Options traders are charging the biggest premium since March to protect against losses in Chinese companies on signs that a slowdown in the world’s second-largest economy is worse than economists estimated.
The AlphaShares Chinese Volatility Index, derived from options on companies listed in Hong Kong, traded at a premium of as much as 41 percent over the Chicago Board Options Exchange Volatility Index last week, the biggest gap since March 29. The spread compares with a 10 percent discount a year ago. The Bloomberg China-US Equity Index of the most-traded Chinese companies in New York fell 0.8 percent last week and Hong Kong’s Hang Seng China Enterprises Index slid 0.7 percent.
China’s foreign direct investment in July fell 8.7 percent, the lowest in two years, missing the median estimate of four economists for a 2.5 percent decline. Exports grew 1 percent last month, while the median of 32 economists was for 8 percent. Chinese Premier Wen Jiabao said last week that downward pressure on the economy remained “relatively large,” the nation’s state radio reported Aug. 15.
“Nowadays the focus of fear in the equity market seems centered on slowing growth in China,” Jonathan Masse, a money manager at Baochuan Capital Management LLC, which invests in Chinese stocks, said by phone on Aug. 17 from Walnut Creek, California. “Forty percent seems to be too much of a fear premium. There are overconcerns about the slowdown,” he said.
The spread between the China and U.S. volatility gauges was 37 percent on Aug. 17, up from 30 percent the previous week. The Standard & Poor’s 500 Index of the biggest U.S. shares rose 0.9 percent last week to 1,418.16, extending its gain this year to 13 percent. The 2012 gain compared with a 1.2 percent increase in the Bloomberg measure for Chinese companies traded in the U.S. and a 1.1 percent slump in the Hong Kong measure for Chinese companies.
The Hang Seng China Enterprises Index sank 1 percent as of 11:34 a.m. Hong Kong time on concern the Chinese government will hold off from easing monetary policy after data showed real-estate prices rose in the largest number of the nation’s cities in 14 months. The Shanghai Composite Index lost 0.9 percent, set to close at the lowest level since March 2009.
Jurrien Timmer, a portfolio manager at Fidelity Investments, said in an interview with Bloomberg Television on Aug. 16 that China may experience a hard landing as economic growth decelerated for a sixth quarter, expanding 7.6 percent in the three months period, the slowest pace in three years.
Forty-eight percent of the largest U.S.-listed Chinese companies that reported earnings since mid-July have missed sales estimates, up from 28 percent last year, according to data compiled by Bloomberg.
21Vianet Group Inc., China’s largest independent Internet data-center operator, tumbled to a nine-month low in New York last week, leading declines in Chinese companies traded in New York after second-quarter profit fell short of estimates.
The company, which manages about 10,000 cabinets where hosting servers of Internet companies are placed, reported second-quarter profit of 18.2 million yuan ($2.9 million) on Aug. 16, about half the mean estimate of three analysts surveyed by Bloomberg. The 364.5 million yuan of revenue for the three months following a May 16 forecast of 364 million yuan to 370 million yuan.
Beijing-based 21Vianet forecast third-quarter revenue will be between 388 million yuan and 400 million yuan, less than the average estimate of 398 million yuan projected by five analysts.
21Vianet slid 11 percent to $8.94 on Aug. 17 and lost 16 percent over the past five days, the biggest weekly slump in a year.
“The stock price reacted to the headline figures,” James Breen, an analyst at William Blair & Co. said by phone from Boston Aug. 17. “The revenue numbers came in toward the low end of its guidance for the quarter.”
NetEase Inc., the second-biggest online games operator in China, slid 2.7 percent Aug. 17 to $48.2, the lowest since Feb. 17. It plunged 15 percent on Aug. 16 after reporting second-quarter profit that trailed analysts’ estimates. Its weekly slump of 12 percent was the second biggest on the Bloomberg gauge.
Suntech Power Holdings Co., the world’s biggest solar maker, tumbled 10 percent last week to an eight-day low of 98 cents.
The company, based in Wuxi in China’s Jiangsu province, said on Aug. 15 Zhenrong Shi will remain as the company’s executive chairman after resigning as chief executive officer. David King, former chief financial officer, was appointed as the company’s CEO.
China Unicom Earnings
American depositary receipts of China Mobile Ltd., the biggest wireless carrier in China, slid 8.4 percent last week to $53.65, the lowest level since June 28. The weekly loss, the biggest since February 2009, followed a disappointing second-quarter profit. The ADRs traded 0.5 percent below its Hong Kong shares, a fifth day of discounts.
China Mobile’s competitors China Unicom (Hong Kong) Ltd. and China Telecom Corp. will announce second-quarter results this week.
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S. that tracks Hong Kong-traded shares, lost 2.1 percent last week to $34.5.