the Zacks Consensus estimate of 90 cents. Moreover, PetroChina’s total revenue for the three months decreased 29% from the year-earlier period to RMB 427.5 billion.
The company posted strong upstream output growth during the nine months ended Sep 30, 2015. Total volumes increased 3.6% year over year to 1,104.5 million barrels (MMBbl). PetroChina’s refinery division processed 741.7 MMBbl during the nine-month period, down from 746.4 MMBbl in 2014.
On the back of optimal utilization of gas and an active sales strategy, PetroChina’s natural gas business earned a profit of RMB 25.4 billion during the first nine months of 2015. This represents a jump of 174.9% over the year-earlier level of RMB 9.2 billion.
E-House (China) Holdings Limited EJ said that a group of investors has offered to take the company private. This group includes the company’s co-chairman Xin Zhou, CEO Neil Nanpeng Shen, a Board member and SINA Corporation (SINA).
E-House said it has received a revised version of a non-binding proposal from the group which is looking to acquire outstanding shares which the group does not already own for a fresh price of $6.64 per ADS. An independent committee of E-House’s Board is assessing the fresh proposal.
Mindray Medical International Limited MR will be acquired by Excelsior Union Limited and will merge with the parent company and Solid Union Limited. Excelsior Union will buy the company for $28 per ADS, where each share of the company is worth one ADS.
This entire transaction is worth $3.3 billion. On June 3, 2015, the closing price for Mindray Medical shares was $27.47 per ADS. Thus the offer represents a 1.9% increase over this figure.
WuXi PharmaTech (Cayman) Inc. WX reported third quarter earnings of 22 cents per shares, higher than the Zacks Consensus Estimate of 19 cents. Revenues came in at $214 million, representing a 23.1% year-over-year increase. The figure also exceeded the Zacks Consensus Estimate of $205 million.
Revenue from Laboratory Services jumped 18% year-over-year, primarily due to the success of drug development services. Small-Molecule Manufacturing Services revenue increased 19.6%, following rising demand for the company’s manufacturing services. Biologics Services reported the highest increase in revenue, of 66.1% on a yearly basis.
Yingli Green Energy Holding Company Limited YGE said its subsidiary Yingli Green Energy Europe GmbH or Yingli Europe has entered into a partnership with Turkish company Motif Proje ve Insaat Ltd. Sti or Motif Proje.
The two companies will firstly set up 10 MW of capacity located across 4 locations in the western part of Turkey. They will also, set up 10 MW additional capacity in the country, which is likely to be completed by the end of next year.
Performance of Most Actively Traded U.S.-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 |
+13.2% |
+7.3% |
|
JD |
+6.3% |
-14.5% |
|
VIPS |
+8.2% |
-24% |
|
BIDU |
+26.2% |
+2.1% |
|
SFUN |
+3.1% |
-10.2% |
|
QUNR |
-19.7% |
-24.2% |
|
CTRP |
+33% |
+57% |
|
YOKU |
-0.9% |
+26% |
|
JMEI |
-1.7% |
-54% |
|
TSL |
-1.6% |
-14% |
Next Week’s Outlook:
The government’s efforts to boost the economy seem to be finally bearing fruit. The stock market seems to be headed for a Bull Run, following unprecedented steps to reduce irregularities and discourage illegal market activities in the equity markets. Meanwhile, the new five year plan has led to fresh optimism among investors.
These gains are expected to continue going forward. However, economic data continues to be largely disappointing in nature. Several important economic reports are scheduled for release in the days ahead. This includes data on trade, inflation, PPI, fixed investment, retail sales and new yuan loans. It is unlikely that dismal data will affect markets. However, any positive indications on this front may push stocks higher next week.
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