Sohu.com Inc. (SOHU) climbed the most in six months, leading gains in Chinese stocks traded in New York, after selling a stake of its online search unit to Tencent Holdings Ltd. (700), Asia’s largest Internet company.
The Bloomberg China-US Equity Index (HSCEI) of the most-traded Chinese stocks in the U.S. rose 0.4 percent to 102.08 yesterday, advancing for a second day. Sohu, owner of online video, games and search businesses, surged 7.5 percent while Qihoo 360 Technology Co. (QIHU), China’s second-biggest web search engine, slid the most in a month after Tencent purchased the stake in Sogou. Web retailer Vipshop Holdings Ltd. (VIPS) and online bookseller E-Commerce China Dangdang Inc. (DANG) rebounded from one-week lows.
Tencent paid $448 million for a 36.5 percent stake in Sohu’s Sogou unit with an option to increase its share to 40 percent, the companies said in a joint statement yesterday. The deal can boost Sohu’s value by $7 per share, 86Research Ltd. analysts estimated. Sohu Chief Executive Officer Charles Zhang said that talks with Qihoo have ended and the company won’t seek additional investors for its search unit in the “near future.”
“The deal is positive to Sohu as Tencent is very strong on attracting mobile users, which can help Sogou’s growth on mobile after its merger with Tencent,” Henry Guo, an analyst at ABR Investment Strategy LLC, said by phone from San Francisco yesterday. “Qihoo fell mainly because its valuation has priced in a potential purchase of Sogou.”
The iShares China Large-Cap ETF (FXI), the largest Chinese exchange-traded fund in the U.S., climbed 1 percent to $38.59 in New York, extending a two-week rally. The Standard & Poor’s 500 Index advanced 0.6 percent after Lawrence Summers withdrew his bid to be the next Federal Reserve chairman and tensions over dealing with Syria’s chemical weapons eased.
Sohu jumped to $69.61 in New York, rising the most since March 5. Trading volume was 4.9 times the 90-day average, data compiled by Bloomberg showed.
Qihoo’s American depositary receipts slumped 5.6 percent to $82.93, the biggest decline since Aug. 15. Baidu Inc., owner of China’s most-used search engine, slipped less than 0.1 percent to a four-day low of $142.59.
Tencent and Sogou will jointly develop and integrate their services in areas including search and data sharing, the companies said in the statement. Tencent will merge its own search unit Soso with Sogou. Sohu will remain the controlling shareholder of Sogou, and the unit’s top products, including Sogou Pinyin and Sogou Search, will have access to Tencent’s online and mobile user base, according to the statement.
“It looks like Sohu may have gotten a higher offer for Sogou from Tencent than Qihoo,” Echo He, a senior analyst at Maxim Group LLC, said by phone yesterday in New York. “Sohu can use the cash to grow other services, including video.”
Sogou accounted for 5.5 percent of search-engine queries in China in the March quarter. Baidu had 82 percent and Qihoo followed with 9 percent, according to data compiled by Bloomberg.
Vipshop, an online fashion retailer based in Guangzhou, advanced 3.3 percent to $48.88, rallying the most in a week. Dangdang, the biggest Internet-based book seller, added 1.8 percent to $9.05.
Phoenix New Media Ltd. (FENG), a TV and Internet news outlet, gained 3.4 percent to $10.82 in New York, increasing 197 percent this year.
The Hang Seng China Enterprises Index surged 1.6 percent yesterday to 10,706.63, the highest level since May.
The Shanghai Composite Index retreated 0.2 percent to 2,231.40, after surging 6.6 percent the previous two weeks, the most since December. A correction this week is possible before the benchmark index of Chinese equities continues to rise to a level “much higher” than his last call of 2,323, said Tom DeMark, the developer of market-timing indicators who predicted the gauge’s rally from a four-year low in June.
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