Vipshop Bearish Bets Rise on Competition: China Overnight

The cost to protect against drops in Vipshop Holdings Ltd. (VIPS) is rising on concern increased competition will slow the online clothing retailer’s growth in 2014.

Puts to shield investors from a 10 percent decline in the shares cost 5.5 points more than calls betting on a rally of the same magnitude last week, data compiled by Bloomberg show. The price relationship, known as skew, was the highest since Bloomberg started tracking the data in April. Vipshop, which started trading in New York in March 2012, has more than tripled this year. The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. sank 3 percent last week.

Vipshop, which sells discounted brand-name fashion goods following a model similar to Gilt Groupe Inc.’s Gilt.com in the U.S., has posted annual revenue growth of at least 170 percent since 2010. Analysts surveyed by Bloomberg estimate the pace will slow to 68 percent next year. E-Commerce China Dangdang Inc. (DANG), China’s biggest online book retailer, started holding discount sales of fashion clothing in May.

“Competition in online fashion sales will increase next year, forcing Vipshop to raise spending by expanding its logistics network for example, to protect its market share,” Henry Guo, an analyst at ABR Investment Strategy LLC who rates Vipshop neutral, said by phone Dec. 12 from San Francisco. “Investors are also concerned growth will slow after fast gains this year. I am also a bit worried about its valuation after the huge stock price inflation this year.”

Logistics Center

Vipshop’s American depositary receipts retreated 2.4 percent last week to $80.54, down from a record $86.99 reached Nov. 13. Dangdang’s ADRs slid 2.2 percent to $8.89, rallying 114 percent for the year.

ADRs of Vipshop trades at 4.3 times sales, compared with a multiple of 0.7 times for Dangdang, data compiled by Bloomberg show. Guangzhou-based Vipshop agreed to invest a total 1.6 billion yuan ($260 million) in building a logistics center in China’s central Hubei province, according to a June 19 report on the technology news site of Tencent Holdings Ltd.

Vipshop’s skew, or the difference in put and call implied volatility, has more than doubled from a three-month low of 2.1 reached Nov. 13.

The Bloomberg China-US gauge closed at 105.43. The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., tumbled 4.4 percent last week to $38.38 in New York, the biggest retreat since October. The Standard & Poor’s 500 Index slipped 1.6 percent as losses in oil producers offset gains after the House of Representatives passed a federal budget agreement.

Refuting Allegations

Mindray Medical International Ltd. (MR), a Shenzhen-based medical device manufacturer, rose 4.2 percent to $37.10 on Dec. 13, rebounding from an 11 percent tumble that sent it to the lowest level since January.

The company said it stands by its financial statements, audited by PricewaterhouseCoopers, refuting allegations in a report circulated on Twitter by Ottoman Bay Research on Dec. 12 as containing numerous errors of facts, according to a statement issued Dec 13. Mindray said it reserves right to take legal action against the report’s authors. The company has over $1 billion in cash and cash equivalents and will start to buy back shares according to a previously announced plan, Mindray said.

Bank of America Corp. raised its recommendation on Mindray to buy from neutral with a price target of $40 in a note, saying the company’s management provided “solid information” in a conference call Dec. 13.

Economic Stability

WuXi PharmaTech Cayman Inc. (WX), climbed 5 percent to $33.83 in New York Dec. 13, the highest close since December 2007. The ADRs have surged 115 percent for the year. Ten out of 12 analysts surveyed by Bloomberg recommended buying the stock while two gave it a hold.

The Chinese government pledged to maintain stability in its economic policies next year and said it it will stick to a prudent monetary policy and proactive fiscal measures, China Central Television reported, citing a statement from the annual Central Economic Work Conference that ended Dec. 13. The Shanghai Composite Index (SHCOMP) slid for four days before the statement was issued on speculation the government may cut its 2014 growth target to 7 percent from 7.5 percent at the conference.

“This should stabilize growth expectations about China,” John Rutledge, chief investment strategist at Safanad, a New York-based investment firm, said by phone yesterday. “For outside investors, China will continue to grow 7-8 percent. People in China are optimistic about changes, and they are all consistent.”

The Hang Seng China Enterprises Index in Hong Kong slumped 3.1 percent in the week to 11,025.82, the biggest slide since October. The Shanghai Composite fell 1.8 percent for the week to 2,196.08, the first retreat in a month.

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

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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