SMIC Leads ADR Drop to Four-Month Low on Growth: China Overnight

Chinese equities in New York sank to the lowest level in four months, led by Semiconductor Manufacturing International Corp. (SMI), on concern growth in the world’s second-largest economy is slowing.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in the U.S. fell 1 percent to 94.33 yesterday, posting a 10 percent drop over 10 straight days of declines. Semiconductor Manufacturing tumbled to a three-year low, shrinking the discount to its Hong Kong shares, after it was cut from the MSCI China Index. Sina Corp. (SINA), owner of China’s third- most visited website, led gains as it signed up advertisers for its Twitter-like service.

The Shanghai Securities News said combined net lending for China’s four biggest banks was almost zero in first two weeks of this month, after the nation reported its slowest pace of growth in almost three years in the first quarter. MSCI Inc. (MSCI), whose gauges are tracked by about $3 trillion of funds worldwide, will remove the shares of the Shanghai-based chipmaker as of May 31, the index provider said in a report yesterday after the close of the market.

“Quite clear now, growth is slowing,” Kevin Carter, the chief executive officer at Baochuan Capital Management LLC in Walnut Creek, California, said yesterday by phone. “Pricing can go even lower. Sentiment is weighing” on Chinese stocks in the U.S., he said.

China ETF Sinks

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., declined 2.3 percent to $33.93, the lowest level since Dec. 19.

The Shanghai Composite Index of mainland stocks slid 1.2 percent to a four-week low yesterday. The Standard & Poor’s 500 Index of U.S. shares fell 0.4 percent.

Global stocks have tumbled this week as concern mounted that Greece will be forced to leave the euro area. The European Central Bank has no immediate plans to increase stimulus even as market tensions mount, according to two euro-area officials, who declined to be named. Europe is China’s biggest export market.

The Bloomberg China index is on track to erase this year’s 4.7 percent gain as reports showed China’s industrial production grew at the slowest pace since 2009 in April, while imports and exports rose less than analysts expected. The government has slashed its growth target for this year to 7.5 percent, from an 8 percent goal over the previous seven years as it shifts its focus from exports to domestic consumption.

“Until we can obtain more clarity about the structural drivers of the economy and the corporate sector, we remain underweight,” John-Paul Smith, Deutsche Bank AG’s London-based emerging-market strategist, wrote in an e-mailed report.

Semiconductor Manufacturing

American depositary receipts of Semiconductor Manufacturing, a Shanghai-based chip maker, fell 9.6 percent to $2.08 yesterday, as MSCI rebalances its China index. The ADR traded at a 2.1 percent discount to its equivalent shares in Hong Kong, which tumbled 11 percent.

Sina jumped 11 percent to $57.41, the most since Feb. 28. The company said after the market closed on May 15 that its adjusted losses for the first quarter totaled 21 cents per share, compared with the average estimate of a loss of 23 cents in a Bloomberg survey of analysts. Advertising sales on Weibo, which has 324 million users, may make a “meaningful” contribution in the second half, Chief Executive Officer Charles Chao said on a conference call.

Credit Suisse AG boosted its rating on Sina to outperform from neutral. Barclays Capital raised it to overweight from equalweight.

‘Competitive Advantage’

“Saying ‘meaningful contribution’ is a positive development because Sina is very, very conservative,” Adam Krejcik, an analyst at Roth Capital in Newport Beach, California, said in a phone interview. “Sina’s advertising growth in the second half should exceed the overall market pace because of Weibo. That’s Sina’s competitive advantage. I cannot be more positive on the stock than I am now.”

Renren Inc. (RENN), a social networking website, rose 7 percent to $6.25. The company on May 15 posted earnings losses in the first quarter that were smaller than analysts expected.

Ambow Education Holding Ltd. (AMBO), a Beijing-based education service provider, tumbled 18 percent to a record low of $4.65 after it delayed filing its annual report and said it may reverse as much as $15 million in revenues in 2011 until cash is collected. Trading volume was more than six times the three- month daily average.

Increasing Scrutiny

The filing delay came as overseas listed Chinese companies face increasing scrutiny globally by regulators and investors over their financial reporting and corporate governance. Sino- Forest Corp., the Chinese tree grower accused of fraud by short- seller Carson Block, filed for bankruptcy protection in March.

“In this volatile, choppy environment, there’s not much room for even the appearance of a problem,” Erik Lam, the director of Asian equity sales at Auerbach Grayson & Co. in New York, said in a phone interview yesterday. “Because all these things going on, everyone believes any kind of delay equals fraud in China.”

Qihoo 360 Technology Co. (QIHU), a Chinese developer of computer desktop and anti-virus software, will boost this year’s sales by as much as 85 percent as user-friendly tools attract advertisers, Chief Financial Officer Alex Xu said in an interview in Beijing yesterday.

Qihoo can weather a slowdown in the world’s second-largest economy as it benefits from rising online advertising revenue after 2011 sales jumped 191 percent to $167.9 million, Xu said. Shares rose 4.7 percent to $20.72 in New York.

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

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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