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Oil Companies Discounts Widen as Stocks Fall: Overnight

Chinese equities traded in the U.S. slid for a second day, widening oil and coal producers’ discounts to Hong Kong to the most this year, a signal commodity stocks may fall as trading resumes in local markets.

PetroChina Co. (PTR) and China Petroleum and Chemical Corp., the nation’s two biggest oil producers, traded at the largest discount to their Hong Kong shares since at least December. Prices for Yanzhou Coal Co. (YZC), the nation’s fourth-largest coal miner, were the lowest relative to Hong Kong-traded stock in almost four months. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. dropped 1.7 percent to 101.89 yesterday in New York, the biggest drop in five days.

Stocks slumped after the Federal Reserve indicated it may refrain from more monetary stimulus in the minutes of its latest meeting, boosting global slowdown concerns. The Chinese economy expanded 8.4 percent in the first quarter, down from 8.9 percent in the prior three months, National Development and Reform Commission Vice Chairman Zhang Xiaoqiang predicted. The nation’s regulator more than doubled on April 3 the quotas for foreigners to invest in local capital markets.

“Commodity and oil producers around the world have seen slowing growth amid weakening demand in China,” said Michael A. Gayed, chief investment strategist in New York at Pension Partners LLC, which advises on over $150 million in assets, including Chinese shares through exchange-traded funds. “If you have big moves in other worldwide indexes in between the Chinese markets being closed, you tend to have a delayed response.”

China ETF Plunges

The IShares FTSE China 25 Index Fund (FXI), the biggest Chinese exchange-traded fund in the U.S., sank 1.5 percent to $36.63 yesterday, the steepest one-day drop in two weeks.

The Chinese planning agency’s 8.4 percent growth forecast for the first three months of the year -- made 10 days before official data are due -- compared with the 8.3 percent median estimate of 28 economists surveyed by Bloomberg then.

The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong rose 1.9 percent to a two-week high of 10,859.49 on April 3. Chinese stocks markets open today after Hong Kong closed for a holiday yesterday and mainland Chinese bourses were shut for the first three trading days of this week.

American depositary receipts of PetroChina, the nation’s largest oil producer, fell 1.3 percent to $140.51 in the U.S. yesterday. The Beijing-based company’s ADRs traded 2.1 percent below its Hong Kong stock, which climbed 1.6 percent to HK$11.14 on April 3, the equivalent of $1.44 per share. The discount on the ADRs, each representing 100 common shares in the PetroChina, was the largest since Dec. 8.

Sinopec Discount

PetroChina’s 2011 net income fell 5 percent to 133 billion yuan ($21 billion) as losses from selling diesel and gasoline at state-controlled prices countered gains in crude sales. That compared with a 2 percent advance in profit reported by China Petroleum, known as Sinopec, and a 29 percent jump for Cnooc Ltd. (883)

Sinopec’s ADRs, each of which equals 100 common shares, lost 1.4 percent to $107.71 in their second day of declines. The company’s stock added 0.6 percent to HK$8.47 in Hong Kong on April 3, or $1.09 per share. The ADRs, trading 1.3 percent lower than the Hong Kong shares, were the largest discount since Dec. 19.

Beijing-based Cnooc, the nation’s largest offshore oil explorer, sank 1.5 percent to $201.04 in New York, the lowest closing level since Jan. 24. The ADRs traded 2.1 percent below Hong Kong stock, the widest discount in a week.

‘Domestic Story’

Investor concern over future growth momentum in China has helped curb demand for resources this year, Alex Ashby, a research analyst at Global X Funds, an exchange-traded fund company which manages $1.3 billion including Chinese equities, said yesterday by phone. “The picture of those Chinese energy and commodity companies is driven by the domestic story.”

ADRs of Yanzhou Coal, based in China’s Shandong province, slipped 1.2 percent to $21.64, trading 3.3 percent lower than its Hong Kong stock, the widest discount since Dec. 8.

The China Securities Regulatory Commission increased quotas for qualified foreign institutional investors to participate in the mainland market to $80 billion from $30 billion, according to a statement on its website April 3.

Premier Wen Jiabao is seeking to attract international investment as economic growth wanes. The nation reduced their economic growth target for this year to the lowest since 2004 last month. The government is scheduled to report gross domestic product figures for the first quarter on April 13.

“It’s very exciting to have that sort of access because the valuations are very different,” Michael Venuto, head of investments at Global X Funds, said in an interview yesterday in New York. “As a U.S. investor, it’s impossible not to be invested in China.”

Stocks on the Shanghai Composite Index trade for 9.6 times estimated earnings, compared with an average valuation of 23.8 times for equities in the Bloomberg measure for U.S.-traded Chinese companies.

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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