Chinese stocks traded in the U.S. declined for a second week, dragged lower by energy and Internet companies, on speculation the government may maintain credit limits and curb fuel prices to keep inflation from accelerating.
The Bloomberg China-US 55 Index (CH55BN) fell 5 percent, the most in nine weeks led by the biggest losses in two months for Cnooc Ltd. (CEO), the nation’s largest offshore oil explorer, and Yanzhou Coal Mining Co. (YZC) Baidu.com Inc. (BIDU) and Sina Corp. (SINA) paced a drop in Internet stocks, while Focus Media Holding Ltd. (FMCN) sank 30 percent in the week after Muddy Waters LLC said the company overstated its ad network’s size. Solar company shares rose.
Industrial & Commercial Bank of China Ltd. Chairman Jiang Jianqing said Nov. 24 that he expects China to maintain tight monetary policies as inflationary pressure remains “very high.” China’s top planning agency “suggested” a ceiling for spot coal price for 2012 to ensure price stability, the Chinese 21st Century Business Herald said Nov. 25.
“For the time being, policies are on hold,” said Huang Yiping, Hong Kong-based chief economist for emerging Asia at Barclays Capital in an interview with Bloomberg Television Nov. 25. Policy makers “want to take time to make sure risks are on the downside both for inflation and growth in the next couple of months,” he said. “Then they’ll change the overall bias.”
Reserve Ratio Cuts
The People’s Bank of China raised interest rates three times this year and lifted banks’ reserve-requirement ratio on six occasions to curb inflation. Consumer price gains slowed to 5.5 percent in October from a three-year high of 6.5 percent in July, and are still above the government’s full-year goal of 4 percent.
The central bank cut the reserve ratio for more than 20 rural credit cooperatives on Nov. 23 by half a percentage point, after an increase imposed on them a year ago, it said. Premier Wen Jiabao pledged last month to “fine-tune” measures as needed to sustain economic growth, which slowed to 9.1 percent in the third quarter from a year earlier, the least in two years.
American depositary receipts of Cnooc, each representing 100 common shares, slid 8.6 percent last week to a one-month low of $171.93 as oil futures fell for the second week in New York. The decline caused the ADRs to trade at a discount to its Hong Kong-listed shares, which lost 8.9 percent during the week to HK$13.50, or $1.73.
ADRs of PetroChina Co. (PTR), China’s biggest oil producer, fell in each of the four trading sessions last week, ending the period with a 5.4 percent decline to $120.64. Crude oil for January delivery slid 0.7 percent for the week to $96.77 a barrel.
The ishares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., retreated 5.6 percent last week to $33.33, the lowest since Oct. 20.
The Chinese yuan weakened for the third week, the longest losing streak since July 2010, as a preliminary purchasing managers’ index (SHCOMP) from HSBC Holdings Plc and Markit Economics showed manufacturing may contract this month by the most since March 2009. The yuan dropped 0.3 percent during the week to 6.3750 a dollar, according to the China Foreign Exchange Trade System, trimming its gains versus the U.S. currency to 3.6 percent this year.
Yanzhou Coal, the nation’s fourth-largest producer of the fuel, slumped the most in two months last week as power providers in China and India, Asia’s biggest energy users, are struggling to recoup their costs amid governments’ measures to restrict prices and curb inflation, which reduces incentive to boost electricity generation from thermal coal.
China’s National Development and Reform Commission “suggested” that benchmark spot coal should trade no higher than 800 yuan ($126) a metric ton, according to the report of 21st Century Business Herald, citing an unidentified person who attended a Nov. 22 meeting with producers. Annual supplies under contract terms for next year should cost no more than 5 percent from a year earlier, it said.
Yanzhou slumped 10 percent last week in New York to $22.23.
The ADRs of Huaneng Power International Inc. (HNP), China’s largest power producer which uses coal to generate electricity, rose for the third straight week, climbing 3.9 percent last week to $21.21. Each ADR represents 40 common shares.
Shanghai Index Falls
The Standard & Poor’s 500 Index (SPX) ended the week with a 4.7 percent decline, the most in nine weeks, to 1,158.67, on concern Europe’s debt crisis is worsening. Belgium’s credit rating was cut to AA from AA+ by Standard and Poor’s on Nov. 25, with a “negative” outlook. Greece is demanding that new bonds issued to investors as part of a debt swap have a net present value of 25 percent, lower than the “high 40s the banks have in mind,” Reuters reported on the same day.
The Shanghai Composite Index fell 1.5 percent to 2,380.22 last week, the third weekly decline. The measure is trading at 11.3 times estimated earnings, compared with 13.6 for Indian stocks, 9.8 for Brazilian shares and 4.4 for Russian equities.
“The direction for China’s monetary policy and credit policy will still be very prudent,” ICBC Chairman Jiang said in Cape Town Nov. 24.
Baidu, which owns China’s most popular online search engine, slumped 5.5 percent in its fourth week of declines to $119.91, cutting its gain this year to 24 percent. Sina, owner of the Twitter-like service and the third-most visited website in China, sank 15 percent on the week to $63.15, extending its loss this year to 8.2 percent.
Chinese Internet-based companies including Sohu.com Inc. (SOHU), Renren and Youku.com Inc. reported higher operating costs and lower profit margins in the third quarter as they step up investment amid increasing competition.
Focus Media, a Shanghai-based digital advertising company, tumbled 31 percent last week to $17.70. It rebounded after losing 39 percent Nov. 21 when Muddy Waters, the short-selling firm owned by Carson Block, recommended to bet against the company, saying Focus overstated the numbers of screens in its network and may have overpaid for takeovers to mask losses.
Focus Media “entirely” denied the allegations in a Nov. 22 statement and said its Chairman Jason Jiang would buy $11 million of the company’s shares. Its biggest investor, Fosun International Ltd., also bought 602,687 ADRs of Focus for $10.4 million Nov. 22, according to Fosun’s regulatory filing to the Hong Kong securities regulator.
Most solar stocks gained last week, led by Yingli Green Energy Holding Co. (YGE), as China said Nov. 25 it will begin its own investigation into American state support for renewable power, responding to U.S. probe into whether China’s solar cells are being dumped into export markets.
Yingli advanced 9.5 percent to $3.81, the first weekly gain in four. LDK Solar Co. (LDK), the nation’s second-largest maker of solar wafers, also rose for the first week in four, adding 7.6 percent to $3.12. Trina Solar Ltd. (TSL) climbed 1.4 percent to $6.54 last week.
The Shanghai Stock Exchange issued detailed rules on margin trading and short selling Nov. 25. China will also widen the scope of underlying securities eligible for such transactions on Dec. 5, to include stocks in the exchange’s 180 Index and in four open-ended exchange-traded funds, including the China 50ETF, according to the exchange’s statement.
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