ADRs Slump Most in 2012 on Earnings Woes: China Overnight

Chinese stocks in New York posted the biggest weekly drop this year after industrial output and retail sales missed economists’ estimates, raising concerns slower growth will cut earnings.

The Bloomberg China-US Equity Index (CH55BN) of the most traded Chinese companies in the U.S. tumbled 4.1 percent last week to 97.76, the biggest retreat since December. 51job Inc., a recruiting service provider, sank 15 percent last week, while SouFun Holdings Ltd. (SFUN), which owns a real estate website, lost the most since November. Huaneng Power International Inc. (HNP) traded at a discount to its Hong Kong shares for the first time in a week.

China’s industrial production increased 9.3 percent in April from a year earlier, the slowest pace since 2009, while retail sales rose the least since February 2011. Of the 24 companies in the China-US index that have reported earnings since April 1, 10 have fallen short of analysts’ forecasts, including Yanzhou Coal Mining Co. (YZC) and China Telecom Corp. (CHA), data compiled by Bloomberg show.

“It’s time to be cautious,” Michael Shaoul, who oversees more than $1.9 billion as chairman of Marketfield Asset Management in New York, said by phone from New York. “The down cycle doesn’t stop here. Earnings will shrink.”

The IShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., fell 5.5 percent last week to $35.33, the lowest level since January. The Shanghai Composite Index of mainland stocks slid 2.3 percent, the biggest five-day drop since the end of March. The Standard & Poor’s 500 Index (SPX) of U.S. shares declined 1.2 percent.

‘Casting a Shadow’

SouFun, owner of China’s largest housing website, fell 8.4 percent last week to $16.25. The value of homes sold in China declined 16 percent in April from a year earlier to 315 billion yuan ($50 billion), according to the statistics agency.

A government report last week also showed export and imports grew at a slower-than-expected pace in April as the European debt crisis curbed overseas demand and a cooling housing market curbs consumer spending. The central bank said on May 11 that lenders handed out loans of 681.8 billion yuan last month, the smallest this year.

51job Inc. (JOBS), a recruiting service provider, sank to $49.40 from $57.86 a week earlier. The company forecast on May 9 that revenue will grow as much as $59.5 million in the second quarter, compared with $60.5 million in the first three months of this year.

Concern over China’s slowing economy is “clearly casting a shadow” over companies’ hiring, Chief Executive Officer Rick Yan said on a conference call with analysts on May 9.

‘Responding Badly’

7 Day Group Holdings Ltd. (SVN), a hotel operator, declined 11 percent last week to $10.77 as earnings estimates trailed analyst expectations. Baidu Inc., (BIDU) owner of China’s largest Internet search engine, retreated 6 percent to $122.23. It has lost 12 percent since April 24 as the company’s sales forecast fell short of analysts’ estimate.

“China’s growth is slowing perhaps more than markets were believing,” said Daniel Arbess, a partner at Weinberg Partners LP who manages the Xerion hedge fund, in an e-mailed reply. “Markets are responding badly.”

Arbess said he sold his holdings of Chinese equities at the beginning of the year.

Consumer prices rose 3.4 percent last month from a year earlier, the statistics agency said on May 11. It was the third month that inflation stayed below the government’s annual target of 4 percent, fueling speculation policy makers may cut banks’ reserve requirements to spur growth.

‘Difficult Decision’

“For investors, China is a difficult decision: do you play the slowdown, sell or go short, or do you wait for the policy reaction to kick,” John Lomax, an emerging-markets strategist at HSBC Holdings Plc, said in a phone interview from London. “Policy makers have little appetite for sustained weak growth, so it can be dangerous to play the slowdown too aggressively here.”

American depositary receipts of Huaneng, a unit of China’s largest electricity producer, rose 3.2 percent last week to $23.93 in New York, leaving it 0.9 percent lower than its shares in Hong Kong.

WuXi PharmaTech (Cayman) Inc., (WX) a biotechnology research firm, jumped 9.5 percent on May 11 to $14.68, after the company’s second-quarter revenue estimate beat analysts’ forecasts. The Shanghai-based firm posted adjusted earnings of 33 cents per share after the market close on May 10, compared with the average forecast of 29 cents in a Bloomberg survey of seven analysts.

Home Inns & Hotels Management Inc. (HMIN) rose 5.2 percent on May 11 to $24.03, extending its weekly gain to 8 percent. The Shanghai-based budget hotel operator posted an adjusted loss of 9 cents per share for the first quarter, compared with the median forecast for a 33-cent loss in a Bloomberg survey of six analysts.

Confidence

Sixteen companies in the China-US index are scheduled to release first-quarter results this week, including Sina Corp. (SINA) and Ctrip.com International Ltd. (CTRP), according to data compiled by Bloomberg.

A 51 percent majority are confident in the policies of President Hu Jintao, according to the quarterly Bloomberg Global Poll of investors, analysts and traders who are subscribers. The figure was the same as in January, unaffected by the aftermath of former Chongqing Communist Party boss Bo Xilai’s March ouster, which clouded the outlook for this year’s once-in-a- decade leadership change.

China’s economy will either improve or remain stable this year, according to 68 percent of respondents, with the share anticipating a deterioration falling to 30 percent, the lowest level since the question was first included in the poll in September.

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: Tal Barak Harif at tbarak@bloomberg.net

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