SouFun Drops as ADR Valuations Sink on Housing: China Overnight

SouFun Holdings Ltd. and PetroChina Co. dropped, pushing an index of Chinese stocks in the U.S. to the cheapest level in more than a week, on concern a housing slump and sliding oil will hurt company earnings.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. lost 0.1 percent to 101.85 in New York, the lowest close since April 25. Property website owner SouFun fell to a two-month low, while PetroChina, the country’s largest oil producer, tumbled to the least since April 16. Aluminum Corp. of China Ltd. traded at a premium to its Hong Kong stock after its parent was asked to help the government consolidate China’s rare earth industry.

Companies in the China-U.S. gauge trade for an average 17.5 estimated earnings, the lowest since April 26 and compared with an average multiple of 19 over the past three years, data compiled by Bloomberg show. Crude oil slid to the lowest level this year in New York and Industrial & Commercial Bank of China (601398) Ltd. suspended a discount on mortgages for first-time home buyers nationwide, the Xinhua News Agency reported on May 5, raising concern housing sales may be undermined.

“The valuation is about as cheap as we can get for China,” Jim Oberweis, who oversees $800 million as president of Oberweis Asset Management Inc. in Lisle, Illinois, said by phone yesterday. “You want to be more selective, looking for companies with higher margins and higher growth,” including some consumer stocks, he said.

Of the 55 companies on the China-US measure, 27 rose yesterday, while an equal number of shares declined. The index has lost 4.6 percent from a six-month high of 106.74 on March 13. The Standard & Poor’s 500 Index (SPX) was little changed yesterday at 1,369.58.

China ETF Drops

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., declined for a fourth day, falling 0.5 percent to $37.18.

Option traders are turning the least bearish on the China ETF in more than two months. The open interest of puts, or rights to sell the ETF, was 1.43 times calls, or options to buy it, on May 1, according to data compiled by Bloomberg. That was the lowest put-to-call ratio since Feb. 21 and compares with 1.22 at the end of 2011.

Spreadtrum Communications Inc. (SPRD), a Shanghai-based mobile- phone chipmaker, rose 5.7 percent yesterday to $16.34, the highest in three weeks. The company said in a statement that it was picked by HTC Corp (2498), a Taiwanese mobile phone maker, to supply baseband modems and transceivers for its smartphones in China.

HSBC Holdings Plc. raised the company to overweight from neutral while Daiwa Securities Capital Markets Ltd. boosted its recommendation to buy. Spreadtrum jumped 15 percent on May 4, the biggest one-day advance since May 2010, after forecasting second-quarter sales that beat estimates and saying that it will ship new smartphone chips ahead of schedule.

Chalco Rises

Aluminum Corp., known as Chalco, rose from a four-month low, gaining 3.5 percent to $11.81. Chalco’s parent company, Aluminum Corp. of China, was asked by Su Bo, China’s vice minister of industry and information technology, to accelerate consolidation of the country’s rare earth industry and move toward setting up a rare earth group, according to a statement on the company’s website yesterday.

The ADRs traded 0.7 percent higher than the company’s Hong Kong shares, the first premium since April 27.

Chinese and Israeli technology firms, the biggest source of foreign listings on the Nasdaq Stock Market, will boost share sales this year to capitalize on the best gains since 1999, Bank of New York Mellon Corp. said.

Chinese IPOs

As many as eight Chinese technology companies and six Israeli tech and biotechnology developers are planning initial public offerings by listing depositary receipts on the Nasdaq and the New York Stock Exchange in the second half of 2012, said Anthony Moro, the head of emerging-market depositary receipts for BNY Mellon in an interview. The Nasdaq Composite Index (CCMP) has gained 13.5 percent in 2012.

SouFun Holdings Ltd. (SFUN) lost 3.6 percent to $17.1, the lowest level since March 6.

Industrial & Commercial Bank of China Ltd., China’s largest lender, notified borrowers that it would scrap a 15 percent mortgage rate discount for first homebuyers last week, the official Xinhua News Agency reported on May 5. The decision, made primarily to address a cash crunch and “deposit instability,” may be followed by the other large Chinese banks including China Construction Bank Corp. and Bank of China Ltd., according to Religare Capital Markets.

GDP Growth Slows

China’s gross domestic product grew 8.1 percent in the first quarter, the slowest pace in more than two years, as the housing market cooled and the export growth slowed. A government report expected this week may show exports grew 8.5 percent in April from a year earlier, compared with 8.9 percent in March, according to the median estimate of 32 economists surveyed by Bloomberg. Exports grew an average 21 percent last year.

“My feeling is the news is going to continue to worsen, and markets are more likely to go down than go up,” Michael Shaoul, chairman of Marketfield Asset Management in New York, said by phone yesterday. “At some point in time, we’ll stop talking about a soft landing and start talking about something worse.”

Shaoul’s Marketfield Fund, (MFLDX) which has $445 million in assets, gained 7.6 percent this year, beating 83 percent of its peers, data compiled by Bloomberg show.

PetroChina, Cnooc

American depositary receipts of PetroChina (PTR) lost 1.1 percent to $142.89 after crude for June delivery touched $95.34, the lowest intraday level since Dec. 20.

The decline in the oil company’s ADRs compared with a 3.4 percent drop in its Hong Kong stock. That left the ADR to trade 1.2 percent higher than its equivalent in Hong Kong, the first premium since April 26, according to data compiled by Bloomberg. Cnooc (CEO), China’s largest offshore oil producer, dropped 0.8 percent to $207 in the U.S.

Of the 18 companies in the China-US index that have reported earnings since April 10, nine have fallen short of analysts’ forecasts, including Yanzhou Coal Mining Co. (YZC) and China Telecom Corp. (CHA), data compiled by Bloomberg show.

Ten companies in the China-US index are expected to release first-quarter results this week, including Melco Crown Entertainment Ltd. (6883) and Home Inns & Hotels Management Inc. (HMIN) according to data compiled by Bloomberg.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Leon Lazaroff in New York at llazaroff@bloomberg.net

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.