The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. gained 1 percent to 91.54 yesterday, paring the first monthly drop since July to 2.5 percent. China Telecom Corp. rose after Ji-Asia Research Ltd. raised it to buy, while China Unicom (Hong Kong) Ltd. traded at a premium to Hong Kong for a third day. Baidu Inc. (BIDU), owner of China’s most popular search engine, sank after selling $1.5 billion of debt. YY Inc. (YY) jumped after raising $81.9 million in the first U.S. initial share sale by a Chinese company in seven months.
The China-US gauge has gained 2.1 percent since a new generation of leaders were named on Nov. 15 to manage the world’s second-largest economy at this month’s Communist Party congress. Chinese equity funds have posted inflows for 10 straight weeks to Nov. 14, data compiled by EPFR Global show, and the Shanghai Composite Index (SHCOMP) has rebounded after dropping below its key 2,000 level yesterday and on Nov. 19.
“China’s recent power transition provides some clarity that helps the market,” Charlie Awdry, a portfolio manager for Henderson Global Investors’ 500 million pound ($800 million) China Opportunities Fund, said in a phone interview from London yesterday. “The appetite for Chinese stocks has increased.”
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., advanced 1.1 percent to $36.58 yesterday, erasing a 1 percent loss on Nov. 20. The Standard & Poor’s 500 Index climbed 0.2 percent to 1,391.03 as a cease-fire between Israel and the Palestinian Islamist group Hamas was reached over fighting in the Gaza Strip.
China’s Shanghai Composite index of domestic shares added 1.1 percent to 2,030.32 by the close of trading, after sliding to as low as 1,995.17. It’s only a matter of time before the measure closes below 2,000, according to Hao Hong, managing director for research at Bank of China Communications Co., the nation’s fifth-largest lender by assets.
While the index of so-called A-shares is due for a “technical bounce,” the Shanghai Composite may fall between 5 percent and 10 percent, Hong Kong-based Hong said by e-mail yesterday. Hong was the only strategist among 13 brokerages surveyed by Bloomberg at the start of the year to forecast declines for Chinese stocks in 2012. The Shanghai Composite has slipped 7.7 percent this year.
The index is falling at a “measured speed” probably because of government intervention in the market, Hong said. The 2,000 level “doesn’t seem like a final bottom,” he said.
The Shanghai gauge trades for 8.6 times estimated earnings over the next 12 months, compared with a multiple of 10.7 for Brazil’s Bovespa Index (IBOV), 5.3 for Russia’s Micex Index and 13.8 for the BSE India Sensex Index. The valuation for the China-US index was 12.6 times yesterday, data compiled by Bloomberg show.
American depositary receipts of China Telecom, the country’s biggest fixed-line phone carrier, rose 1.8 percent to $54.73 in New York. Ji-Asia’s Hong Kong-based analyst Neil Juggins lifted his rating on the stock to buy from neutral yesterday, after Credit Suisse AG revised its recommendation last week to outperform from neutral.
China Telecom added a net 2.9 million mobile users in October to 156 million, while fixed-line users declined by 1 million to 165 million, according to data from the Beijing-based company published Nov. 20.
ADRs of China Unicom, the nation’s second-largest mobile- phone carrier, advanced 1.5 percent to $15.35 yesterday. The ADRs, each representing 10 underlying shares in Unicom, traded 0.5 percent above its Hong Kong stock, the third trading day they have posted a premium.
Hong Kong-based China Unicom will buy Unicom New Horizon from its parent company, Unicom Group. New Horizon owns telecommunications network assets in 21 provinces and cities in southern China, according to a statement yesterday to the Hong Kong Stock Exchange. The purchase will be made in cash from internal funds and the deal is expected to completed by the end of this year, subject to a government approval, China Unicom said yesterday.
China Mobile Ltd. (941), the biggest of China’s three phone companies, rose 2.7 percent to $56.15, the steepest increase in the ADRs in four weeks. The provider added 3.71 million users to its third-generation service last month for a total 79.31 million, according to a Nov. 20 statement.
YY, a social network operator based in Guangzhou, gained 7.7 percent to $11.31 in New York after the company sold ADRs for $10.50 each in the initial public offering. YY is the third Chinese company to complete an IPO in the U.S. this year, compared with the 13 initial share sales completed in 2011 and 38 in 2010, data compiled by Bloomberg show. The price the ADRs sold at was at the bottom end of YY’s $10.50 to $12.50 target range.
Baidu slipped 0.9 percent to $93.24 in New York, after earlier tumbling to a two-year low.
The Beijing-based company issued $1.5 billion of bonds yesterday, according to a statement. Speculation Baidu will use the cash to acquire mobile businesses that won’t be immediately profitable drove declines in the stock, said Jeff Papp, a senior analyst at Oberweis Asset Management Inc. in Lisle, Illinois.
“The risk is everyone wants to move to the mobile business but none of them has made money out of it yet,” Papp, who doesn’t own Baidu, said by phone yesterday. “The dilemma for Baidu is that they want to further cement their position in mobile business, but they may not have a huge return on assets right away.”
Hong Kong’s Hang Seng China Enterprises Index (HSCEI) gained 1.7 percent to 10,397.73 yesterday for the biggest one-day advance since Nov. 14. Thirty-day volatility in the Bloomberg China-US gauge rose to 18.64 yesterday, the highest since Oct. 12.
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