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Spreadtrum Drops as Earnings Concerns Sink ADRs: China Overnight

Spreadtrum Communications Inc. posted last week the biggest slump since August, sending the benchmark index of Chinese stocks traded in New York lower, as the nation’s economic slowdown cuts into corporate earnings at a time the country is changing its leadership.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in New York lost 2.2 percent to 92.7 last week, the biggest retreat since July. Spreadtrum dropped as JPMorgan Chase & Co. cut its rating on the stock. HiSoft Technology International Ltd. retreated, snapping three weeks of gains after shareholders approved the software company’s merger with VanceInfo Technologies Inc. Cnooc Ltd. traded at a premium to Hong Kong stock for the first time in three days.

Chinese President Hu Jintao called for faster changes to the country’s economic development model in a meeting with delegates from Jiangsu province during the nation’s once-a-decade power transition, the Xinhua News Agency reported. At stake is the policy direction of an economy that grew at the slowest pace since 2009 and led companies to miss analysts’ earnings estimates by 8.5 percent last quarter.

“It’s the uncertainty amid China’s power transition that’s damping the stock market,” Timothy Ghriskey, chief investment officer at New York-based Solaris Group LLC, which manages about $2 billion in assets including Chinese stocks, said by phone on Nov. 9. “Investors are not sure if new leaders will focus on growth and when. What we really want to see is a rebound in growth after quarters of slowdown.”

ETF Drops

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., slid 0.2 percent on Nov. 9 to $36.46 for a weekly drop of 2.7 percent, the most since the end of August. The Standard & Poor’s 500 Index increased 0.2 percent to 1,379.85, trimming its five-day decline to 2.4 percent.

The Shanghai Composite Index of Chinese domestic shares posted a weekly retreat of 2.3 percent to 2,069.07. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong sank 3.5 percent, the most since August, to 10,454.85.

Spreadtrum, a maker of mobile phone chips based in Shanghai, tumbled 9.5 percent to $19.44 last week in New York, the steepest slump since the five days ended Aug. 10.

JPMorgan equity analyst Qin Zhang lowered his rating on Spreadtrum to neutral from overweight on Nov. 9.

The company expects fourth-quarter sales of $189 million to $196 million with gross margin remaining “flat” from the previous three months, according to a Nov. 8 statement. The revenue forecast fell short of the $197.3 million average estimate of 10 analysts surveyed by Bloomberg.

VanceInfo Merger

HiSoft, which said Nov. 6 that shareholders approved its merger with competitor VanceInfo, retreated 0.9 percent to $10.20 for a weekly loss of 3 percent. VanceInfo, whose shareholders approved the deal on the same day, dropped 1.6 percent to $7.58 in New York, extending its weekly retreat to 3.8 percent.

The name of the combined company is Pactera Technology International Ltd., according to a Nov. 9 statement. VanceInfo’s listing on the New York Stock Exchange will be canceled from today.

Cnooc added 0.2 percent to $206.30 on Nov. 9, trading 0.2 percent higher than its shares in Hong Kong, after posting discounts in the previous two days. Each ADR represents 100 underlying shares in China’s biggest offshore oil explorer.

The company is confident its proposed $15.1 billion takeover of Canada’s Nexen will be completed by the end of the year, Chairman Wang Yilin said at a meeting held as part of the 18th Communist Party Congress in Beijing on Nov. 9. The comment came after Canada extended its review of state-owned Cnooc’s bid for the second time on Nov. 2, resetting the deadline to Dec. 10 and citing the need for a thorough review.

For the week, Cnooc’s ADRs lost 1 percent, the first decline in five weeks.

Yuan Forwards

Twelve-month yuan forwards strengthened 0.16 percent in the week to 6.3485 a dollar, after the currency snapped a 13-week rally in Shanghai, falling 0.1 percent to 6.2430 a dollar.

The 30-day volatility in the Bloomberg China-US gauge was 15.48 as of Nov. 9, up from 15.26 the previous week, and compares with this year’s average of 22.7. The Bloomberg Chinese Reverse Mergers Index, which tracks a basket of companies that gained U.S. listings after buying firms that already trade, retreated 1.6 percent last week to 71.31.

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