Baidu Inc. tumbled the most since September, leading declines in Chinese companies in New York, while China Unicom (Hong Kong) Ltd. posted the biggest gain in two years after second-quarter profit beat analysts’ estimates.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in the U.S. slid 0.2 percent to 89.87 yesterday. Baidu lost 6.3 percent after Deutsche Bank AG cut its recommendation to hold, saying the owner of China’s largest online search engine is losing market share to Qihoo 360 Technology Co. (QIHU) China Unicom surged 7 percent, trading at the widest premium over Hong Kong shares in two months, as cheaper smartphones reduced the cost of luring subscribers.
A preliminary reading for a purchasing managers’ index released yesterday by HSBC Holdings Plc and Markit Economics suggests China’s August manufacturing may be contracting for a 10th month. Chinese Central Bank Governor Zhou Xiaochuan said Aug. 22 that adjustments to interest rates and lenders’ reserve requirements are still possible, after injecting cash through open-market operations.
“China’s economic conditions are weaker than people had expected and previous measures haven’t shown much effect yet,” said Qinwei Wang, an analyst at Capital Economics Ltd., said by phone from London yesterday. “The outlook for more stimulus may not be able to offset weak market sentiment caused by the economic slowdown.”
China ETF Slips
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., dipped 0.2 percent to a three- week low of $34.20. The Standard & Poor’s 500 Index of the biggest U.S. shares lost 0.8 percent to 1,402.08 amid concern European leaders aren’t making progress in solving the region’s debt crisis.
HSBC’s PMI index reading of 47.8 compares with July’s final 49.3 figure. If confirmed, it would be the lowest level since November and the 10th month that the reading has been below 50, the longest run in the index’s eight-year history. China may have overstated 2012 industrial production data to mask the economy’s weakness, economists at the Federal Reserve Bank of Dallas wrote in a paper, citing the data’s relationship with monthly electricity consumption growth.
Baidu sank to a one-month low of $115.09. Analysts at Deutsche Bank led by Alan Hellawell reduced the recommendation on its American depositary receipts from buy and cut the price target to $137 from $186.
Beijing-based Qihoo, which develops computer security software and desktop products, started a new search engine last week, entering a market where Baidu has an 80 percent share.
Market Share Loss
“Our channel checks suggest Baidu lost 4-8 percentage points search traffic market share to Qihoo, and we expect Baidu to continue to lose traffic share to Qihoo in the next two quarters,” Hellawell wrote in a research note yesterday, cutting his forecasts for Baidu’s 2013 revenue by 6 percent, and the net income projection by 9 percent.
Qihoo retreated 3.6 percent to $23.69 yesterday after gaining 33 percent in the first three days of this week.
“There’s some profit-taking by investors after Qihoo prices rose so much this week,” Echo He, a senior analyst at Maxim Group LLC in New York said by phone. “Its increasing search engine traffic is good for the company’s stock price, but the cost for supporting the traffic increase will also grow, and its search business may not start to generate revenue before late 2014.”
China Unicom (CHU)’s ADRs jumped to $17.18, the biggest rally since February 2010. The ADRs, each representing 10 underlying shares, traded 2.3 percent above the Hong Kong shares, the highest premium since June 7.
Net income fell 2 percent to 2.42 billion yuan ($381 million) for the second quarter, from a restated 2.47 billion yuan a year earlier, based on figures derived from half-year earnings the Beijing-based Unicom reported yesterday. That compares with a 2.1 billion-yuan median estimate of five analysts surveyed by Bloomberg.
Chairman Chang Xiaobing has turned to cheaper smartphones from Chinese suppliers Lenovo Group Ltd. (992), ZTE Corp. and Huawei Technologies Co. to trim subsidy costs and reduce reliance on Apple Inc.’s iPhone to win new users. Unicom lost exclusive rights to offer the iPhone in the nation when China Telecom Corp. (CHA) began selling the device March 9.
ADRs of China Telecom, the smallest of the nation’s three wireless operators, climbed for a third day, gaining 1.2 percent to $56.91, the highest level in five months.
China Telecom’s second-quarter net income fell 10 percent to 4.55 billion yuan, the company reported Aug.22. That beat seven analysts’ estimate of 4.4 billion yuan as the introduction of the iPhone lured new customers.
Hollysys Automation Technologies Ltd. (HOLI), a maker of automation and control system based in Beijing, slid 8.3 percent to $9.08, stemming a three-day advance.
Ctrip.com International Ltd. (CTRP), China’s largest online travel agency, surged 8.6 percent in its seventh day of increase to $17.36, the biggest gain in seven months. Ctrip’s smaller rival Elong Inc. (LONG) declined for a second day, losing 1.8 percent to $15.45.
Ctrip announced last month a $500 million product sales plan to boost its market share and Elong followed, joining a price war among Chinese online travel agencies, The China National Radio reported on its website Aug. 22, citing ads on the companies’ websites and social media platforms.
The Shanghai Composite Index (SHCOMP) gained 0.3 percent to 2,113.07 yesterday. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies added 1.4 percent, the most in two weeks, to 9,836.14.
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