Airlines Sink Shares as Manufacturing Contracts: China Overnight

Chinese equities traded in the U.S. dropped for the third day this week, as airlines slipped on rising fuel prices and an index indicated manufacturing in China shrunk this month to the lowest level since November.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese stocks in the U.S. declined 0.8 percent to 103.85 yesterday in New York, while the iShares FTSE China 25 Index exchange-traded fund fell to a two-month low. China Southern Airlines Co. (ZNH) tumbled to the weakest level in more than five months, and China Eastern Airlines Corp. slid for a seventh day, the longest run of losses in a year.

A preliminary 48.1 reading in a Chinese purchasing managers’ index from HSBC Holdings Plc and Markit Economics released yesterday was the lowest since November with results below 50 signaling a contraction. Manufacturing output in the euro region, China’s biggest trading partner, also shrank more than economists forecast this month, boosting prospects policy makers will take further steps to sustain expansion after they cut the growth target for the first time in eight years.

“The market is awaiting further measures from the government, such as cuts to interest rates, to resume its rally,” Michael A. Gayed, the chief investment strategist in New York at Pension Partners LLC, which advises on more than $150 million in assets and invests in Chinese stocks through exchange-traded funds, said by phone yesterday. “The slower manufacturing was also reflected in the government’s lower growth target this year.”

The China 25 Index fund, the biggest Chinese ETF in the U.S., slumped 1.4 percent to $36.89, the lowest level since Jan. 13. The Standard & Poor’s 500 Index (SPX) slid for a third day, falling 0.7 percent to 1,392.78.

China Southern Plunges

American depositary receipts of China Southern sank for the eighth day, falling 3 percent to $22.50, the weakest closing price since Oct. 5. The ADRs, each representing 50 common shares, traded 1 percent below Hong Kong stock, the widest discount in a week. The air carrier’s shares lost 1.9 percent to HK$3.53 in Hong Kong, the equivalent of 45 U.S. cents.

The Guangzhou, China-based carrier, Asia’s biggest airline by passenger numbers, may report profit declined in the second half of 2011, according to analysts’ forecasts compiled by Bloomberg. Adjusted net income fell 27 percent in the six months to Dec. 31 from a year ago, after increasing 50 percent in the first half of 2011, the average estimate of three analysts showed. The company is scheduled to release 2011 financial results on March 29.

Jet Fuel Jumps

Jet fuel prices have climbed 12 percent this year, reaching a 10-month high on March 9, while oil futures have jumped 6.7 percent. Crude for May delivery fell 1.8 percent to $105.35 a barrel on the New York Mercantile Exchange today. The contract reached $109.77 on Feb. 24, the highest settlement since May.

The slump in airlines’ stock is caused by “a feeling that China will have a slowdown coupled with the fear of rising oil,” Gayed at Pension Partners said. “If economic activities are lessening, maybe there aren’t as many flights or people in the seats doing business deals.”

ADRs of Shanghai-based China Eastern (CEA) retreated 3.5 percent to $16.93 in their seventh day of declines for the longest losing streak since Dec. 15. The stock dropped 2.2 percent in Hong Kong to HK$2.68, the equivalent of 35 U.S. cents, and traded unchanged at 3.96 yuan in Shanghai trading, or 63 U.S. cents per share. Each ADR of China Eastern represents 50 common shares in the company.

The company is due to report 2011 results today.

Property Stocks Slide

The airline industry’s profit this year will plunge 62 percent, a bigger drop than predicted in December, as fuel prices rise, the International Air Transport Association said in a March 20 statement.

The Shanghai Composite Index (SHCOMP) slipped 0.1 percent to 2,375.77 yesterday. The Hang Seng China Enterprises Index (HSCEI) for Chinese companies traded in Hong Kong declined for the seventh day, the longest losing streak since June. The measure fell 0.1 percent to 10,767.

China Unicom (Hong Kong) Ltd. (CHU), the nation’s second-largest mobile phone company, will boost capital spending 30 percent this year, Chief Executive Officer Chang Xiaobing told reporters in Hong Kong yesterday, while Chief Financial Officer Li Fushen said profit margins “will be under pressure” in 2012 as the company faces higher marketing and network costs.

China Unicom Discounted

China Unicom’s ADRs, each representing 10 common shares in the company, fell 3 percent to $16.33 in New York, the weakest level in almost a year. The ADRs traded 3.3 percent below the company’s Hong Kong stock, the biggest discount in four months. China Unicom climbed 1.7 percent to HK$13.12 in Hong Kong, or $1.69 per share.

E-House China Holdings Ltd. (EJ), a Shanghai-based provider of property agency services, declined 4.3 percent to $5.76, the lowest level since Feb. 1. Property data and consulting firm China Real Estate Information Corp. (CRIC) slid 0.4 percent to $5.13, while SouFun Holdings Ltd. (SFUN), a realty website, lost 1.4 percent to a two-week low of $17.72.

New home prices fell in 27 of 70 Chinese cities last month from a year earlier, while prices were unchanged in six others, China’s statistics bureau said on March 18. That was the worst performance since the government started releasing individual data for 70 cities at the start of 2011.

Chinese social-network operators Renren Inc. and Sina (SINA) Corp. can’t rely on Facebook Inc.’s initial public offering to continue to support their shares as the companies face challenges luring advertisers amid the nation’s slowdown and the domination of television advertising, according to Maxim Group LLC.

Renren (RENN), which completed an $855 million IPO last year, slipped 0.4 percent to $5.30 in New York yesterday and will decline to $4.50 over the next 12 months, Maxim analyst Echo He, who covers Chinese Internet shares, said in an interview. Sina (SINA), owner of the Twitter-like Weibo site in China, dropped 0.9 percent to $70.15 and will fall to $51, He said.

Beijing-based Renren is up 49 percent this year, while Sina has climbed 35 percent, data compiled by Blomberg show.

To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net

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