(Corrects interest rate moves in third paragraph)
Chinese equities in New York rallied for the first time this week on speculation the government will take further steps to revive the economy and bolster stocks trading near their cheapest level in six years.
The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. climbed the most in two weeks, gaining 2.2 percent to 92.2 yesterday. Huaneng Power International Inc. (HNP), China’s largest electricity producer, jumped to a three-year high, while educational provider New Oriental Education & Technology Group (EDU) surged. 7 Days Group Holdings Ltd. (SVN) retreated from a four-month high a day after receiving a buyout proposal from private equity firms.
Chinese policy makers have cut interest rates twice this year and yesterday injected a record amount of funds into the financial system as they strive to ignite the economy before a once-in-a-decade political power transition. Companies in the Shanghai Composite Index traded for 8.4 times estimated profits on Sept. 26, the lowest level in data going back to 2006. The valuation rose to 8.6 times yesterday.
“Stimulus is quite possible as the Chinese appear to have a very strong interest to make sure that the new regime takes over under at least stable if not re-accelerating economic conditions,” Mark Luschini, chief investment strategist for Philadelphia-based Janney Montgomery Scott LLC, which manages about $54 billion, said by phone yesterday. “Fund managers are waking up to the notion that Chinese equities are cheap and therefore attractive if in fact China is set to initiate measures to stem the decline in economic activity.”
China ETF Climbs
The Communist Party will hold its 18th Congress on Oct. 10 to pick new leaders, the Hong Kong Economic Journal reported on Sept. 20, citing people it didn’t identify familiar with the situation. Yesterday’s funds injection reduced the one-month money market rate by the most in eight months, easing access for cash before a weeklong holiday starting Oct. 1.
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., jumped 2.5 percent to $34.74 yesterday, the biggest advance since Sept. 7. The Standard & Poor’s 500 Index (SPX) added 1 percent to 1,447.15, gaining for the first time in six days.
Huaneng Power, based in Beijing, surged 3.5 percent to $29.99, the highest close since August 2009. The advance in the company’s American depositary receipts, each representing 40 underlying shares, helped narrow a discount versus its Hong Kong stock to 0.4 percent, from 1.5 percent a day earlier.
BYD Co. (BYDDY), the Chinese carmaker partly owned by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), climbed 1.2 percent to $3.45 in over-the-counter trading in New York, snapping a five-day decline.
The Shenzhen, China-based company’s ADRs lost 13 percent in the two days after CLSA Asia Pacific Markets cut its price target by 94 percent on Sept. 25, citing a worsening outlook for its products.
China started to promote the use of cars powered by alternative energy in 11 government agencies, the Ministry of Industry and Information Technology said in a statement on its website yesterday. BYD was one of the two carmakers involved in the program, according to the statement.
BYD Vice President Yang Long-zhong resigned “due to a restructuring of the company’s business and personal reasons,” BYD said in a filing to the Hong Kong Stock Exchange yesterday.
New Oriental climbed 6.8 percent to $15.55 in New York, the highest level since July 16. The Beijing-based company tumbled 57 percent two days after saying on July 17 that it was being investigated by the U.S. Securities and Exchange Commission. Short selling firm Muddy Waters LLC also questioned New Oriental’s accounting practices in a report on July 18.
The ADRs rose partly on the back of better sentiment toward Chinese stocks and speculation the SEC investigation will be resolved in New Oriental’s favor, Trace Urdan, an analyst at Wells Fargo & Co. who rates the stock outperform, said by phone yesterday from San Francisco. New Oriental jumped 8 percent on Sept. 21 when Urdan issued a note saying the case would probably be resolved in a “timely manner.”
China Mobile Games & Entertainment Group Ltd. (CMGE), which started listing ADRs on the Nasdaq Stock Market Sept. 25, rose 1.6 percent to $15.75 yesterday. No transactions were made on the first day and 2,887 ADRs were traded in the second day, data compiled by Bloomberg showed. Each ADR represents 14 ordinary shares in the mobile games developer.
‘It’ll Take Time’
The company, being spun off from Hong Kong-listed VODone Ltd. (82), chose to do a so-called “by introduction” listing aimed at boosting its name recognition on the U.S. market rather than raising funds, Chairman Lijun Zhang said in an interview at Bloomberg’s headquarters in New York on Sept. 25. “It’ll take time for the market to fairly price the stock,” he said.
7 Days, the second-largest budget hotel owner in China, fell 2.5 percent to $11.65 in New York, dropping for the first time in five days.
The ADRs reached a four-month high of $11.95 on Sept. 26 after the Guangzhou-based company said a consortium led by the Carlyle Group LP (CG), Sequoia Capital and existing shareholders including the company’s co-chairmen made a “non-binding” proposal to buy the company for $12.7 per ADR.
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