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Worst Cash Crunch Since June Drives Chinese ADRs Slump

Chinese equities fell for a second week in New York on concern the worst cash squeeze since June in the nation’s banking system will hamper companies’ growth.

The Bloomberg China-US Index of the most traded Chinese stocks in the U.S. dropped 0.2 percent to 103.75 yesterday for a weekly slide of 1.6 percent. The gauge’s two-week slump was the longest losing stretch in six months. Macau casino operator Melco Crown Entertainment Ltd. (MPEL) fell for a second day, trading at the widest discount to its Hong Kong stock in a month. NQ Mobile Inc. (NQ) dropped for a fourth week while LightInTheBox Holding Co. slid the most in a week.

The China-US gauge followed benchmark indexes in Shanghai and Hong Kong lower after the seven-day repurchase rate, a measure of liquidity in the financial system, jumped the most since January 2011. Borrowing costs in China climbed in recent weeks as the government shifted toward allowing market-determined interest rates and as the central bank curbed cash injections in open market operations.

“In the short term it’s a tightening on a lot of companies that are publicly traded,” Michael Kass, a New York-based portfolio manager at Baron Capital Inc., which manages $20 billion in assets including emerging-market stocks, said by phone yesterday. “If you get a further credit tightening, which is starting to play out now there, then it may not be that optimistic for 2014.”

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., slipped 0.7 percent to $37.32 in New York for a 2.8 percent weekly slump. The Standard & Poor’s 500 Index added 0.5 percent, advancing 2.4 percent on the week, as data showing faster-than-estimated growth boosted confidence in the U.S. economy.

NQ Retreats

Melco Crown’s American depositary receipts slipped 1.2 percent to $37.85. The ADRs, each standing for three underlying shares in the casino operator, traded 2.1 percent below the Hong Kong-listed shares, the biggest discount since Nov. 20.

NQ Mobile, a Beijing-based Internet security company, slid 2.9 percent to $11.50, falling 5 percent in its fourth weekly slump. Muddy Waters LLC, founded by short-seller Carson Block, alleged that NQ Mobile inflated sales in an Oct. 24 report.

Muddy Waters offered to pay for an accounting firm to evaluate an independent committee’s investigation into NQ Mobile, according to a letter published Dec. 19. NQ denied the allegations and said last month its independent special committee retained the law firm Shearman & Sterling LLP to review Muddy Waters’s report.

LightInTheBox, a Beijing-based retailer of lifestyle goods selling to overseas markets, slid 2 percent to $7.96 in New York, retreating from a one-month high reached the previous day.

The Hang Seng China Enterprises Index in Hong Kong sank 3.6 percent this week to 10,628.50, the lowest level since Nov. 14. The Shanghai Composite Index tumbled 5.1 percent for the week to a four-month low of 2,084.79. Its nine-day slump was the longest losing streak since 1994.

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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