Cnooc Drives Drop as Economy Cuts Rally: China Overnight

Chinese stocks tumbled from a five- month high in New York, spurred by declines in energy and commodities producers, on speculation the past month’s rally was overdone given lingering concerns over the global economy.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in the U.S. sank 1.3 percent to 95.41 yesterday, the biggest drop in a month. PetroChina Co. slipped as crude declined to a three-month low. Cnooc Ltd. (883) slumped to widen the discount to its Hong Kong shares to the most in four months, on concern the Beijing-based oil producer’s bid for Nexen Inc. (NXY) may not get Canadian approval.

Chinese equities in the U.S. rallied over the past month to trade at their highest valuation since August last week, as data showing rising industrial production and retail sales sparked optimism the slowdown in Asia’s largest economy was bottoming. The basis for economic stabilization isn’t “firm” enough and China will remain proactive on fiscal policy, the Finance Ministry said yesterday, according to a Xinhua News Agency report posted on the government’s website.

“Markets had gotten very high and there has been too much complacency, yet there are a whole host of global economic issues that have yet to be resolved,” Kevin Pollack, a managing director at Paragon Capital in New York, said by phone yesterday. “Investors should be cautious going into the end of the year and early next year as there remains significant downside risk.”

Valuation Slips

Companies in the Bloomberg China-US gauge are trading at 13.5 times estimated 12-month earnings, slipping for a third day from a two-month high of 14.7 times reached on Oct. 18.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., retreated 1.8 percent to $36.98, the biggest slump since Sept. 4. The Standard & Poor’s 500 Index (SPX) lost 1.4 percent to 1,413.11.

Twelve-month non-deliverable forwards on China’s yuan weakened 0.15 percent to 6.3735 per dollar, after the currency climbed 0.11 percent to 6.2480 against the greenback in Shanghai yesterday.

The Shanghai Composite Index (SHCOMP) of domestic shares declined 0.9 percent yesterday to 2,114.45, after reaching a six-week high a day earlier. Markets in Hong Kong were closed for a holiday.

Cnooc, the largest offshore oil explorer, sank 2.2 percent to $204.06, the biggest loss in seven weeks. Cnooc’s ADRs traded 3.1 percent below its Hong Kong shares, the widest discount since June 21.

Nexen Deal

Canada plans to ask China to allow several transactions in exchange for approval of Cnooc’s purchase of Calgary-based Nexen, a person with knowledge of the matter told Bloomberg reporters yesterday.

British Columbia Energy Minister Rich Coleman said yesterday he is disappointed by Canadian government’s decision to reject Petroliam Nasional Bhd.’s bid for Calgary-based Progress Energy Resources Corp. (PRQ) on Oct. 19.

ADRs of PetroChina, the nation’s biggest oil producer, declined for a third day, falling 1.9 percent to $137.9, the largest slump since Sept. 4.

Crude oil for December delivery declined 2.3 percent to $86.67 a barrel on the New York Mercantile Exchange, the lowest settlement since July 12.

Yanzhou Coal Mining Co. (YZC), China’s fourth-largest miner of the fuel, fell 2.1 percent to $16.13 in New York. The company is scheduled to report results for the first nine months on Oct. 26.

‘Poor’ Coal Outlook

China’s coal sector may show “poor” results for the third quarter, and Yanzhou’s profit is estimated to fall 32 percent from the previous three months, Helen Lau, an analyst at Uob-Kay Hian Holdings Ltd. (UOBK), wrote in an Oct. 19 note. The profit declines were due to an 18 percent drop in thermal coal prices and 15 percent decline in coking coal prices from the prior quarter, Lau said in the report.

Aluminum Corp. of China Ltd, the country’s largest producer of the light metal, sank 2.2 percent to $11.3, the steepest loss in four weeks. The American depositary receipts, each representing 25 underlying shares, traded 3 percent below the Hong Kong stock, the widest discount since May 15.

The 30-day volatility in the Bloomberg China-US gauge rose to 17.5 yesterday from 16.9 the previous day, and compares with this year’s average of 23.1.

The Bloomberg Chinese Reverse Mergers Index (CHINARTO), which tracks a basket of companies that gained U.S. listings after buying firms that already trade, dipped 0.6 percent to 71.66 after rising the most in a week on Oct. 22.

Guangshen Earnings

Guangshen Railway Co. (GSH), a train operator based in China’s Guangdong province, is due to release nine-month earnings tomorrow in Hong Kong. Its ADRs slid 1.2 percent to a one-week low of $17.74, extending a three-day retreat.

“Earnings will probably lag a bit the real upticks in growth we’re trying to find in China, U.S. and elsewhere,” Alex Ashby, a New York-based analyst at Global X Management Co., which manages $1.3 billion, said by phone yesterday. “We probably won’t start to see a lot more investment on the side of companies until the first quarter of 2013.”

TAL Education Group (XRS) surged 3.2 percent to $8.88 yesterday, rising the most in a week. The Beijing-based tutoring service provider said profit for the three months ended Aug. 31 jumped 50 percent from a year earlier to $16 million as sales increased 32 percent.

“Some companies are benefiting profit-wise from cost cutting measures and other efficiencies” when the economy slows, Ashby at Global X said.

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

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net

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