SouFun Drops as Profits Spur ADR Slump: China Overnight

SouFun Drops as Falling Profits Spur ADR Slump
State-owned China Eastern Airlines Corp. and China Southern Airlines Co. tumbled at least 2.5 percent. Photographer: Nelson Ching/Bloomberg

Chinese equities fell in New York, sending the benchmark index to a third weekly decline, after profit at government-owned companies dropped in the first half of the year.

The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. lost 0.6 percent to 86.11 yesterday in New York for a 1.9 percent retreat this week. State-owned China Eastern Airlines Corp. and China Southern Airlines Co. tumbled at least 2.5 percent. SouFun Holdings Ltd. sank on a report the nation won’t relax property control policies. New Oriental Education & Technology Group Inc. rallied, trimming a weekly loss to 42 percent.

Net income for China’s 117 central government-run companies fell 16 percent in the first half from a year earlier, the nation’s state assets supervision agency said yesterday on its website. The results add to pressure on policy makers in the world’s second-largest economy to boost stimulus in order to stem a slowdown. Gross domestic product expanded 7.6 percent last quarter, the slowest pace in three years.

“Recent declines in China stocks mainly reflected investors’ concern that economic conditions may be much worse than expectations,” Qinwei Wang, an analyst at Capital Economics Ltd., said in a telephone interview yesterday from London. “First-half corporate earnings and economic growth were worse than our estimates.”

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., fell 1.3 percent to $33.26 yesterday, cutting its gain for the week to 2.1 percent. The Standard & Poor’s 500 Index declined 1 percent to 1,362.66, amid concern Europe’s debt crisis is worsening. The gauge climbed 0.4 percent in its second weekly advance.

China Eastern

American depositary receipts of Shanghai-based China Eastern, the nation’s second largest carrier, fell 3.1 percent to $17.08, the steepest decline in two weeks. The ADRs traded 1.5 percent below its Hong Kong stock, the widest discount in eight days.

China Southern, the nation’s biggest carrier based in Guangzhou, slid 2.5 percent to $24.60, the most since June 28. The ADRs also traded at the biggest discount to its Hong Kong shares since July 6.

Falling Profit

The nation’s three biggest carriers including Air China Ltd. have all said in regulatory filings this month first-half profit may fall more than 50 percent because of slowing demand and rising jet fuel costs.

SouFun, which runs China’s biggest real estate information website, tumbled 5.6 percent yesterday to $13.42.

China will keep a “firm grip” on the real estate market to prevent a rebound in housing prices, the Xinhua News Agency said July 19. Cities that have loosened controls must “set straight” government policies, the government-owned Xinhua reported, citing a notice from the Ministry of Land and Resources and the Ministry of Housing and Urban-Rural Development.

New Oriental’s ADRs jumped 15 percent to $12.91, extending a two-day gain to 36 percent. The rebound followed a 35 percent slump on July 18 as Muddy Waters questioned the ownership of some of New Oriental’s schools and the consolidation of their financial statements with the parent company.

The Beijing-based educational services provider said it formed a special committee comprised of three independent directors to conduct a review of the allegations in a statement yesterday, aiming “to provide the highest level of transparency to its shareholders.”

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