Chinese stocks sank the most in three months in New York, led by consumer companies, on concern the nation’s economic recovery will be threatened by U.S. spending cuts and the lack of a resolution to Europe’s debt crisis.
The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. tumbled 1.9 percent to 93.92, the biggest decline since July 23. Property firm E-House China Holdings Ltd. slipped 6.3 percent while China Telecom Corp., the biggest fixed-line operator, fell to a two-month low. Melco Crown Entertainment Ltd. traded at the biggest discount to its Hong Kong stock in a month after reporting a drop in third-quarter profit.
While expanding industrial production and rising retail sales are adding to signs China’s economy is showing signs of emerging from a seven-quarter slowdown, the global outlook is clouded. U.S. President Barack Obama, re-elected on Nov. 6, has to forge a deal with Congress to avoid more than $600 billion in tax increases and spending cuts, and the euro-area economy is facing near-stagnation in 2013 because of debt issues.
“The overall sentiment is negative in the short term,” Erik Lam, director of Asian equity sales at Auerbach Grayson & Co. in New York, said by phone yesterday. “With the U.S. election out of the way, people are worried about the next thing, tension over the fiscal cliff and Europe. These two real issues will hang over the market for a while.”
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., lost 2.2 percent, the most since June, to $37.28 in New York. The Standard & Poor’s 500 Index also sank 2.4 percent to 1,394.53, the biggest slump since June 21.
American depositary receipt of Melco Crown, a Hong Kong-based venture between Australian billionaire James Packer and a son of gambling tycoon Stanley Ho, dropped from a six-month high, sliding 2.4 percent to $14.62. The ADRs traded 2.7 percent below their equivalent shares in Hong Kong, the biggest discount since Oct. 4.
Melco Crown’s net income in the third quarter fell 7.4 percent to $104.9 million from $113.3 million a year earlier, based on U.S. accounting standards, according to a statement to the Hong Kong Stock Exchange yesterday. That compares with the $93.4 million average of nine analysts’ estimates compiled by Bloomberg.
E-House, a property agency service provider based in Shanghai, fell 6.3 percent, the most since Sept. 17, to $4.03. ADRs of China Telecom dropped 3.4 percent to $55.93, the lowest level since Sept. 5.
Baidu Inc., owner of China’s biggest online search engine, slipped 1.4 percent to $104.51 after earlier tumbling to the lowest level since January 2011. Chief Executive Officer Robin Li told employees there may be “downsizing to improve efficiency,” online news site TechInAsia reported, citing an internal e-mail obtained by Techweb.com.
Bloomberg’s China-US index has gained 5.7 percent over the past two months, compared with a loss of 3 percent in the S&P 500, as improving data for retail sales and industrial production signal the world’s second-largest economy may be stabilizing. Policy makers have accelerated railway and road construction approvals, increased money supply and rolled out tax support for exports.
“I am bullish on China,” Gabriel Borenstein, a managing director at Enclave Capital LLC., a brokerage in New York, said by e-mail. “The Chinese policies in place are effective, but you need to allow some time for the policies’ impact on the Chinese economy.”
The Hang Seng China Enterprises Index of Chinese stocks traded in Hong Kong rose 0.7 percent to 10,813.34 yesterday, while the Shanghai Composite Index was little changed at 2,105.73, after dropping in the previous two days.
Investors will remain cautious on Chinese equities until additional policy initiatives are undertaken after the nation’s once-a-decade power transition, according to Wang Lei, who helps manage the $27 billion Thornburg International Value Fund in Santa Fe, New Mexico.
China’s Communist Party starts its 18th congress today in Beijing to choose its fifth generation of leaders since taking power in 1949. Vice President Xi Jinping is set to replace Hu Jintao as general secretary of the 82 million-member party. The new leadership faces challenges from breaking up state-owned monopolies to deregulating lending rates and correcting under-pricing of natural resources.
“Further fundamental support depends on top-down reforms,” said Wang in a phone interview yesterday. “Uncertainty is there. People will be cautious about making investment decisions.”