New Oriental Education & Technology Group Inc. (EDU) surged from a five-year low, leading gains in Chinese stocks traded in New York, after rebutting Muddy Waters LLC’s report that the company inflated financial statements.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. added 2.3 percent to 86.65 yesterday, snapping a three-day slump. New Oriental jumped 18 percent after a nine-day slide sent shares to the lowest since March 2007. TAL Education Group (XRS) tumbled to a record low as it said it was contacted by the New York Stock Exchange about ‘unusual market activity.’ China Unicom (Hong Kong) Ltd. (CHU) rallied the most in two weeks as third-generation mobile users increased.
New Oriental, China’s largest private education services provider, said yesterday that Muddy Waters’ allegations in a July 18 report contained errors and was misleading. Its American depositary receipts capped a 57 percent two-day slump after short seller Muddy Waters, whose call on Sino-Forest Corp. sparked a 74 percent drop, questioned the company’s accounting practices and the U.S. Securities and Exchange Commission said it’s investigating the company. The slump sent Chinese stocks to trade at the smallest premium versus peers on the Standard & Poor’s 500 Index in two months.
“Any time Muddy Waters comes in and they take down another Chinese stock, well, you can go back to buy more of those golden ones,” Erik Lam, director of Asian equity sales at Auerbach Grayson & Co. in New York, said by phone yesterday. The situation is “good for other ADRs that have proved themselves,” Lam said.
China ETF Gains
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., advanced 2.2 percent to a two- week high of $33.71. The Standard & Poor’s 500 Index (SPX) added 0.3 percent to 1,376.51, its third day of gains amid speculation that disappointing economic data will lead the Federal Reserve to add stimulus.
New Oriental’s ADRs bounced back to $11.20 yesterday, from $9.50 in the previous day which was the lowest level since March 2007. Shares surged as much as 37 percent yesterday.
The company owned 664 schools and learning centers by the end of May, and Muddy Waters’ allegation that a large part of them are franchised outlets is wrong, Beijing-based New Oriental said in yesterday’s statement. The education service company has never counted the 21 cooperation facilities it has and their student enrollments as its own, it said.
In a report July 18, Muddy Waters questioned the ownership of some of New Oriental’s schools and the consolidation of their financial statements with the parent company. A day earlier, the Chinese company said the SEC issued an order of investigation to review the consolidated earnings of its subsidiaries.
TAL, which provides after-school tutoring services, tumbled 14 percent to $7.56, the lowest price since its IPO in October 2010.
Beijing-based TAL said in a statement yesterday the New York Stock Exchange contacted it “in accordance with its usual practice” and the company’s policy is not to comment on “unusual market activity or speculative matters.”
“If unusual market activity or news about a listed company occurs, we contact the company for verification,” Keara Everdell, a press officer for the New York Stock Exchange, wrote in an e-mailed in response to questions by Bloomberg News yesterday.
21Vianet Group Inc. (VNET), a Beijing-based Internet data-center services provider, rose for a second day, increasing 6.7 percent to $10.03, the biggest advance in a month.
China Unicom, China Telecom
China Unicom, the nation’s second-largest wireless operator, added a net 3.03 million 3G users to a total 57.53 million, according to its filing to the Hong Kong Stock Exchange yesterday. The increase compared with a 2.73 million gain in May and was the biggest monthly addition since January.
The company’s ADRs jumped 6.2 percent to $13.07, the most in two weeks. The ADRs traded 1.2 percent above its Hong Kong stock, the widest premium in four days.
China Telecom Corp. (CHA), the nation’s biggest fixed-line phone carrier, surged 5.2 percent to $46.49, the steepest rally since November.
Qihoo 360 Technology Co. (QIHU) gained after its chief financial officer said new advertising software will boost sales. Qihoo, which develops security software as well as computer desktop applications, rallied 2.8 percent to $15.29, the biggest increase in two weeks.
A tool that charges advertisers for each computer-mouse click by users on some Web listings posted on Qihoo’s hao.360.cn page will generate additional revenue after it was introduced this month, CFO Alex Xu said in a phone interview yesterday. Users who access the company’s services on mobile phones have doubled to more than 100 million as of June, from about 50 million at the end of last year, he said.
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