SMIC’s Swing to Profit Drives Gains: China Overnight

Chinese stocks traded in New York rose, led by Semiconductor Manufacturing International Corp. and Sina Corp., after they reported better earnings than analysts predicted.

Semiconductor Manufacturing, a chipmaker based in Shanghai, climbed to the highest level since May as the company reported a profit last quarter from a loss a year earlier. Sina, an Internet company due to report this week, gained the most since August, and Sohu Corp., China’s fifth-most visited website, advanced to a one-month high after posting third-quarter earnings per share 39 percent above the average analyst estimate. The Bloomberg China-US Equity Index of the most-traded Chinese shares in New York added 0.5 percent to 95.28.

China Southern Airlines Ltd. and Tal Education Group are among seven companies that posted earnings above analysts’ estimates of the 19 in the China-US index that have reported since the start of October, data compiled by Bloomberg show. With China’s economy slowing for the seventh consecutive quarter in the three months to Sept. 30, seven companies listed in the U.S. have reported results below estimates for the period, the data show.

“Expectations were very, very low” for company earnings, Jeff Papp, a senior analyst at Oberweis Asset Management Inc., said in a phone interview from Lisle, Illinois yesterday. Results from companies such as Sohu are not “as bad as people had expected. Clearly from the macro picture, things are stabilizing,” he said.

ETF Climbs

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., gained 0.9 percent to $37.79, while the Standard & Poor’s 500 Index rose 0.2 percent to 1,417.26 before the Nov. 6 U.S. presidential election.

The Hang Seng China Enterprises Index of Chinese stocks traded in Hong Kong declined 0.6 percent to 10,768.28, while the Shanghai Composite Index lost 0.1 percent to 2,114.03 in its first slump in five days.

The American depositary receipts of Semiconductor Manufacturing increased 8.2 percent to $2.1, the highest level since May 22. Net income increased to 2 cents per share in the third quarter, after losing 16 cents a year earlier, the company said in a statement yesterday. The ADRs traded at a 0.2 percent premium to its equivalent shares in Hong Kong, from a 4.5 percent discount on Nov. 2.

Sohu climbed 1.3 percent to $40.54 after it reported adjusted earnings of 77 cents a share, compared with a 55-cent average forecast of eight analysts surveyed by Bloomberg. The company said net income will be as much as 65 cents in the fourth quarter, compared with analysts’ estimate of 64 cents.

Sina Surges

Sina, which runs the Twitter-like Weibo service in China, surged 8 percent to $57.3, the most since Aug. 16, amid speculation that it may follow Sohu and beat analysts’ forecast when it reports third quarter earnings on Nov. 8.

Companies including Sina, Spreadtrum Communications Inc. and Melco Crown Entertainment Ltd., are due to report earnings this week. President Hu Jintao is set to hand over leadership of China’s ruling party to Vice President Xi Jinping at the 18th Communist Party Congress, which begins Nov. 8.

Bloomberg’s China equities index has gained 10 percent over the past two months, compared with a 0.8 percent advance in the Standard & Poor’s 500 Index of U.S. shares, as increases in retail sales and industrial production in September signaled that the world’s second-largest economy may be stabilizing. China’s purchasing managers’ index rose to 55.5 in October from 53.7 the previous month, the National Bureau of Statistics and China Federation of Logistics and Purchasing said on Nov. 3.

Less Bearishness

Option traders are turning less bearish on Chinese stocks. The number of outstanding puts on iShares China ETF, or rights to sell, was 1.3 times that of calls, or options to buy, on Oct. 19, the lowest since June, according to data compiled by Bloomberg. The ratio was 1.4 on Nov. 1, the latest date for which data was available.

Short interests for Sina declined to 2.8 percent of total outstanding as of Nov. 1, the lowest since May 2010, from 12 percent on March 16, according to data compiled by Markit, a London-based research firm. Short sales involve borrowing a security such as a stock, then selling it in anticipation of a price decline.

“Chinese ADR stocks have formed a bottom here,” said Prashant Sadarangani, a vice president of emerging market equity derivative sales at Bank of America Merrill Lynch, in a telephone interview. “With earnings coming up, we are seeing investors covering shorts. Most investors are positioning for better China macro data.”

LDK Advances

About 44 million shares of Bloomberg’s China index exchanged hands on Nov. 2, the most since Oct. 9, as trading picked up in New York following Hurricane Sandy, which caused the longest weather-related shutdown since 1888.

LDK Solar Co., the world’s second-biggest maker of solar wafers, ended with a 0.5 percent gain to 87 cents after jumping as much as 9.7 percent during the day. The company replaced its chief executive officer and hired five other board members including a provincial People’s Congress official after selling a stake to a state-backed firm.

Chief Operating Officer Tong Xingxue takes over immediately as CEO from Peng Xiaofeng, who stays as chairman, LDK said yesterday in a statement. The other new board members include independent directors Wang Ceng, who has served as a financial consultant for Xinyu city government, and Wu Shian, a member of the Standing Committee of the People’s Congress of Jiangxi. The ADRS had fallen from $51 in August 2008.

Nam Tai Electronics Inc., a mobile phone and calculator manufacturer in Shenzhen in South China’s Guangdong Province, surged 41 percent to $15.12 after the company said third-quarter earnings increased to 54 cents a share, from 2 cents a year earlier.

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