Airlines Jump as Stimulus Bets Spur ADR Rebound: China Overnight

Chinese stocks rebounded from a nine-month low in New York after the slowest pace of growth in three years for the world’s second-largest economy fueled speculation policy makers will take further stimulus measures.

The Bloomberg China-US Equity Index of the most-traded Chinese shares in New York gained 1.2 percent to 87.77 on July 13, trimming its loss last week to 3.7 percent. China Southern Airlines Co. and China Eastern Airlines Corp. surged more than 8 percent after the government pledged to increase investments in the industry and ease taxation. Ambow Education Holding Ltd. rose after announcing a $10 million share repurchase plan, halting an eight-day slump of 52 percent.

Gross domestic product expanded 7.6 percent last quarter from a year earlier, the National Bureau of Statistics said on July 13 from Beijing. The pace, a three-year low, compares with a 7.7 percent median forecast of economists. Premier Wen Jiabao said last week that the government will focus on promoting investment growth in order to stabilize economic expansion and would intensify fine-tuning of policies.

“The market is taking off as there’s certainly the possibility the government will take measures to intervene,” Kevin Pollack, managing director at Paragon Capital in New York, said by phone on July 13. “Steps to spur the economy can mean lower interest rates or other actions. That’s built as a positive for investors.”

Increase Investment

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., increased 1.5 percent to $32.5, cutting its decline last week to 2.6 percent. The Standard & Poor’s 500 Index rose 1.7 percent to 1,356.78, snapping the longest losing streak since May, as JPMorgan Chase & Co. rallied after reporting earnings. The gauge added 0.2 percent for the week. The Shanghai Composite Index of mainland stocks slid 1.7 percent last week to 2,185.90.

Data released last week also showed China’s import and export growth slowed in June and consumer prices rose the least in more than two years. The People’s Bank of China cut benchmark interest rates for the second time in a month on July 5, and has lowered required-reserve ratio for lenders three times since November to bolster credit.

“The government’s tone has changed from sounding complacent several months ago to talking about investment now,” Michael Ding, who helps manage $2.2 billion at U.S. Global Investors, said in a July 13 telephone interview from San Antonio, Texas. “Government investment in infrastructure projects is more efficient in helping spur growth than monetary policy easing, which takes time to see effects.”

Airlines Surge

American depositary receipts of Guangzhou-based China Southern surged 9.8 percent, the most since October, to a four-month high of $24.29. The ADRs traded 0.8 percent above its Hong Kong stock, the highest premium since June 20. Each ADR represents 50 underlying shares of the company.

China will increase the investment for civil aviation construction and development, and improve tax support policy for the industry, according to the State Council’s online statement posted July 12.

Shanghai-based China Eastern, the nation’s second largest carrier, jumped 8 percent to $16.97, the strongest rally since November. The carrier expects net income in the first half to fall more than 50 percent from a year ago, the company said in a regulatory filing July 13, citing slower growth in passenger traffic and weaker cargo demand amid a global slowdown along with rising jet fuel prices.

China Southern filed a similar statement to the Hong Kong Stock Exchange on July 10, forecasting first-half profit to fall at least 50 percent.

Ambow Buyback

Ambow, a tutoring services provider, climbed 4.9 percent to $2.36 in New York on July 13, snapping an eight-day slump. Its ADRs jumped as much as 28 percent July 13 after the Beijing-based company said in a statement its board approved a plan to buy back as much as $10 million worth of its outstanding shares with cash.

“We believe that our ability to generate cash will remain strong and have confidence in our fundamentals,” Jin Huang, Ambow’s founder and chief executive officer, said in the statement.

Youku Inc., China’s biggest video website operator, and Tudou Holdings Ltd., the second biggest, rose for a second day after a filing showed their merger deal awaits shareholders’ approval.

Youku gained 2.3 percent, the most since July 3, to $18.92 in its second day of a rally. Tudou advanced 2.7 percent to a three-day high of $29.02.

Youku-Tudou Deal

Beijing-based Youku filed a preliminary prospectus to the U.S. Securities and Exchange Commission on July 13 showing it will issue shares to Tudou’s shareholders for the merger announced in March. The filing also included the companies’ notices of shareholder meetings to approve the deal.

Holders of Tudou’s ADRs will receive 1.595 ADRs of Youku for each Tudou ADR they own, according to the companies’ March 12 statement. The transaction, which was valued at $925 million when announced, has a current value of $731 million, data compiled by Bloomberg show.

China’s yuan weakened 0.23 percent last week to 6.3789 a dollar in Shanghai, the lowest close since Nov. 30, according to the China Foreign Exchange Trade System. The seven-day repurchase rate, a benchmark money-market rate, dropped for a third week on speculation the central bank will ease monetary policy.

The government may report foreign direct investment data for June as early as today.

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