Internet Stocks Lead Retreat on Manufacturing: China Overnight

Internet Stocks Lead Retreat on Manufacturing
The logo for Inc. hangs in the company's offices in Beijing. Photographer: Keith Bedford/Bloomberg

Chinese Internet companies fell in New York, extending the benchmark index’s worst quarter since the three months ended September 2011, after data showed manufacturing expanded at the slowest pace this year.

The Bloomberg China-US Equity Index of the most-traded Chinese companies in New York lost 0.7 percent to 90.59 after declining 11 percent in the second quarter. Youku Inc. and Tudou Holdings Ltd., the biggest video website operators in China, fell more than 6 percent. Sina Corp. tumbled to the lowest since January after Maxim Group LLC cut its price estimate. Shares of Qihoo 360 Technology Co. sank after Anonymous Analytics said user traffic on its website is lower than reported.

Mounting concern that a slowdown in the world’s second-largest economy will reduce online ad spending pushed Internet stocks lower, U.S. Global Investors Inc. said. China’s Purchasing Managers’ Index dropped to 50.2 in June from 50.4 in May, government data released on July 1 showed. A separate PMI gauge by HSBC Holdings Plc and Markit Economics also indicated manufacturing growth weakened to the slowest pace this year.

“As Chinese industrial consumption goes down, ad spending, Internet spending is also going down,” Michael Ding, who helps manage $2.2 billion at U.S. Global Investors, said by phone yesterday from San Antonio, Texas. “The impact is being felt by Internet stocks that are very sensitive to macro numbers.”

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., slid 0.1 percent to $33.65, after jumping 3.6 percent on June 29. The Shanghai Composite Index of mainland stocks was little changed at 2,226.11. The Standard & Poor’s 500 Index of U.S. shares rose 0.2 percent to 1,365.51 as company acquisitions outweighed data showing manufacturing unexpectedly contracted.

Focus on Europe

Euro-area unemployment reached 11.1 percent in May, the highest on record, as the region’s debt crisis prompted companies from Spain to Italy to reduce their workforces.

“Investors’ primary focus is still Europe, but when industrial production is slowing in China and the U.S., the two largest economies in the world, that’s a negative for stocks,” Nelson Saiers, who oversees $639 million at Alphabet Management LLC as chief investment officer of the New York-based hedge fund, said in a telephone interview.

China’s government may report next week export growth for June slowed from May, according to the median of 15 economists’ estimates in a Bloomberg survey.

American depositary receipts of Youku sank 6.9 percent to $20.18, the lowest close since Jan. 18. Tudou’s ADRs lost 6.5 percent to $31.35.

Beijing-based Youku agreed to acquire smaller competitor Tudou in a stock swap deal announced in March, which is currently valued at $804.23 million. The transaction is expected to complete in the third quarter after the approval of shareholders, the companies said in a March 12 statement.

Youku, Qihoo

Youku’s chief financial officer Dele Liu has been promoted to President and Michael Xu, previously senior vice president of finance, will succeed Liu as CFO, the company said yesterday in a statement.

Qihoo, a Chinese developer of online security software, tumbled 7.5 percent to $16 after its Chief Financial Officer denied allegations made by Anonymous Analytics that user traffic on its website is lower than reported. The information cited in Anonymous’s report is “inaccurate,” Qihoo CFO Alex Xu said yesterday by phone from Beijing.

Qihoo had been “exaggerating” user traffic on its site, according to a report published July 1 by Anonymous, citing data from Reston, Virgina-based ComScore Inc., an Internet traffic data provider.

Short Sellers

Chinese companies have come under scrutiny in the past year as short sellers who profit from declining share prices have claimed accounting fraud or mismanagement. Trading of China Medical Technologies Inc.’s American depositary receipts was suspended last week by the U.S. Securities and Exchange Commission, which cited questions on the accuracy of the company’s information.

Sina Corp., the Chinese operator of the Twitter-like Weibo service, retreated to the lowest level since January after Maxim Group LLC reduced the company’s revenue forecast. Shanghai-based Sina lost 3.4 percent to $50.07, the lowest since Jan. 9.

Sina will probably report sales of $547 million this year, Echo He, an analyst at Maxim Group in New York, wrote in an e-mailed report today. He’s previous forecast was for $560 million. Maxim’s He also lowered the 12-month target price on the shares to $44 from $45.

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