Markets enjoyed a week of strong gains following positive economic data and assurances from the government that sector specific steps would be taken to boost the economy. The Shanghai Composite increased on Monday as mining stocks surged following indications that production would be cut to push up prices.
The benchmark index moved up on Tuesday as property stocks rallied following assurances that measures would be taken to boost the real estate sector. The benchmark index gained again on Thursday as the fund flow crunch caused by the resumption of IPOs ceased.
Trina Solar Limited TSL received a non-binding buyout offer from a group comprising its CEO Jifan Gao and a private equity firm, Shanghai Xingsheng Equity Investment & Management Co., Ltd. Ctrip.com International, Ltd. CTRP has said that The Priceline Group PCLN has agreed to invest an additional $500 million through a convertible bond along with an unnamed "long-term equity investment firm."
Last Week’s Developments
Last Friday, the Shanghai Composite Index declined 0.6% following reports that billionaire Guo Guangchang was untraceable. This development piled onto concerns that the slump in economic growth, the decline in the yuan and anti-corruption measures are negatively impacting earnings forecasts. Reports about Guo follow several previous incidents where other senior managers have also gone missing. This is why it had a grievous impact on markets.
Additionally, the yuan declined 0.27% against the dollar, which took the weekly loss to 0.8%. This was its sharpest weekly loss since its value was lowered in August. The Hang Seng plummeted 1.1%. The Hang Seng China Enterprises Index lost 1.5% falling to its lowest point since Sep 29. The CSI 300 lost 0.4%.
Meanwhile, data released after the close revealed that new credit had staged a rebound in November. Aggregate financing increased 1.02 trillion yuan ($158 billion) last month. New yuan loans increased to 708.9 billion yuan. Meanwhile, M2 money supply increased 13.7% year-over-year.
Markets and the Economy This Week
The Shanghai Composite surged on Monday, increasing 2.5%. Gains were led by mining stocks following indications that production would be cut to push up prices. Measures of material and financial companies garnered the highest increase among all the industry groups. Materials stocks declined 3.3% on the mainland exchanges.
Additionally, data on fixed asset investment, retail sales and industrial output released over the weekend have exceeded forecasts. This is a clear signal that fiscal and monetary measures taken to boost the economy have proved to be effective. Industrial output increased 6.2% in November.
Retail sales surged 11.2%, posting its best reading for the year. Fixed asset investment moved up 10.2% over the preceding 11 months of 2015. The CSI 300 gained 2.9%. The Hang Seng and Hang Seng China Enterprises Index lost 0.1% and 0.7%, respectively, snapping a series of losses.
The benchmark index moved up 0.3% on Tuesday as property stocks led gains. This rally was a result of an assurance from the Communist Party’s politburo that it would take measures to prop up the real estate sector. The politburo recommended measures to decrease inventories in the sector. Meanwhile, materials and brokerages stocks fell and the yuan continued to decline.
The CSI 300 declined 0.5%. A sub-index of materials stocks with the index declined 0.9%. The Hang Seng China Enterprises Index gained 0.3%, cutting the yearly decline to 22%. The Hang Seng moved 0.2% lower, marking the longest series of losses in more than thirty years.
The Shanghai Composite gained 0.2% on Wednesday following gains made by energy stocks. PetroChina Co. Ltd. PTR and China Petroleum & Chemical Corp. SNP or Sinopec gained 1.1% and 2.3%, respectively after the government indicated that it would not reduce prices of fuel. Meanwhile, developers took losses even as other sectors showed weaknesses ahead of an imminent rate hike from the Fed.
However, the decline in real estate stocks was primarily due to profit taking. The CSI 300 declined 0.2% following losses made by telecom and consumer stocks. The Hang Seng increased 2%, ending the longest series of losses in more than thirty years. The Hang Seng China Enterprises Index increased 2.1%, marking its sharpest increase in one and a half months.
The benchmark index gained 1.8% on Thursday as the fund flow crunch caused by the resumption of IPOs ceased. Meanwhile, the yuan declined for the tenth consecutive day, boosting the prospects of exports. This decline came even as the U.S. Federal Reserve finally announced a rate hike.
Gains were led by real estate and consumer discretionary companies. The Shanghai property index surged 4.6%, emerging as the highest gainer among the industry groups. The CSI 300 increased 1.9%. The Hang Seng China Enterprises Index rose 1.3%, completing its highest gains over two days since October. The Hang Seng added 0.8% as bank stock gains outweighed the decline in oil stocks.
Stocks in the News
Trina Solar Limited received a non-binding buyout offer from a group comprising its CEO Jifan Gao and a private equity firm, Shanghai Xingsheng Equity Investment & Management Co., Ltd.
The group, also including the subsidiary of Industrial Bank Co., Ltd, has placed an offer of 23 cents per ordinary share or $11.06 per American Depository Share (ADS) of Trina Solar to buy out all the shares not already owned by them. This bid values Trina Solar at approximately $985 million.
According to the proposal, an acquisition vehicle would be formed to acquire Trina Solar and then the two would merge. The deal will likely be financed through a combination of debt and equity. Approval of this proposal by the board of directors would make Trina Solar the 15th Chinese tech firm since April listed in the U.S. to go private.
Earlier in the week, Trina Solar announced that it has withdrawn from a voluntary program − the European Union (“EU”) Price Undertaking (“UT”). The company said that it will continue to serve EU customers through its overseas manufacturing facilities.
Ctrip.com International, Ltd. has said that Priceline has agreed to invest an additional $500 million through a convertible bond along with an unnamed "long-term equity investment firm". Priceline will increase its stake in China's online travel company as part of its efforts to broaden its footprint in the world’s largest outbound-travel market.
Priceline has invested around $1.9 billion in Ctrip convertible bonds and ADSs since 2014 which means that it holds around 45.5 million Ctrip shares on a fully diluted basis.
Ctrip has extended its agreement with Priceline, allowing the latter to increase ownership in Ctrip through the acquisition of Ctrip's American Depositary Shares in the open market. This arrangement means that Priceline may hold up to 15% of Ctrip's outstanding shares.
Alibaba Group BABA has struck a significant content deal with The Walt Disney Company DIS. According to the multiyear license agreement with Disney to offer a non-cable, over the top (OTT) device offering “DisneyLife” services, thus bringing together customers, physical products and digital entertainment for the first time.
The device, now available for pre-sale at Alibaba’s online shopping site Tmall.com, is priced at US$125. It is a Mickey Mouse-themed streaming device and comes with a one-year subscription to DisneyLife.
The web streaming service will enable Alibaba’s Chinese customers to access Disney content, plan trips to Hong Kong Disneyland and Shanghai Disney Resort, when it opens in 2016, and access other Alibaba products and services – all as part of synergistic cross promotion.
Prior to this, the company acquired Hong Kong's leading English language newspaper, South China Morning Post (SCMP) and other associated media assets for $266 million.
Concord Medical Services Holdings Ltd CCM announced a special dividend of 33 cents per ordinary shares (or 99 cents per ADS). This represents an expenditure of nearly $44.5 million given the 134 million ordinary outstanding shares as of Sep 30, 2015. (1 ADS = 3 shares).
These dividends must be paid on or around Jan 30, 2016 to all shareholders on record when the market closes on Dec 28, 2015. Ex-dividend date should be around Dec 23, 2015.
ReneSola Ltd SOL has said that it will set up projects in the Tochigi Prefecture of Japan. It has sold two utility projects to be installed at this location which have a capacity of 590 kW and 920 kW, respectively.
Each of these projects has qualified for the country’s 32 Yen FiT (feed-in tariff) scheme. This refers to the currently applicable PV feed-in tariff. Renesola has already completed the transaction and received the entire proceeds of the sale.
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 |
-1.6% |
-3.8% |
|
VIPS |
+4.1% |
-37.3% |
|
JD |
+0.4% |
-8.7% |
|
CTRP |
-10.5% |
+156.8% |
|
SFUN |
+3.8% |
-27.6% |
|
EDU |
+4.9% |
+26.2% |
|
BIDU |
-5.5% |
-6% |
|
YGE |
-19.7% |
-56.6% |
|
TSL |
+3.6% |
-18.7% |
|
JMEI |
+2.2% |
-63.1% |
Next Week’s Outlook:
After the high level of volatility witnessed recently, China’s markets seem to be stabilizing. Several reports indicate that the economy is on a firmer footing. Meanwhile, the government is taking several sector specific steps to boost growth. These measures have received a warm welcome from investors.
Another set of key economic reports are scheduled for release on Tuesday. This includes GDP numbers for the fourth quarter and industrial production, retail sales and fixed asset investment numbers for December. If most of these reports are positive in nature, China’s equity markets could continue to enjoy strong gains in the days ahead.
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