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Huaneng Discount Widens as Solars Surge: China Overnight

Chinese stocks retreated in New York from the highest level in three months, led by Huaneng Power International Inc. (902), as concern increased over a slowdown in Asia’s largest economy after UBS AG cut its growth forecast.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. sank 1 percent to 96.03 yesterday. Huaneng tumbled to trade at the widest discount to Hong Kong shares since 2011 after Credit Suisse Group AG said China’s proposed ban on coal imports will likely hit the power producer hardest. Semiconductor Manufacturing International Corp. (981) slid the most in three months, while Yingli Green Energy Holding Co. (YGE) surged as much as 56 percent on higher shipment forecasts.

UBS analysts yesterday cut the growth estimate for China to 7.7 percent in 2013 from 8 percent, saying credit expansion hasn’t prodded faster growth and the government has more tolerance for economic deceleration to focus on reforms. JPMorgan Chase & Co. and Bank of America Corp. reduced their projections to 7.6 percent last week. The China-US gauge has lost 3.2 percent in 2013, compared with a 17 percent jump in the Standard & Poor’s 500 Index. (SPX)

“Growth continues to slow, but the government can’t stimulate growth by just credit, which has become less and less effective and also stirs up bigger and bigger problems,” Tony Hann, head of emerging-market equities at Blackfriars Asset Management Ltd., said by phone from London. “It may take as much as a year for the market to understand what China’s new leadership is aiming for.”

ETF Retreats

The iShares FTSE China 25 Index Fund (FXI), the largest Chinese exchange-traded fund in the U.S., dropped 0.7 percent in New York to $38.12 in its first retreat in three days. The S&P 500 added 0.2 percent to 1,669.16 as Federal Reserve Bank of St. Louis President James Bullard said the central bank should continue its bond buying.

HSBC Holdings Plc and Markit Economics are due to release a preliminary reading for China manufacturing this month tomorrow. The index was probably at 50.4, unchanged from 50.4 a month earlier, according to the median estimate of 12 analysts in a Bloomberg survey. A reading above 50 indicates expansion.

American depositary receipts of Huaneng dropped 9 percent to $42.58, the biggest decline since 2008. Its ADRs, each representing 40 underlying shares in the Beijing-based company, traded 4.6 percent below its stock in Hong Kong, the widest discount since November 2011.

Huaneng, the biggest electricity producer in China, could be the hardest hit by a proposed imports curb because 29 percent of its coal is bought from overseas, Credit Suisse analyst Edwin Pang wrote in a note dated May 20.

Coal Imports

China is considering a ban on imports of some lower-quality thermal coal grades, the Economic Information Daily reported May 16, citing an announcement at a conference held by government agencies including the National Development and Reform Commission.

The proposed measure is likely to boost domestic benchmark prices by as much as 8 percent as supplies drop, Luther Lu, a chief market analyst at Fenwei Energy Consulting Corp. in Taiyuan, said by phone May 20.

Semiconductor, a circuit foundry based in Shanghai, dropped 5.6 percent to $4.03, the steepest slump since Feb. 19. Spreadtrum Communications Inc. (SPRD), a mobile-chip designer also based in Shanghai, lost 4.9 percent to $17.82, the lowest level since March.

Shipments from Yingli, the world’s largest solar-panel maker, will decline about 6 percent to 7 percent in the first quarter from the prior three months, compared with the company’s March forecast for a slump in the “low to mid-teen percentage,” according to a statement by the Baoding, China-based company yesterday.

Solar Talks

Yingli, which is scheduled to report first-quarter financial results on May 30, jumped 15 percent to $3.55 as trading volume surged to almost 15 times the daily average over the past three months.

Suntech Power Holdings Co. (STP), which was forced into bankruptcy in March after defaulting on a $541 million bond payment, rallied 53 percent to $1.28, the biggest jump on record.

The U.S. is engaged with the European Union and China in preliminary talks focused on setting a quota on Chinese solar-energy equipment exports, in exchange for suspending U.S. duties on the goods, according to two people familiar with the U.S. position who asked not to be identified to discuss private deliberations.

The Shanghai Composite Index (SHCOMP) of domestic Chinese shares added 0.2 percent to 2,305.11, extending a five-day rally that is the longest winning stretch in three months. The Hang Seng China Enterprises Index (HSCEI) in Hong Kong slipped 0.9 percent to 11,083.23, after jumping the most in a week on May 20.

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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