NetEase Tumbles Most Since 2005 as Sina Rallies: China Overnight

NetEase Inc. (NTES) plunged the most in six years, leading declines in Chinese equities traded in New York, after the online games company reported second-quarter earnings that trailed analysts’ estimates.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in the U.S. retreated 0.9 percent to 91.69 yesterday. NetEase sank 15 percent, the most since November 2005, as profit and sales for the second quarter were below estimates. China Mobile Ltd. (CHL) slid the most in three years on slower profit growth while Sina Corp. jumped to a two-month high as net income tripled. Qihoo 360 Technology Co Ltd. (QIHU) rose to the highest level since June after starting an online search engine.

Foreign direct investment in China declined 8.7 percent in July from a year earlier to $7.58 billion, the smallest inflow in two years, Commerce Ministry data showed yesterday. Forty- seven percent of the 32 largest U.S.-listed Chinese companies that reported earnings since mid-July have missed analysts’ average sales estimates, according to data compiled by Bloomberg. Twenty-three percent missed sales projections in the same period last year.

“NetEase’s quarter-on-quarter sales drop was unexpected, and their results are likely to be soft for the third quarter or even in the fourth quarter,” Andy Yeung, a technology and Internet companies analyst at Oppenheimer & Co., said by phone from New York yesterday. “The market seems to be responding to results and expectations for individual companies.”

China ETF Slumps

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., dropped 0.9 percent to $34.62, down the most in two weeks. The Standard & Poor’s 500 Index of the biggest U.S. shares gained 0.7 percent to a four-month high of 1,415.51, after U.S. building permits, a proxy for future construction, jumped in July to a four-year peak.

China’s exports grew 1 percent in July after climbing 11.3 percent in June and inflation eased to 1 percent, the slowest pace since January 2010, government data showed last week. Policy makers cut interest rates in June and July after two reductions in banks’ reserve-requirement ratios this year, as the economy decelerated for a sixth quarter.

“The market is basically fighting between the poorer-than- expected economic data and the potential for stimulus that could come, the two forces that are affecting daily moves,” Sam Mahtani, who oversees about $5 billion as director of emerging markets at F&C Asset Management Plc (FCAM) in London, said by phone yesterday.

Beijing-based NetEase, China’s second-biggest online games operator, sank 15 percent to $49.56 in New York.

NetEase Earnings

The company’s second-quarter profit of $137.8 million trailed the $140.6 million average forecast of eight analysts surveyed by Bloomberg. Its sales of $315.5 million missed the average projection of $334.4 million, according to the company’s statement on Aug. 15.

American depositary receipts of China Mobile, the world’s biggest phone company by subscribers, plunged 7 percent to $54.74, the steepest drop since November 2008. The ADRs traded 2.2 percent below its Hong Kong shares, the widest discount since Sept. 22.

Profit at the Beijing-based carrier in the three months ended in June fell to 34.40 billion yuan ($5.4 billion) from 34.42 billion yuan a year earlier, according to figures derived by Bloomberg News from half-year numbers reported yesterday.

Chief Executive Officer Li Yue is boosting capital spending to invest in a fourth-generation network and planning 26 billion yuan in handset subsidies to maintain his lead in smartphone users over rivals China Unicom (Hong Kong) Ltd. (CHU) and China Telecom Corp. Growth in net income may be 1 percent this year, down from 5 percent last year and the slowest pace since 1999.

“China Mobile’s profit was lower than expected, so some investors may take the opportunity to take profit after its stock rose more than 20 percent this year,” Jun Zhang, an analyst at Wedge Partners Corp. in Greenwood Village, Colorado, said by phone yesterday.

The decline in China Mobile’s ADRs trimmed its gain this year to 13 percent, compared with Unicom’s 26 percent loss and China Telecom’s decrease of 7.4 percent. China Unicom and China Telecom will report second-quarter results next week.

Sina, which provides the Twitter-like Weibo service in China, jumped 10 percent to $56.19, the highest level since June 19.

Net income tripled to $33.2 million in the second quarter from $10 million a year earlier, Shanghai-based Sina said in a statement yesterday. The company was expected to post a loss of $3.9 million, according to the average of 11 analysts surveyed by Bloomberg.

Weibo Outlook

Weibo had about 80 advertising customers in the second- quarter and the number will “probably double” by the end of the year, CEO Charles Chao said in a conference call yesterday. Weibo contributed about 10 percent of revenue in the second quarter, he said.

Qihoo, the maker of China’s most-used Web browser, climbed 5.4 percent to a two-month high of $18.66.

The company’s new search engine went online yesterday for public testing and the product may eventually generate advertising sales from the product, Co-Chief Financial Officer Alex Xu said in a phone interview yesterday, without providing a time frame.

The Shanghai Composite Index (SHCOMP) slid for a second day, losing 0.3 percent to a two-week low of 2,112.20. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong dipped 0.4 percent to 9,741.78.

To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net

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

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