E-Commerce China Dangdang Inc. (DANG) and 21Vianet Group Inc. slumped, sending an index of Chinese stocks in the U.S. to the lowest in four months, as a slowdown in the world’s second-largest economy trims earnings.
Dangdang, owner of China’s biggest Internet bookseller, fell 16 percent, the most in 11 months, as its second-quarter sales forecast trailed analysts’ estimates. 21Vianet, the nation’s largest independent data-center services provider, tumbled as much as 17 percent after reporting an unexpected loss. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. extended its record streak of declines to an 11th day, losing 2.5 percent to 91.97.
Dangdang joins Baidu Inc. (BIDU) and Sohu.com Inc. in forecasting slower sales growth as the Chinese economy has yet to show signs of a pickup from the weakest expansion in three years. Of the 32 companies in the China-US index that have reported earnings since the beginning of the quarter, 12 missed analyst forecast, including Yanzhou Coal Mining Co. (YZC) and China Telecom Corp. (CHA)
“In this environment of risk aversion, any disappointment or negative news won’t be taken well in the market,” Sam Mahtani, who oversees about $5 billion as director of emerging markets at F&C Asset Management Plc, said by phone from London. “Clearly the market is concerned about the economic slowdown in China. Earnings across Asia are being stress-tested in terms of growth slowing.”
China ETF Sinks
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., fell for a record 12th day. The ETF dropped 2.2 percent to $33.19, the lowest since Oct. 20.
American depositary receipts of China Mobile Ltd., the world’s largest phone company by users, retreated 1.5 percent to $52.60 yesterday. The ADRs traded at a 3 percent discount to its equivalent shares in Hong Kong, which dropped 0.2 percent.
The Bloomberg China index is on track to erase this year’s 2.1 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 reduced 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.
“Although we don’t see a hard landing there, when you’re accustomed to 10 percent growth, 7 percent feels pretty slow,” said James Dunigan, who helps oversee $112 billion as chief investment officer in Philadelphia at PNC Wealth Management.
The Shanghai Composite Index of mainland stocks rose 1.4 percent yesterday, the most in two weeks, as the government’s plan to subsidize energy-saving appliances fueled speculation that policy makers will take measures to stem a deeper economic slowdown. China’s growth slowed to 8.1 percent in the first quarter, the lowest pace in almost three years.
The Standard & Poor’s 500 Index (SPX) of U.S. shares fell 1.5 percent to the lowest level since January as a gauge of leading indicators declined and Moody’s Investors Service downgraded 16 Spanish banks.
Dangdang tumbled to a two-month low of $6.28. The Beijing- based company said yesterday that its sales for the second quarter will be around 1.19 billion yuan ($188 million), trailing the median forecast of 1.27 billion among eight analysts surveyed by Bloomberg. Its earnings loss of 20 cents for the first quarter compared with the median forecast of 22 cents in a Bloomberg survey.
Baidu, owner of China’s largest search engine, and Sohu, the third-largest, have declined more than 15 percent over the past month after they trimmed their sales forecasts as advertisers hold back amid the growth slowdown.
21Vianet (VNET), the nation’s largest independent data-center services provider, fell 3.8 percent to $12.25. It reported after the market close on May 16 an adjusted loss of 0.3 yuan (5 cents) for the first quarter, compared with the median forecast of net income of 0.73 yuan in a Bloomberg survey of four analysts.
Ctrip International Ltd. (CTRP), China’s largest online travel agency, gained 6.4 percent, the most since January, to $20.91. The company posted adjusted earnings of 28 cents, compared with an average forecast of 26.5 cents by 10 analysts surveyed by Bloomberg. Brean Murray Carret & Co. raised its rating for the stock to hold from sell. Raymond James Financial Inc. boosted it to market perform from underperform yesterday.
China’s economic growth will probably accelerate for the first time in seven quarters as policy makers cut banks’ reserve requirements to stimulate growth, according to a Bloomberg survey. Third-quarter growth will rebound to 8.3 percent from 7.9 percent this quarter, according to the median estimate of 21 economists surveyed by Bloomberg News.
Chinese policy makers lowered reserve requirement ratios on May 12 for a third time since November. The government will allocate 26.5 billion yuan ($4.2 billion) in subsidies to promote the use of energy-saving household appliances and products, according to a statement posted on the government’s website on May 16.
Policy makers will take more take steps to revive growth, which will benefit stocks later this year as valuation has become attractive, according to Jeff Papp, senior analyst at Oberweis Asset Management Inc. in Lisle, Illinois.
Stocks in the China-U.S. gauge are valued at 17 times estimated earnings, the lowest since April 2009, according to data compiled by Bloomberg.
“Cheap valuations are being overlooked,” Papp, whose company manages $700 million, said in an e-mailed response. “I’m looking to add the names that are being sold,” such as 21Vianet Group, he said.
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