Chinese equities traded in the U.S. sank to the lowest level in three weeks on concern a slowdown in the world’s second-largest economy is eroding profits.
The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. slid 2 percent to 103.34 yesterday in New York, the weakest close since March 7. Cnooc Ltd., China’s biggest offshore crude explorer, dropped to a two-month low as oil plunged and analysts predicted the company’s 2012 net income will decline. China Life Insurance Co., which reported a 46 percent slide in 2011 profit, dropped the most in a week.
China’s Shanghai Composite Index tumbled the most in four months as Jiangxi Copper Co., the nation’s largest producer of the metal, posted an 18 percent drop in net income and Societe Generale SA said Chinese corporate profits won’t grow at all this year. The government cut China’s economic growth target to the lowest since 2004 on March 5 and indicators from housing to industrial output have been slowing as the European debt crisis and sluggish U.S. recovery damp global export demand.
“We are concerned about China’s macro economy and you’ve seen some of the slowdown in growth rates in some of the companies,” said Tim Cunningham, who helps oversee $83 billion of assets, including Chinese stocks, at Thornburg Investment Management Inc. in Santa Fe, New Mexico. “We’re a little cautious on China overall and we’ve cut back our weight.”
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., sank 1.5 percent to $36.70, the lowest close since Jan. 9. The Standard & Poor’s 500 Index retreated 0.5 percent to 1,405.54.
Spreadtrum Leads Drop
American depositary receipts of Spreadtrum Communications Inc., a Shanghai-based mobile-phone chip designer, were the biggest decliners on the Bloomberg China-US gauge, plunging 6.7 percent to $15.65, the biggest slump in a month.
The company forecast on Feb. 29 that sales will come in at $158 million to $163 million in the first quarter of this year, below last quarter’s $192 million, and compared with a $171 million average of seven analysts’ estimates compiled by Bloomberg.
Focus Media Holding Ltd., a digital advertising company based in Shanghai, lost 5.8 percent to $26.05, the largest one-day drop since March 6. Sohu.com Inc., which runs China’s fifth-most visited website, fell 3.9 percent to $55.95, also the steepest decline since March 6.
“Advertising spending to increase market share at some smaller Chinese Internet companies won’t be sustainable this year,” said Eric M. Jackson, president and founder of Ironfire Capital, a Naples, Florida-based hedge fund that invests in Chinese stocks. “Chinese Internet companies will have difficult year-over-year comparisons this year.”
Chinese stocks will extend their slump as the slowing economy hurts company earnings, according to Bank Julius Baer & Co., which has about $286 billion in client assets worldwide. China’s gross domestic product expanded at the slowest pace for ten quarters in the last three months of 2011.
On the Shanghai Composite, 462 companies have posted profit growth of 17 percent on average, trailing analyst estimates by 4.1 percent, data compiled by Bloomberg show. That compared with an increase of 38 percent in the previous year.
Aberdeen Asset Management Plc said on March 27 that it is underweight on China, meaning it holds less of the nation’s securities compared with benchmark indexes. John-Paul Smith, Deutsche Bank AG’s London-based emerging-market strategist, said yesterday the “recent corporate data appears to support our bearish case.”
Industrial companies posted their first January-February profit decline since 2009, as net income dropped 5.2 percent from a year earlier to 606 billion yuan ($96 billion), the National Bureau of Statistics said on March 27. That compared with a 34.3 percent gain in the first two months of 2011.
Sina Corp., owner of the Twitter-like Weibo site in China, predicted last month that it will post a loss this quarter amid a slowdown in usage growth and plans to spend more on its microblogging service. Shanghai-based Sina dropped 2.8 percent to $66.71 in New York, falling for the seventh time in eight days.
E-Commerce China Dangdang Inc., China’s biggest Internet bookseller known as Dangdang, slipped 3.5 percent to $7.88, the biggest drop in a week.
Beijing-based Dangdang’s net loss in the last three months of 2011 was 129.8 million yuan ($20.6 million), compared with net income of 14.8 million yuan a year earlier, the company said in a statement on Feb. 23.
The data on industrial company profits suggests 2012 consensus earnings estimates for Hong Kong-listed Chinese companies are “far too optimistic,” Societe Generale strategists Guy Stear and Anthony Lee wrote in a client note dated March 27.
ADRs of Beijing-based Cnooc slid 3 percent to $206.45, the lowest level since Jan. 31, and traded 2.6 percent below the company’s Hong Kong stock, the biggest discount since Dec. 14. Cnooc fell 1.9 percent to HK$16.46 yesterday, the equivalent of $2.12 per share. Each ADR represents 100 common shares in the company.
Crude prices in New York declined 1.8 percent after the U.S. Energy Department said supplies rose by 7.1 million barrels to 353.4 million, the largest increase since July 2010 and more than twice the gain predicted in a Bloomberg survey of analysts.
China Life Profit
Cnooc’s 2012 net income will decline 4.9 percent from 2011 to 66.8 billion yuan ($10.6 billion), according to the average of 19 analysts’ estimates compiled by Bloomberg. The oil producer plans to boost output by as much as 2.7 percent this year to 330 million to 340 million barrels of oil, it said yesterday.
2011 net income climbed 29 percent to a record 70.3 billion yuan as crude prices surged, Cnooc said yesterday in a statement. Profit for the second half of the year rose 8.8 percent from a year ago, according to calculations made by subtracting first-half earnings from the full-year net income.
ADRs of China Life, the nation’s largest insurer, dropped 1.8 percent, the most in a week, to $39.05.
Net income for 2011 declined to 18.3 billion yuan, or 0.65 yuan a share, from 33.6 billion yuan, or 1.19 yuan, a year earlier, the Beijing-based insurer said in a statement to the Hong Kong stock exchange on March 26.
The Shanghai Composite Index tumbled 2.7 percent to 2,384.88 yesterday, the biggest drop since Nov. 30. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong fell 1 percent to 10,701.37. The gauge has declined every trading day since March 13 except March 27, taking its loss this month to 9.5 percent.
Jiangxi Copper tumbled 5.5 percent to 24.69 yuan in Shanghai yesterday, the equivalent of $3.92. It was the biggest one-day decline since Dec. 15.