Internet Stocks Lead Rout on Citigroup Outlook: China Overnight

Internet companies led declines in Chinese stocks traded in the U.S., sending the benchmark index to the lowest level in three weeks, after Citigroup Inc. reduced its expansion estimate for Asia’s biggest economy this year.

The Bloomberg China-US Equity Index of the most-traded Chinese companies sank 2.6 percent at the close of trading in New York to 87.91, the lowest since June 5. The index has declined 2.4 percent in 2012. Online video-sharing websites Youku Inc. and Tudou Holdings Inc. tumbled more than 6 percent while Qihoo 360 Technology Co., a computer security software developer, fell to a four-month low.

Citigroup cut its forecast for China’s 2012 gross domestic product to 7.8 percent from 8.1 percent, citing a slowdown in domestic activity in the second quarter and further weakening of European demand. German Chancellor Angela Merkel hardened her resistance to euro-area debt sharing, raising concern the summit this week will fail to tame the region’s crisis. Former central bank adviser Li Daokui said yesterday China won’t reduce interest rates as frequently as banks’ reserve ratios.

“The sentiment continues to be extremely negative and people continue to reduce risk,” Jeff Papp, a senior analyst at Oberweis Asset Management Inc., which manages $700 million, said by phone yesterday from Lisle, Illinois. “GDP growth is being ratcheted down in China given some of the weak data we’ve seen this year.”

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., slid 2.2 percent to $31.83, the lowest level since October. The Shanghai Composite Index of mainland stocks fell 1.6 percent to 2,224.11, a five-month low. The Standard & Poor’s 500 Index of U.S. shares decreased 1.6 percent to 1,313.72.

Hard Landing

An escalation in the European debt crisis may cause a hard landing in China as weaker external demand erodes the country’s growth by nearly 1 percentage point, Shuang Ding and Minggao Shen, Hong Kong-based analysts at Citigroup, wrote in a report dated June 22.

Youku, China’s most popular online video website, sank 6.9 percent to a one-month low of $21. The company announced on March 12 a plan to acquire smaller competitor Tudou in a stock swap deal currently valued at $825 million. Tudou lost 6.3 percent to $32.56. The transaction is expected to complete in the third quarter after the approval of shareholders, the companies said in March.

Beijing-based Qihoo, which also develops computer desktop applications, extended its slump to a fourth day, tumbling 4.5 percent to $17.11, the lowest level since February.

NetEase, 21Vianet

51job Inc., an online recruiting service provider based in Shanghai, dropped 3.6 percent to a five-month low of $43.98. NetEase Inc., operator of China’s second-largest online games website, sank 5.4 percent to $56.50, the most since Dec. 21.

21Vianet Group Inc., a Beijing-based Internet data center services provider, declined for the first time in nine days, retreating 5.3 percent to $11.35.

The central bank cut interest rates on June 7 for the first time since 2008 following three reductions to the reserve requirement ratio for banks since November.

China won’t have “aggressive” declines in interest rates and investors will “sit on the sidelines” until they see China’s economic recovery, Jing Ulrich, managing director and chairman of global markets for China at JPMorgan Chase & Co., said at a conference in Hong Kong yesterday. Banks are willing to lend but demand for loans is weak, she said.

Melco Drops

American depositary receipts of Melco Crown Entertainment Ltd., which operates casinos in Macau, the only Chinese city where they are legal, tumbled 4.1 percent to $11.34, the lowest since June 15. Gabriel Chan, an analyst at Credit Suisse Group AG in Hong Kong, lowered Melco Crown’s 12-month price target to $16.80 from $17.55 while maintaining an outperform rating in a report yesterday.

Elong Inc., a Chinese online travel company whose largest shareholder is U.S.-based Expedia Inc., fell 6.5 percent, the first decline in three days, to $11.09.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE