Yanzhou Loss Blunts Economy Spark as ADRs Slide: China Overnight

Chinese equities sank in New York, and Yanzhou Coal Mining Co. traded at its biggest discount to Hong Kong in four years, as third-quarter losses overshadowed signs that the economy is recovering.

The Bloomberg China-US Equity Index of the most-traded Chinese companies in the U.S. slid 1.3 percent last week to 94.30, dropping for the first time in five weeks. Yanzhou Coal tumbled 11 percent last week to trade at an 8 percent discount to its Hong Kong shares, the most since 2008. China Unicom (Hong Kong) Ltd. posted the biggest weekly slump in a month on disappointing profit while China Life Insurance Co. fell on Oct. 26 after reporting its first quarterly loss since 2008.

Of the eight companies on the China-US gauge that reported earnings last week, three exceeded analysts predictions, tempering speculation of a recovery in Asia’s biggest economy spurred by improving industrial production, manufacturing and retail sales data. Maanshan Iron & Steel Co. and phone equipment company ZTE Corp. also posted third-quarter losses this week.

“You aren’t going to get any recovery in the earnings until the fourth quarter as the economy is bouncing along the bottom,” Sam Mahtani, who oversees about $5 billion as director of emerging markets at F&C Asset Management Plc in London, said by phone on Oct. 26. “These third-quarter numbers won’t show that improvement in the economy.”

China ETF Retreats

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., retreated 0.5 percent last week to $36.93, snapping three weeks of advances. The Standard & Poor’s 500 Index lost 1.5 percent during the period to 1,411.94.

The Shanghai Composite Index of domestic shares ended the week down 2.9 percent to a one-month low of 2,066.21. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong slid 2.2 percent to 10,449.53, the steepest weekly slump in two months.

Thirty-day volatility in the Bloomberg China-US gauge rebounded to 15.35 on Oct. 26 from 17.25 a week earlier, compared with this year’s average of 23. The Bloomberg Chinese Reverse Mergers Index, which tracks a basket of companies that gained U.S. listings after buying firms that already trade, added 0.1 percent over the last five days to 71.25, its fifth weekly advance.

Yanzhou Coal, China’s fourth-largest miner of the fuel, plunged to $14.32 in the biggest weekly slump in a month. The American depositary receipts, each representing 10 underlying shares, traded 8 percent below the Hong Kong stock, the widest discount since December 2008.

Yanzhou Loss

The company posted a net loss of 79.6 million yuan ($12.7 million), it said in a filing to the Hong Kong stock exchange on Oct. 26. The loss compared with a profit of 1.08 billion yuan a year earlier.

Average coal price for the company fell 19 percent in the third quarter and operating cost, which includes the cost of coal sales, rose to 13.03 billion yuan from 10.69 billion yuan a year ago, it said.

ADRs of China Life dipped 1.6 percent on Oct. 26 to $43.65 and ended the week little changed.

The Beijing-based insurer had a 2.2 billion yuan ($352 million) net loss in the three months ended Sept. 30, reversing a profit of 3.8 billion yuan a year earlier, China Life said in a statement to the Hong Kong stock exchange on Oct. 26.

Semiconductor Manufacturing International Corp. sank 4.1 percent to $1.88 in New York, the steepest weekly loss since the five-day period ended Sept. 21.

Semiconductor Restructuring

China’s semiconductor industry needs restructuring and consolidation to create internationally competitive firms, the Shanghai Daily reported Oct. 24, citing a speech by Ding Wenwu, director general of the Ministry of Industry and Information Technology, in a Shanghai conference a day earlier.

Beijing-based China Unicom, the nation’s second-biggest wireless carrier, lost 5.3 percent last week to $16.27, the lowest since Sept. 7.

The company’s third-quarter profit of 2.02 billion yuan, reported on Oct. 25, missed the 2.21 billion-yuan median of seven analysts’ estimates in a Bloomberg survey.

Twelve-month non-deliverable forwards on the yuan strengthened 0.3 percent last week to 6.3485 per dollar, following a 0.2 percent slide the previous week. The currency climbed 0.08 percent for the week to 6.2489 versus the greenback in Shanghai, after reaching a 19-year high closing level of 6.2417 on Oct. 25, according to the China Foreign Exchange Trade System.

China-focused equity funds received $913 million of inflows for the week ended Oct. 24, the most since July 2008, Cambridge, Massachusetts-based data provider EPFR Global said in an e-mail Oct. 26.

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