Most U.S.-listed Chinese equities fell after the nation’s manufacturing contracted for the first time since February 2009, prompting speculation that the government needs to take further measures to boost growth.
The Bloomberg China-US 55 Index (CH55BN) was little changed at 101.09 at the close of trading in New York, with 30 stocks in the benchmark falling and 23 rising. Huaneng Power International Inc. (HNP) sank on concern over rising costs at electricity producers. PetroChina Co. (PTR) and China Petroleum and Chemical Corp. declined as crude retreated. Focus Media Holdings Ltd. (FMCN) climbed for a third day after its third statement denying allegations by short seller Muddy Waters LLC.
The Purchasing Managers’ Index fell to 49.0 in November from 50.4 in October, the China Federation of Logistics and Purchasing said yesterday. A level below 50 shows contraction. The figure, the weakest since 2009, backs China’s move to cut banks’ reserve requirements a day earlier to encourage lending, HSBC Holdings Plc economist Frederic Neumann said.
“The focus is now shifting from inflation to growth in China,” said Neumann, Hong Kong-based co-head of Asian economic research at HSBC, in an interview with Bloomberg Television. “That is where the reserve ratio cut is coming in now. There might be more following here.”
After the half-percentage-point cut announced Nov. 30., the Chinese central bank may reduce the reserve ratio for lenders by another 1.5 percentage points until summer next year, followed by an interest-rate cut should inflation slow below 3 percent, Neumann said.
China, the world’s second-largest economy, expanded 9.1 percent in the third quarter from a year ago, the least in two years. The growth will slow to 8.5 percent next year, the Organization for Economic Cooperation and Development said in a Nov. 29 report, down from its May forecast of 9.2 percent. Consumer price increases slowed to 5.5 percent in October from a three-year high of 6.5 percent in July.
The Standard & Poor’s 500 Index (SPX) retreated 0.2 percent to 1,244.58 after completing the biggest three-day rally since March 2009 on Nov. 30. The Shanghai Composite Index (SHCOMP) gained 2.3 percent to 2,386.86 while the Hang Seng China Enterprises Index rallied 8.1 percent yesterday.
Huaneng, the listed unit of China’s largest power producer, slid 5.7 percent to a one-week low of $20.07 in New York trading. The shares fell even after the government raised electricity prices for the first time in six months and said it will cap the cost of power-station coal in an attempt to reduce outages in coming months.
Power, Coal Prices
Wholesale rates charged by power plants to distributors, called on-grid tariffs, and retail power prices both increased from Dec. 1, China’s top planning agency announced a day earlier. Price gains for contract thermal coal next year will be limited to less than 5 percent, it said.
The scope of the on-grid prices increase is about 6.8 percent, Lu Rumin, an utilities analyst at China’s Hongyuan Securities Co. estimated in a report dated Nov. 30.
“Power producers are still facing big challenges in controlling their costs,” he wrote. “Coal-fired plants are not very attractive in terms of their relatively high price-to- earnings ratio.”
Huaneng’s American depositary receipts are trading at 21.1 times estimated 2011 profit, compared with 13.2 for the Bloomberg index (HSCEI) for the most-traded Chinese stocks in the U.S. and 11.3 for the Shanghai benchmark gauge.
The ADRs of PetroChina, the nation’s biggest oil producer, retreated 0.9 percent to $129.58, after surging 5.6 percent a day earlier, the most since May 2010. China Petroleum, the second-largest producer in the country known as Sinopec, lost 0.8 percent to $105.48.
Oil declined for the first day in a week after the Labor Department said U.S. unemployment claims rose by 6,000 to 402,000 last week and as manufacturing slowed in Europe and China. Crude futures for January delivery slipped 0.2 percent to $100.20 a barrel on the New York Mercantile Exchange.
The ishares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., climbed 1.1 percent to a two- week high of $36.62 yesterday. The Chinese yuan strengthened 0.2 percent to 6.3635 a dollar, after falling 0.4 percent in November, according to the China Foreign Exchange Trade System.
The Shanghai benchmark stock measure is trading at 11.3 times estimated earnings, compared with 14.2 for Indian stocks, 10.5 for Brazilian shares and 5.3 for Russian equities.
Focus Media, the Shanghai-based digital advertising company, climbed 6.4 percent to $19.71. The company has rebounded 28 percent since Nov. 21, when the shares sank 39 percent after Muddy Waters said in a report that Focus overstated the size of its advertising network and may have deliberately overpaid for takeovers to mask losses. Focus issued its third statement denying the allegations on Nov. 30.
Almost 22,000 calls to buy the Focus’s shares changed hands yesterday on U.S. options exchanges, 1.9 times the four-week average and 2.3 times the number of puts to sell.
Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will increase or decrease.
The short seller’s assertions that Sino-Forest Corp. and Focus Media lied about their businesses have yet to be proved, Daniel Arbess, manager of Perella Weinberg Partners LP’s Xerion funds, said at the Bloomberg Hedge Funds Summit in New York yesterday.
Shanda Interactive Entertainment Ltd, owner of China’s third-biggest provider of online games, will report financial results for the third quarter at 10 a.m. Hong Kong time today.
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