Youku Leads Internet ADR Rally on Citigroup Buy: China Overnight
Chinese Internet equities traded in New York rose, as Youku Tudou Inc. (YOKU) surged to a one-month high, after Citigroup Inc. recommended buying the industry’s stocks.
The Bloomberg China-US Equity Index of the most-traded Chinese companies in New York rose 0.6 percent to a three-week high of 89.94 yesterday. Youku, which runs the country’s most popular video websites, climbed to the highest since Aug. 7 and Sohu.com Inc. (SOHU), China’s fifth-most visited website, rallied 3.7 percent as Citigroup started coverage of the stocks with a buy. China Eastern Airlines Co. (CEA) advanced after announcing a share sale plan to reduce debt.
Youku has strengthened its No. 1 position in video content and user traffic in China through a merger with Tudou, Muzhi Li, an analyst at Citigroup in Hong Kong, wrote in an e-mailed report yesterday. Sohu’s online search business is undervalued and shares should trade at $63.7, 55 percent higher than the closing level on Sept. 11, he said. The recommendation comes as Morgan Stanley cut its economic growth forecast for China to 7.5 percent after imports slid and industrial production cooled.
“Equity investors can’t be too bearish on China because they’ll lose the upside on consumption-driven Internet stocks,” Michael Ding, lead portfolio manager of the China Regional Fund at U.S. Global Investors, which oversees about $2 billion, said in a phone interview from Hong Kong yesterday. “The Internet is a part of the economy that has nothing to do with exports or infrastructure spending.”
China ETF Gains
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., climbed 1.1 percent to a two-week high of $33.78. The Standard & Poor’s 500 Index of the biggest U.S. shares added 0.2 percent in its second day of gains to 1,436.56, as a German court cleared the way for Europe’s bailout fund and investors weighed prospects for stimulus measures from the Federal Reserve.
Youku, based in Beijing, surged 5.3 percent to $18.79, extending its rally to 5.7 percent since Aug. 23, when its acquisition of Tudou Holdings Ltd. was completed. Shares of Sohu leaped to $42.50, the highest level since Aug. 24.
Sohu’s businesses include a website portal, an online search engine called Sogou, a video division and the U.S.-listed Changyou.com Ltd. (CYOU), its online games unit.
“Traditionally, investors have viewed Sohu’s portal as the core asset – the traffic distribution channel for video, search and others,” Li wrote in the report. “However, we believe the reality is exactly the opposite: Sogou and video are the core strategic assets.”
China Eastern, the nation’s second-largest carrier by passenger numbers, advanced 4.5 percent to $15.77, the most since July 27. Trading in the shares was suspended for four days ahead of the announcement.
The airline’s board approved a plan on Sept. 11 to sell 698.9 million Shanghai-listed shares priced at 3.28 yuan apiece and 698.9 million Hong Kong-listed shares costing HK$2.32 each, it said in a stock-exchange filing. China Eastern will raise 2.29 billion yuan ($361 million) from the Shanghai stock sale and HK$1.62 billion ($209 million) in the Hong Kong offering, it said.
Renren Inc. (RENN), which operates a real-name social networking website in China, declined 1.1 percent to $3.81 after Citigroup started coverage with a sell rating, estimating a fair value of $2.94 for the stock, 22 percent lower than its Sept. 11 level.
Beijing-based Renren needs to redefine its strategy to drive value, Citigroup said.
Suntech Power Holdings Co., the world’s largest solar-panel maker, advanced 5.6 percent to 85 cents in New York trading. Trina Solar Ltd. (TSL), the fourth-largest, increased for a third day, rising 5.7 percent to $4.47. LDK Solar Co. gained 0.8 percent to $1.28.
China aims to have installed solar power generation capacity of more than 21 gigawatts by the end of 2015, according to the industry’s five-year plan posted yesterday on the website of National Development and Reform Commission, country’s top planning agency. China targets an annual power output of 25 billion kilowatt hours from solar generations by 2015, it said.
Separately, Wu Hailong, China’s ambassador to the European Union, said in Brussels yesterday the EU should consider the impact that trade investigations have on its relations with China. The EU last week opened a probe into allegations that European producers of solar panels, including Germany’s Solarworld AG, are harmed by Chinese rivals selling below cost.
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