Telecoms Drop as ADRs Sink on Leadership: China Overnight

Chinese stocks slumped to a two-month low in New York, led by telecommunications companies, on speculation investors are waiting for the nation’s new leaders to enact measures to support the economy.

The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. fell 1.2 percent to 89.63, the lowest close since Sept. 11. China Unicom (Hong Kong) Ltd. sank to a three-month low and China Telecom Corp. traded at the widest discount to its Hong Kong stock in a week after China Securities Journal said the nation plans to open the sector to private investment. Baidu Inc. tumbled as competition among the nation’s online search engines heats up.

China has begun installing a new economic leadership by indicating at the Communist Party congress that central bank Governor Zhou Xiaochuan will step aside and Vice Premier Wang Qishan, the top finance official, will move to a new role. Whoever fills their shows inherits an economy that has slowed over seven quarters and spurred U.S.-listed companies to miss analysts’ earnings estimates by 7.2 percent last quarter.

“Investors are waiting on the side for new measures from the new leadership to help the economy that may come early next year,” Michael Ding, the lead manager of the China Region Fund at U.S. Global Investors Inc., which oversees $2.2 billion, said by phone yesterday from San Antonio, Texas. “For now, investors prefer to take profit after a rally in overseas-traded Chinese stocks in previous weeks.”

ETF Slides

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., lost 0.7 percent to a one-month low of $35.74, after surging 6.3 percent in October. The Standard & Poor’s 500 Index declined 1.4 percent to 1,355.49 on concern Washington won’t come to a deal over the U.S. budget and as an Israeli air strike killed a top Hamas official in the Gaza Strip.

The Shanghai Composite Index of Chinese domestic shares added 0.4 percent to 2,055.42, while the Hang Seng China Enterprises Index of companies traded in Hong Kong rose for the first time in five days, jumping 1.7 percent to 10,405.76.

Mounting concern the U.S. won’t be able to reach a budget-deficit reduction deal also sank Chinese equities, as the world’s largest economy has been the biggest buyer of Chinese goods this year.

China Unicom, the second-largest mobile phone carrier, dropped 2.3 percent in a ninth day of declines to $14.55, the lowest level since July 26. Its bigger competitor China Mobile Ltd. slid 0.6 percent to $54.41, the weakest close since Oct. 19.

Private Investments

China Telecom, the smallest among the three state-controlled carriers, plunged 2.4 percent to a two-month low of $52.04. Its ADRs, each represents 100 underlying shares in the company, traded 1.4 percent below the Hong Kong stock, the biggest discount in a week.

China will issue a plan for private investment in the telecom sector in March, China Securities Journal reported yesterday. Network access, mobile telecom resale and value-added services will be first areas open to private investors, according to the newspaper.

Rising competition among the three biggest operators will cut into their profits, causing concern among investors, Global Investors’ Ding said. The sector’s opening to private investment won’t have immediate impact on the industry as it requires “heavy capital,” he said.

Baidu, the owner of the largest online search engine in China, tumbled 5.1 percent to $93.57, the lowest level since September. Trading volume on the stock was three times the daily average over the past three months.

Search Engines

Qihoo 360 Technology Co. started a mobile-phone version of a search engine that was first introduced on computers in August, a report from Marbridge Consulting Ltd. said yesterday, citing a Beijing Business newspaper.

While Baidu doesn’t see new market entrants as a threat, it must still manage the shift as more users migrate from personal computers to mobile devices such as smartphones and tablets, Baidu’s Chief Executive Officer Robin Li said Oct. 30 on a conference call.

Qihoo’s ADRs fell 2.1 percent to $23.01 yesterday in New York.

Trina Solar Ltd., China’s third-largest solar maker, tumbled 19 percent, sinking to a record $2.63. LDK Solar Co., the world’s second-biggest maker of wafers that convert the sun’s energy to electricity, lost 8.4 percent to 98 cents. Suntech Power Holdings slid 10 percent to 84.2 cents.

Vipshop Surges

Vipshop Holdings Ltd. jumped 9.9 percent to $12.45, the most since its March 22 initial public offering. Chief Financial Officer Donghao Yang said the Chinese online retailer is “on track” for profit following better-than-estimated third-quarter results.

Vipshop, which runs an online discount store for branded goods, reported Nov. 13 third-quarter net loss of $1.5 million, or a loss of 3 cents per ADR, according to U.S. accounting rules. That was better than two analysts’ average estimate of a $5.95 million loss compiled by Bloomberg.

“The company is right on track to turn to profitability in the near-term future,” Yang said in a phone interview from Los Angeles yesterday. Based on non-generally accepted accounting principles, Vipshop recorded a net income of $640,542 in the period, the first profitable quarter since it started business in 2008.

The 30-day volatility in the Bloomberg China-US gauge was 17.22 yesterday, up from 16.89 the previous day, and compares with this year’s average of 22.66. 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 to 70.06.

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