Yingli Plunges as Earnings Concerns Sink ADRs: China Overnight
Chinese stocks traded in New York fell to the lowest level in four weeks, led by Yingli Green Energy Holding Co. (YGE), on concern the nation’s economic slowdown is cutting into corporate earnings.
The Bloomberg China-US Equity Index of the most-traded Chinese companies in the U.S. retreated 0.9 percent to 88.10 at the close of trading, the lowest level since Aug. 3. Yingli, the world’s sixth-largest silicon-based solar module maker, sank the most in four weeks after ThinkEquity LLC recommended investors sell the stock. Suntech Power Holdings Co. (STP) slid to the lowest since being listed in 2005 while China Eastern Airlines Corp. (CEA) dropped for a fourth day after first-half profit fell.
China’s economy, the world’s second-largest, expanded 7.6 percent in the April-June period, the slowest pace in six quarters. Forty-nine companies in the Bloomberg gauge releasing earnings since mid-July have missed analysts’ estimates by an average 8.8 percent, compared with 3 percent above projections a year ago, according to data compiled by Bloomberg. Yingli reported a fourth quarter of losses, citing overcapacity and weaker demand from Europe as the region’s debt crisis lingers.
“Company earnings are not coming in great and they are somewhat disappointing,” Arjun Jayaraman, who manages $400 million in emerging-market equities at Causeway Capital Management, said in a phone interview from Los Angeles. “That shows the impact of China’s slowdown. It will take longer for corporate earnings to recover than it takes the economy to rebound.”
The Bloomberg China-US Index has gained 1.5 percent in August, the biggest monthly gain since February. The measure has dropped 2.2 percent this year.
‘No Clear Path’
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., slid 1.6 percent to a one- month low of $32.95. The Standard & Poor’s 500 Index of the biggest U.S. shares slumped 0.8 percent to 1,399.48, as reports from Europe, Japan and South Korea intensified concern the global economy is cooling down.
Yingli has “no clear path to profitability,” Colin Rusch, an analyst at ThinkEquity said in a report yesterday. He cut his rating to sell from hold. Shares of the Hebei, China-based solar manufacturer sank 10 percent, the most since July 31, to $1.66. Yingli, which cut its forecast for shipments on Aug. 29, “requires a substantial amount of cash to fund normal operations.”
Suntech declined 8.2 percent to 90 cents and Trina Solar Ltd. (TSL), the world’s fourth-largest panel maker, lost 6.3 percent to $4.45.
“Solar manufacturers worldwide are operating with production capacity that exceeds demand by at least two to one,” said Pavel Molchanov, an analyst at Raymond James & Associates in Houston, said in an interview today. “It’s very hard for these companies to remain profitable under those conditions.”
China Eastern declined 1.2 percent to $15.11 after the Shanghai-based carrier said first-half profit tumbled 65 percent due to higher fuel costs and currency losses. The airline joined China Southern Airlines Co. (1055) and Air China Ltd. in reporting lower profit after average fuel prices rose 10 percent and traffic growth cooled.
China Cosco Holdings Co. (601919), the world’s largest operator of dry-bulk ships, and China Shipping Container, the country’s second-largest carrier of sea-cargo boxes, dropped to their lowest levels since 2007 after both reported first-half losses larger than a year earlier.
‘Big Stimulus Program’
China cut interest rates in June and July, the first reductions since 2008, and is encouraging local governments to boost investment as economists forecast 2012 growth will be the slowest in 13 years.
“We’re seeing the result now of a lack of any major stimulus from the Chinese government in the first half of the year,” Jingyi Li, an analyst at Harding Loevner LP, whose $19 billion in assets under management includes Chinese equities, said in a phone interview yesterday from Bridgewater, New Jersey. “Expectations from equity investors are very cautious because everyone understands that the central government is unlikely to step in here with a big stimulus program.”
Qihoo 360 Technology Co. (QIHU) the best performing stock in August on the Bloomberg China-US Equity Index (CH55BN), fell 2.4 percent to $21.46 to pare its advance for the month to 46 percent. Qihoo last week forecast third quarter sales that beat analysts’ estimates and started its own search engine on Aug. 16.
‘Lose Traffic Share’
Qihoo’s search engine provides a “reasonably good experience, especially for popular keywords,” Alan Hellawell, an analyst at Deutsche Bank AG in Hong Kong, wrote in a report dated Aug. 29. Baidu Inc. (BIDU), owner of China’s largest online search engine, could “lose traffic share to competitors in the longterm,” he wrote.
Baidu fell 1 percent to $112.01, extending its decline for the month to 7.1 percent.
The Shanghai Composite Index (SHCOMP), which has dropped 6.7 percent this year, was little changed yesterday at 2,052.59. The index is at the lowest level since February 2009. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong lost 1.4 percent to 9,340.86.
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