Chinese stocks in the U.S. posted the biggest weekly loss in eight, led by Ctrip.com International Ltd. (CTRP) and LDK Solar Co., on concern tighter credit is weighing on China’s economic growth while Europe’s debt crisis deepens.
The Bloomberg China-US 55 Index fell 3.5 percent last week to 99.14 in New York, the most since the five-day session ended Sept. 23. Ctrip, the country’s biggest online travel agency, sank 25 percent amid concern rising prices will further hurt profit margins after the spread narrowed in the third quarter. Solar makers from LDK to Trina Solar Ltd. dropped as world prices slump and European governments cut subsidies for renewable power.
China’s home prices fell in 33 of 70 cities in October, the worst performance since it expanded property curbs this year. The central bank reiterated Nov. 16 a pledge by Premier Wen Jiabao to fine-tune policies when needed after inflation cooled to the slowest pace in five months. U.S. stocks fell last week as Spanish bond yields rose to a euro-era record high and the French debt yield gap with Germany widened to a record.
Tighter bank credit since last year may mean that “a batch of small private companies may disappear before next April,” Edward Meng, chief financial officer of China Gerui Advanced materials Group Ltd. (CHOP), said in an interview in New York. “Capital-intensive private companies are facing more difficulties in the short run than bigger state-run firms.”
Analysts including Barclays Capital Research and asset managers such as CBRE Global Investors are betting property price declines will force a policy reversal as the tightening weighs on economic growth. The government this year raised down payment and mortgage requirements and restricted home purchase in about 40 cities. The central bank also increased interest rates three times and reserves ratio six times this year.
China, the world’s second-largest economy, grew 9.1 percent in the third quarter from a year earlier, the least in two years. International Monetary Fund Deputy Managing Director Zhu Min said Nov. 13 China’s economy is heading for a “soft landing” and is moving toward a greater focus on services and capital investment. Consumer price gains slowed to 5.5 percent in October from a three-year high of 6.5 percent in July.
The Standard & Poor’s 500 Index sank 3.8 percent last week to a four-week low of 1,215.65.
Ctrip’s operating profit margin will narrow to 35 percent in the fourth quarter, Chief Financial Officer Jie Sun said on a conference call Nov. 13. The margin shrank to 41 percent in the third quarter from 45 percent a year ago, due to higher labor costs and marketing expenses, including a coupon program, amid increasing competition in China’s hotel booking business.
Ctrip’s American depositary receipts plunged 25 percent last week to a two-year low of $25.71. The company is trading at 16 times its estimated earnings.
Morgan Stanley analysts led by Jonathan Garner added Ctrip to a focus list of Asia’s emerging market equities, saying the price-to-earnings ratio is near its bottom in 2008. It also predicted earnings may expand as much as 25 percent annually over the next three years.
The ishares FTSE China 25 Index Fund (FXI), the biggest Chinese exchange-traded fund in the U.S., retreated 6.6 percent last week, the most in eight weeks, to $35.32. The Chinese yuan weakened 0.2 percent to 6.3554 a dollar last week, according to the China Foreign Exchange Trade System. The currency has risen 4 percent this year, the best performance among the 25 emerging- economy currencies tracked by Bloomberg.
Wells Fargo & Co. analysts dropped their coverage of LDK, China’s second-largest maker of wafers, saying the company’s odds of continuing to operate depend on Chinese banks’ ability to extend credit as it struggles with a “severe” industry decline, a weak balance sheet and high debt load.
Falling costs for the raw materials as well as improved manufacturing processes is driving down solar-panel prices. Solar modules now sell for about 99 cents a watt, down from $1.79 at the beginning of 2011, according to New Energy Finance.
LDK on Nov. 14 cut its sales forecast and will write down $45 million to $50 million in inventory, citing “rapidly declining market price.”
LDK’s ADRs slid 3.7 percent to $2.90 in its sixth day of decline on Nov. 18, after sinking to a record intrday low of $2.60 on Oct. 3.
Gerui, a high-precision cold-rolled steelmaker based in Zhengzhou, will have higher profit margins and sales growth next year as it adds capacity and shifts to higher-margin products, CFO Meng says. The overcapacity in China’s steel industry is mainly in hot-rolled, crude products, he said.
The company on Nov. 10 reported third-quarter net profit jumped 76 percent while revenue rose 63 percent from a year earlier to $101.1 million. Its shares surged 11 percent last week to $3.88 in U.S., the highest in three months.
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