Chinese equities retreated in New York from the highest level in three months, led by Aluminum Corp. of China Ltd., after investment in the nation’s fixed assets and industrial output trailed economists’ estimates.
The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. dropped 1.4 percent to 94.77 yesterday, the biggest decline in three weeks. Aluminum Corp. sank the most since June, while China Southern Airlines Co. traded at the widest discount to its Hong Kong stock in two weeks as its load factor declined. Qihoo 360 Technology Co., a software developer based in Beijing, slumped after short seller Carson Block said the company is a “fraud.” LDK Solar Co. led renewable energy producers higher.
The China-US gauge tracked equities in Shanghai and Hong Kong lower after government reports showed industrial output grew 9.3 percent in April and fixed-asset investment increased 20.6 percent in the first four months of the year, below what economists surveyed by Bloomberg were expecting. Central bank data last week showed new lending at Chinese banks exceeded analysts’ projections while money supply growth quickened.
“What’s striking in the Chinese economy is the anemic nature of the recovery compared with the extraordinary amount of new financing poured into the corporate sector since August last year,” John-Paul Smith, an emerging-markets strategist at Deutsche Bank AG in London, said by e-mail. “There’s no end in sight to overcapacity and declining investment returns across a broad range of industries. That should drive Chinese equities down further over the medium term.”
The iShares FTSE China 25 Index Fund (FXI), the largest Chinese exchange-traded fund in the U.S., sank 1.8 percent to $37.73 in New York, the steepest decline in three weeks. The Standard & Poor’s 500 Index was little changed at 1,633.77.
Alex Xu, chief financial officer of Qihoo, said by e-mail yesterday that he saw no particular reason for the day’s stock drop and didn’t immediately respond to an e-mail asking about Block’s comments. Block, founder and director of research at Muddy Waters LLC, said at a conference in Las Vegas May 10 that he isn’t currently shorting Qihoo shares.
Qihoo’s American depositary receipts sank 4.2 percent to $38.53 in New York, after surging to a record high of $40.22 on May 10. Qihoo jumped 17 percent last week and was the third-biggest gainer on the China-US gauge.
Qihoo is in communication with Sohu.com Inc.’s search engine Sogou about a possible cooperation in equity investment without reaching any formal agreement, according to a May 11 report on Sina Corp’s technology news website, which cited Sogou Chief Executive Officer Wang Xiaochuan at an Internet conference. Wang said Sogou is in talks with several companies including Qihoo, Baidu Inc. and Tencent Holdings Ltd., according to the report.
The rally in Chinese Internet companies last week caused “inflation” in some stocks, according to Henry Guo, an analyst at ABR Investment Strategy LLC in San Francisco. “In a potential purchase of Sogou, Qihoo has to issue new shares to make the deal happen, which is huge negative for current stock holders due to dilution,” Guo said by e-mail yesterday.
Muddy Waters said Jan. 24 on Twitter that a boycott compaign by some Internet users targeted Qihoo. The post was echoing a “widespread smear compaign,” Qihoo CFO Xu said in an e-mailed response Jan. 25.
Sino-Forest Corp., a Chinese plantation company listed in Canada, filed for bankruptcy protection in March 2012, after the short selling firm said in a June 2011 report its revenue had been exaggerated.
ADRs of Aluminum Corp., China’s biggest producer of the metal, known as Chalco, tumbled 5.2 percent to $10.14, the biggest slump since June 21.
Beijing-based Chalco said May 9 it will sell about 8.18 billion yuan ($1.3 billion) of assets, including production plants, mainly to its parent, after posting net losses for six straight quarters.
China Southern, Asia’s biggest airline by passenger numbers, slid 2.8 percent to $27.23 in New York, declining the most in two weeks. Its ADRs, each representing 50 underlying shares in the Guangzhou-based carrier, traded 0.3 percent below its Hong Kong stock, the biggest discount since April 26.
The carrier’s load factor, or the percentage of seats filled by paying customers, declined 1.6 percent in April from a year earlier, from a 2.7 percent gain in March, according to data it released yesterday.
LDK, a solar wafer manufacturer based in Xinyu of Jiangxi province, surged 12 percent to $1.45, the highest close since March 12. Yingli Green Energy Holding Co. (YGE) climbed 3.3 percent to $2.52, while Trina Solar Ltd. (TSL) gained 3.5 percent to $5.93, the highest price since July.
China’s Ministry of Science and Technology conducted a study on major photovoltaic companies and solar stations in late April and held a meeting to discuss policies to support the industry, according to a statement posted yesterday to the ministry website.
The Shanghai Composite Index (SHCOMP) of domestic Chinese shares slipped 0.2 percent to 2,241.92 yesterday, after gaining 1.9 percent last week. The Hang Seng China Enterprises Index (HSCEI) in Hong Kong dropped 2.1 percent to 11,109.27, losing the most since April 5.
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