Most Chinese stocks traded in New York fell amid speculation the U.S. regulator’s move to sanction auditors over their investigation into China-based companies is deterring investors.
The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. was little changed 93.68 at the close, as 29 stocks declined and 23 rose. The gauge earlier retreated as much as 0.4 percent. ELong Inc., China’s second-biggest online travel agency, dropped to the lowest level in almost four months. AutoNavi Holdings Ltd., which provides map content to Apple Inc., had the biggest slump on record following Apple’s 6.4 percent slide on Dec. 5. New Oriental Education & Technology Group Inc. rebounded 6 percent from the biggest two-day drop since July.
The Securities and Exchange Commission accused the Chinese units of the Big Four accounting firms this week of blocking a probe into potential fraud by nine unnamed companies by withholding documents. Should companies be forced to delist because the U.S. and China can’t reach agreement on oversight, it would be “disastrous” for Chinese companies and investors, Louis Hsieh, New Oriental’s president, said yesterday. The Beijing-based education provider isn’t one of the companies being investigated by the SEC, Hsieh said.
The situation “would cast a negative cloud over Chinese equities in general,” Michael Shaoul, chairman of Marketfield Asset Management, which oversees $3.5 billion, including emerging-market assets, said by phone yesterday in New York. “The market is in the middle of pricing that regulatory risk into those securities. But we certainly wouldn’t see the sell-off as a buying opportunity.”
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., added 0.4 percent to $38.27 on its third day of gains. The Standard & Poor’s 500 Index rose 0.3 percent to 1,413.94 as investors weighed prospects for a budget deal in Washington and as Apple rebounded from its slump.
The SEC said in the Dec. 3 statement that China-based auditors, including Deloitte Touche Tohmatsu CPA Ltd. and Ernst & Young Hua Ming, have refused to cooperate with accounting investigations into the nine U.S.-traded companies. New Oriental, which tumbled 19 percent over Dec. 4 and 5, said itisn’t the Deloitte client referred to by the SEC, according to a statement dated yesterday.
“The risk of delisting in Chinese stocks is very small,” Michael Ding, lead manager of the China Region Fund at U.S. Global Investors Inc. in San Antonio, Texas, which oversees $2.2 billion, said by e-mail yesterday. “Having said that, an overhang until it is resolved will exist.”
New Oriental’s Hsieh said yesterday in a Bloomberg TV interview that a failure by Chinese and U.S. regulators to reach agreement over whether auditors can share financial information “would be disastrous for capital markets, would be disastrous for Chinese-based companies and disastrous for U.S. investors.” Shares of New Oriental jumped to $17.39 in New York, paring an earlier advance that was the most in five months.
AutoNavi, a Beijing-based company that provides digital map content for China to Apple and other Internet companies, tumbled 10 percent to $10.47 yesterday. Shares of Cupertino, California-based Apple plunged 8.1 percent in the previous two days after Nokia Oyj, the Finnish mobile-phone maker, unveiled a version of its flagship smartphone for China Mobile Ltd., the nation’s largest wireless carrier.
China Mobile’s American depositary receipts retreated 1.1 percent to $57.22, snapping a two-day advance. The ADRs traded 0.2 percent below China Mobile’s Hong Kong stock, the widest discount in three days. Each ADR represents five underlying shares.
The Hong Kong-based wireless carrier’s Chief Executive Officer Li Yue said at a conference in Guangzhou on Dec. 5 that he wouldn’t add the iPhone to the world’s largest wireless network without a deal that’s favorable for his company.
Web retailer E-Commerce China Dangdang Inc., the country’s biggest online book retailer, fell to the lowest level in three weeks. Known as Dangdang, E-Commerce dropped for a sixth day, sliding 3.7 percent to $3.95.
“Investors are a little bit scared because of this accounting dispute, which causes people to gravitate toward the Chinese stocks, not the American ADRs,” Stephen Leeb, the chief investment officer of Leeb Capital Management Inc. in New York, said by phone yesterday.
Spreadtrum Communications Inc., a mobile chipmaker based in Shanghai, climbed 3.1 percent to $17.37. Chardan Capital Markets LLC raised its rating on the shares to buy from neutral yesterday, lifting a 12-month price target by $1 to $21.
The Hang Seng China Enterprises Index advanced 0.3 percent to 10,865.07 yesterday in its third day of gains, while the Shanghai Composite Index of domestic shares slipped 0.1 percent to 2,029.24 as 604 stocks fell and 305 rose.