Melco Discount Grows as Euro Woes Spur ADR Drop: China Overnight
Chinese stocks traded in the U.S. slid from a two-week high and Melco Crown Entertainment Ltd. (MPEL) slumped as concern Europe’s debt crisis will spread outweighed prospects of more stimulus for Asia’s biggest economy.
The Bloomberg China-US Equity Index (SHCOMP) of the most-traded Chinese companies in the U.S. dropped 0.9 percent to 90.50 yesterday. Melco Crown, a Macau casino operator, traded at the biggest discount to Hong Kong shares since June 1 after the city’s gaming revenue outlook was cut. LDK Solar Co. (LDK) led peers lower as Jefferies Group Inc. said European demand for panels slowed. E-Commerce China Dangdang Inc. jumped after the National Business Daily reported a deal with Tencent Holdings Ltd.
China cut its benchmark interest rates last week for the first time since 2008 as May economic data showed inflation slowed more than economists’ forecasts and industrial production grew less than projected. Borrowing costs increased at debt auctions yesterday in Germany and Italy, and European Union data showed Euro-area industrial production declined for a second month in April, adding to signs of a deepening economic slump.
“For the next several months, we are still going to be overshadowed by the macro economic background in Europe,” Sam Mahtani, who oversees about $5 billion as director of emerging markets at F&C Asset Management Plc in London, said by phone yesterday. “China will roll out incremental measures to help the economy and can manage to engineer a soft landing, while what happens in Greece, Spain and Italy will obviously have a very significant impact on sentiment toward emerging markets like China.”
The iShares FTSE China 25 Index Fund (FXI), the biggest U.S.- listed China exchange-traded fund, increased 0.4 percent to a four-day high of $33.67. The Shanghai Composite Index of mainland stocks advanced 1.3 percent to 2,318.92, the most since May 17. The Standard & Poor’s 500 Index lost 0.7 percent to 1,314.88 after U.S. retail sales fell in May for a second month.
Melco’s American depositary receipts sank to $11.75, snapping a six-day rally. The ADRs, each representing three underlying shares in the company, traded 3.1 percent below its Hong Kong stock, the widest discount since June 1.
CLSA Asia-Pacific Markets lowered its 2012 gaming revenue growth forecast for Macau, the only Chinese city where casinos are legal, to 16 percent from its previous estimate of 21 percent. CLSA also reduced Melco’s 12-month price target to $20 from $23.20.
“There’s a lot of scrutiny on MPEL because it’s a pure play on Macau,” David Bain, Newport Beach, California.-based analyst at Sterne, Agee & Leach Inc., said by phone yesterday. “However, Melco stands to benefit from another interest rate cut in China and will certainly be helped by getting approval for the construction of its Studio City project. They have a pipeline which not a lot of other players do.”
LDK, Trina Tumble
LDK, the world’s second-largest maker of wafers, tumbled 7 percent to $1.98, the biggest loss since June 1, after a 17 percent surge the previous day.
Chinese solar makers rallied June 12 after First Solar Inc., the world’s largest maker of thin-film panels, said it plans to increase production at its factory in Frankfurt an der Oder, Germany, to meet demand in Europe for its products. First Solar’s 21 percent advance on June 12 was “not warranted” as German demand is “lower than expected,” and Italy has “slowed markedly,” Jefferies analyst Jesse Pichel said in a research note yesterday.
Trina Solar Ltd. (TSL) China’s third-biggest maker of solar panels, retreated 6.5 percent to $6.21, while Suntech Power Holdings Co. (STP), the world’s biggest panel maker, lost 2.9 percent to $1.69. Yingli Green Energy Holding Co. slipped 2.2 percent to $2.68.
E-Commerce, China’s biggest Internet book retailer also known as Dangdang, jumped 10 percent to $5.87 in New York, the strongest level since May 17.
Dangdang has reached an agreement with Tencent, China’s biggest Internet company, to operate book and baby products sales for Tencent’s online store, the Chinese-language National Business Daily reported today, citing unidentified people at both companies. Tencent plans to invest $1 billion in its e- commerce unit, it said in a May 24 statement.
“People think Dangdang’s association with Tencent will be good as Tencent will spend on e-commerce,” said Andy Yeung, a New York-based analyst for Oppenheimer & Co.
China Life Insurance Co. (LFC), the nation’s biggest life insurer, advanced for a fourth day, the longest winning streak since Feb. 3, after Capital Securities Corp., a Taipei-based securities brokerage, said a broadening in insurers’ investment scope may help boost their returns.
Its ADRs advanced 1.9 percent to $36.97, the highest level in a month. The ADRs traded 1 percent lower than China Life’s Hong Kong shares yesterday, from a 0.7 percent premium on June 12.
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