China ADRs Slump as Alibaba Sales Slowdown Stokes Growth Concern

  • Online retailer was latest company to miss revenue estimates
  • Travel websites slide as yuan extends decline against dollar

U.S.-traded Chinese equities sank to a five-month low as Alibaba Group Holding Ltd. posted the weakest quarterly sales expansion in at least three years, fueling concern that the country’s slowing economy is eroding corporate profits.

The company’s second-quarter earnings report came a day after China devalued its currency’s fix against the dollar by 1.9 percent, roiling global markets. The Bloomberg China-US Equity Index slumped 2.4 percent to 113.61 in New York on Wednesday.

The stocks deepened their two-day slump to 7.3 percent as Alibaba, China’s biggest online retailer, was the latest company whose quarterly financial results showed the impact that the weakest economic expansion in 25 years is having on corporate sales and earnings. Tencent Holdings Ltd., the country’s second-largest Internet company, posted the slowest revenue growth since 2005. Ten out of the 13 most-traded Chinese companies listed in the U.S. that have provided quarterly sales projections gave estimates trailing what analysts had forecast, according to data compiled by Bloomberg.

“Results from companies from Alibaba, Tencent to JD.com have been disappointing with weaker-than-expected revenue growth or weaker guidance,” Gabriel Wallach, founder of North Grove Capital LLC in Boston which invests in Chinese stocks, said by phone Wednesday. “ADRs have been sold across the board on fears of a slowdown in China and further currency depreciation.”

JD.com, Tencent

Alibaba, which plunged 5.1 percent to $73.38, said Wednesday that revenue increased 28 percent to 20.2 billion yuan ($3.2 billion) for the three months through June, compared with the average projection of 20.9 billion yuan of 28 analysts compiled by Bloomberg. The company, which raised a record $25 billion in its U.S. initial public offering in September, said it will buy back $4 billion of stock over two years, following a 29 percent decline this year.

JD.com Inc., Alibaba’s smaller competitor, slipped 4.5 percent to $26.77, the lowest in six months. The ADRs have fallen for five days in a row.

Tencent, which owns China’s most-popular online messaging applications WeChat and QQ, reported second-quarter sales of 23.4 billion yuan, compared with analysts’ average forecast of 24 billion yuan. Its American depositary receipts tumbled 5 percent to $17.16.

Trip-booking websites Ctrip.com International Ltd. and Qunar Cayman Islands Ltd. plunged for a second day amid concern a weaker yuan will discourage Chinese from traveling abroad. The currency has dropped 2.8 percent against the dollar in the past two days.

Ctrip sank 2.4 percent to $70.24, extending its drop since Monday to 9.5 percent. Qunar fell 3.2 percent to $38.49, sliding 13 percent over the past two days.

Wednesday’s decline pushed the Bloomberg China ADR gauge’s 14-day relative strength index down to 32. Some technical analysts see an RSI of 30 as a signal a security is poised to rebound.

The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, which tracks mainland-traded stocks, fell 3 percent to $39.97. The iShares China Large-Cap ETF which is invested in Hong Kong-listed companies, dropped 2.2 percent to $40.01.

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