Tech ADRs Lead Biggest Slump in Week on Growth: Overnight
Chinese equities traded in the U.S. dropped last week, and Sohu.com Inc. (SOHU) fell the most in seven weeks, on concern the second interest rate cut in a month won’t be sufficient to spur growth in Asia’s largest economy.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in New York lost 0.1 percent to 91.12 last week, after sinking 1.5 percent on July 6. Ambow Education Holding Ltd. led declines with a record weekly slump after reporting a first-quarter loss and as its chief financial officer resigned. Sohu dropped the most among Internet companies while Tudou Holdings Ltd. (TUDO) retreated the most in a month. China Petroleum & Chemical Corp. (600028) sank to a 10-month low.
The People’s Bank of China lowered the benchmark one-year lending rate by 0.31 percentage point on July 5 as waning demand from Europe, which buys about 20 percent of the nation’s overseas shipment, slowed growth in the world’s second-largest economy. A report due this week will show the economy expanded at the slowest pace in three years, according to the median estimate of 15 economists surveyed by Bloomberg.
“Investors are swinging from euphoria about rate cuts to the realization that perhaps the economy is slowing more than we anticipated,” Komal Sri-Kumar, chief global strategist at TCW Group Inc., which oversees about $120 billion, said by phone from Los Angeles on July 6. “Specific to equities, there is concern about the impact the continuing European crisis will have on Chinese exporters, which stand to be most negatively impacted by slower-than-expected growth.”
‘Plenty of Room’
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., lost 1.9 percent on July 6 and 0.6 percent for the week to $33.45. The Shanghai Composite Index (SHCOMP) of mainland stocks ended the week little changed, after climbing 1 percent to 2,223.58. The Standard & Poor’s 500 Index (SPX) of U.S. shares slid 0.9 percent to 1,354.68 on July 6 after an increase in U.S. payrolls trailed economists’ predictions, completing the week with a 0.5 percent decline.
China has scope for further reductions in interest rates as growth and inflation slowed, according to Stephen Roach, former non-executive chairman for Morgan Stanley in Asia.
“There’s plenty of room for additional easing, and actually their interest rates are pretty high in inflation- adjusted, or real terms,” Roach said in a July 6 interview with Bloomberg Television.
Government data due today may show June consumer prices gained 2.3 percent, the slowest pace since January 2010, the Bloomberg survey of economists showed. The economy expanded 7.7 percent for the three months though June, which would be the slowest growth since the first quarter of 2009, the survey indicated.
Beijing-based Sohu, which owns China’s third-biggest online search engine, dropped 7.1 percent last week to $41.47, the steepest slump since the week ended May 18.
Sohu bought back an 11 percent stake in its online search and browser unit Sogou Inc. for $25.8 million from Alibaba Group Holding Ltd., China’s biggest e-commerce company on June 27, it said in a regulatory filing on July 2.
“The value of Sohu’s search engine reflected in this deal was lower than most people’s estimates, therefore driving down the company’s stock price,” Qi Guo, an analyst at ThinkEquity Partners LLC, said July 6 by phone from San Fransisco.
Tudou retreated 6.6 percent to $31.30 last week, the biggest five-day drop since June 1.
Ambow Education (AMBO), the tutoring and test preparation provider, tumbled 31 percent last week to $3.21, the lowest level on record.
Jefferies International Ltd. lowered its recommendation on the shares to hold from buy on July 6, cutting the 12-month price target to $5.30 from $10.
The Beijing-based company said it will conduct an internal investigation in response to an allegation by a former employee of “financial impropriety and wrongful conduct” related to the 2008 acquisition of a training school, according to a July 5 filing to the Securities and Exchange Commission.
A day earlier, it said in a statement CFO Gareth Kung, who joined the company in December, resigned and KJ Tan, vice- president of finance, was appointed as acting finance chief. Ambow reported a net loss of $12.7 million in the first quarter, from net income of $2 million a year ago, in a separate statement on July 5.
China Petroleum, Asia’s biggest refiner known as Sinopec, declined 1.7 percent on July 6 to $85.55 , the lowest level since Aug. 22. Shares lost 4.1 percent last week, extending its loss this year to 19 percent. The ADRs, each representing 100 underlying shares in Sinopec, traded 0.6 percent below its Hong Kong stock, the biggest discount since June 25.
Gasoline and diesel prices may be reduced by about 400 yuan ($62.85) per ton on July 11, state-owned China Securities Journal reported July 6, citing Xinhua oil price system data.
ShangPharma Corp. (SHP), a Chinese medical researcher, surged 16 percent on July 6 to $7.95, the biggest jump since Aug. 12.
The Shanghai-based company received a non-binding proposal from Chairman and Chief Executive Officer Xin Hui and entities affiliated with him, to acquire all of the company’s outstanding ADRs for $8.50 to $9.50 per share, according to a July 6 statement.
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