Baidu Sinks as Index Falls Most Since September: China Overnight

Chinese stocks trading in the U.S. posted the biggest weekly drop in three months as Baidu (BIDU) Inc. and Yanzhou Coal Mining Co. (YZC) declined on concern the economic slowdown in the world’s second-largest economy is worsening.

The Bloomberg China-US 55 Index (CH55BN) of the most-traded Chinese stocks lost 5.1 percent last week to 94.19 on Dec. 16, the biggest five-day slump since September. Baidu, owner of the country’s biggest search engine, has slid 12.3 percent since Dec. 9 after Credit Suisse AG cut its earnings estimates for the company. Yanzhou, China’s fourth largest coal producer, fell 9.6 percent last week to $20.84, representing a 3-cent premium over the shares trading in Hong Kong.

Speculation is growing that policy makers may cut lenders’ reserve requirement ratio for a second time since November after the money supply grew the least in a decade last month and manufacturing contracted in December. Fitch Ratings put credit ratings for European nations, including France, Spain and Italy, under review for a downgrade, underscoring the need for China to revive domestic demand as Europe’s debt crisis hurts exports.

“They are probably slowing down a bit too much perhaps for their own taste, so they are easing monetary policy,” Angel Gurria, secretary general of the Organization for Economic Cooperation and Development, said in an interview on Bloomberg Television. “External demand around the world is dropping. China is going to have to do more” to boost domestic demand, he said.

Jobs, Inflation

A survey of China’s business confidence is scheduled for release on Dec. 22. In Hong Kong, the government is slated to release unemployment and inflation reports this week.

The Shanghai Composite Index (SHCOMP) of domestic shares fell 3.9 percent last week and reached the lowest close since March 2009. The index rose 2 percent on Dec. 16 amid the speculation central bankers will lower reserve requirements.

The Hang Seng China Enterprises Index (HSCEI), which tracks Chinese companies trading in Hong Kong, fell 2 percent last week while the Standard & Poor’s 500 Index of U.S. shares lost 2.8 percent. The IShares FTSE China 25 Index Fund (FXI), the biggest Chinese exchange-traded fund in the U.S., tumbled 4.9 percent to $34.53.

21Vianet Group Inc., (VNET) an Internet data center services provider, jumped 9.7 percent on Dec. 16 to $9.58. The company said that it has exercised its option to acquire the remaining 49 percent equity interest in two companies that provide managed network services.

Sina Corp (SINA), owner of the Twitter-like Weibo service in China, advanced 4.3 percent on Dec. 16 after earlier falling as much as 11 percent on a move by Beijing’s municipal government to tighten regulation on microblog users.

Internet Rules

The new rules ban users from setting up accounts with aliases and sending public messages containing state secrets or information that could harm national security. Sina said in a statement that it’s “evaluating the impact” the changes may have on the Weibo operation.

Chinese officials have pressured microblog services to strengthen supervision after a fatal rail crash in July sparked an outburst of criticism of the government on the Internet. Microblogs, which are used to publish short messages on the Internet, have at least 300 million registered users in China. Sina’s Weibo accounted for 66 percent of the market in August, according to a Sept. 15 report by BOCOM International.

The news isn’t the “worst case scenario” for Sina as investors had already anticipated the tightening of government regulations, according to Adam Krejcik, an analyst at Roth Capital Partners.

Tencent, Sohu

“Following months of speculation, we believe Sina’s management is relatively prepared and also believe the actual reporting of this news, versus numerous rumors, is better for the market,” Krejcik wrote in a note to clients. “We do not believe this signals the end of Weibo in China.”

Sina’s shares lost 11 percent last week, extending its decline this year to 20 percent.

Tencent Holdings Ltd. (700), based in Shenzhen, is the second- biggest operator of microblogs with a 25 percent share, according to BOCOM International. Beijing-based Sohu.com Inc. (SOHU), owner of the country’s fifth-most visited website, also offers similar services. Tencent rose 0.9 percent on Dec. 16 to $19.33 in New York, trimming its weekly decline to 0.7 percent. Sohu added 3.9 percent to $48.18, reducing the drop for the week to 8.1 percent.

Spreadtrum Communications Inc. (SPRD) rose 3.7 percent on Dec. 16 after the semiconductor company said it will buy back up to $50 million in shares.

FDI Decline

Youku.com Inc., (YOKU) China’s biggest online-video website, gained 5.1 percent on Dec. 16 to $18.05. The company filed a copyright infringement lawsuit against rival Tudou Holdings Ltd. at the People’s Court in Shanghai, Youku said in an e-mailed statement. Tudou declined 1.2 percent to $11.12.

Baidu fell to a two-month low after Credit Suisse cut its earnings estimates for the company on Dec. 13, citing lower prices the company charged advertisers on search results.

China’s domestic bourse has lost 21 percent this year, following a 14 percent decline in 2010, as policy makers raised borrowing costs to combat inflation and took measures to curb housing price increases. The Shanghai Composite Index is trading at 10.7 times forecast earnings in the next 12 months, compared with 13.4 in India, 4.8 in Russia and 10 in Brazil.

Reports last week show that the slowdown in the world’s second-biggest economy is deepening. Foreign direct investment dropped for the first time since 2009. The Conference Board’s leading index for China, which captures prospects over the next six months, fell in October.

Yuan Gains

The central bank reduced reserve requirements for lenders on Nov. 30 for the first time since 2008 to temper the slowdown. The central bank will cut reserve requirements once more this year and five times in 2012, Li Wei and Stephen Green, economists at Standard Chartered Plc., wrote in a note to clients this week.

The Chinese yuan gained 0.4 percent on Dec. 16 to 6.3484 per dollar in Shanghai, according to the China Foreign Exchange Trade System.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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