China ADRs Fall to One-Week Low, Erasing Weekly Gain in New York

  • Brokerage probes add to concern government backpedals support
  • Netease, Leju lead Bloomberg China-US Equity Index decline

U.S.-traded Chinese stocks erased a weekly gain as a probe of the country’s biggest brokerages and signs the government is pulling back support for financial markets stoked concern that a rebound from this year’s low is losing momentum.

The Bloomberg China-U.S. Equity Index dropped 0.7 percent to 123.95 on Friday, the lowest since Nov. 20. Netease Inc. slumped 3.2 percent to $164, contributing the most to the decline. Leju Holdings Ltd., a Chinese property consulting firm slumped 6 percent to $5.76 in the steepest retreat in a week.

Chinese equity assets tumbled as brokerages including Citic Securities Co., Guosen Securities Co. and Haitong Securities Co. said they were under investigation for alleged rule violations. A rebound of the Bloomberg ADR gauge of as much as 32 percent from this year’s low had already begun to lose momentum as the government increased margin requirements and rescinded an order for securities firms to hold net-long positions. Those were included in a series of unprecedented support measures to prop up markets after a plunge in mainland stocks from June through August.

Investors also are concerned about the impact on the stock market of the resumption of A-share initial public offerings and the outlook for the yuan, said Xian Liang, a San Antonio, Texas-based portfolio manager at U.S. Global Investors Inc. “If you are not sure about how the market is going to hold up, why not book some profits and see?” he said by e-mail.

Qunar, 58.Com

The Bloomberg China-US Equity Index ended the week little changed. Online travel booker Qunar Cayman Island Ltd. rallied 18 percent to $43, the best performance in the gauge, after projecting a bigger increase in fourth-quarter sales than analysts had estimated. 58.com Inc., China’s classified advertisement site similar to Craigslist Inc., surged 9.5 percent to $58.10, the highest since July 31. The company said on Wednesday that it will spin off its used car platform.

Thirty-two of 51 U.S.-traded Chinese companies that have reported financial results for the most recent quarter exceeded analysts’ earnings estimates, according to data compiled by Bloomberg. Sixteen of 19 technology firms recorded better-than-expected earnings for the quarter, underscoring a shift in the economy to newer industries as a source of expansion and away from old-growth sectors including manufacturing and construction.

“The rebalancing of the economy showed strength in earnings through stocks in the Internet, consumer, health care and services industries,” Peter Halesworth, founder of Heng Ren Investments, whose firm invests in Chinese stocks, said by e-mail on Friday. “The next narrative for investment in China is emerging.”

The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, the biggest U.S. exchange-traded fund investing in mainland shares, slumped 7.3 percent to $35.10, the biggest weekly decline since September.

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