ETF Surges as Manufacturing Index Propels Gains
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., climbed to a six-month high as expanding factory output added to signs the economy is awakening from a seven-quarter slowdown.
The iShares FTSE China ETF rallied 2.6 percent to $37.75 yesterday, the strongest since May 3. Qihoo 360 Technology Co. (QIHU) drove a 2.1 percent surge in the Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese stocks in New York. AsiaInfo-Linkage Inc. (ASIA), a software developer mulling a buyout proposal, soared 6.5 percent after issuing a fourth-quarter forecast that beat analysts’ estimates. China Petroleum and Chemical Corp. traded at the widest premium to its Hong Kong shares since September.
Chinese manufacturing expanded for the first time in three months in October as output rose and new orders came in, a purchasing managers’ index released yesterday by the government and the China Federation of Logistics and Purchasing showed. Coupled with reports last month showing industrial production rebounded and retail sales rose the most in six months, the data bolsters the outlook for the world’s largest exporter.
“Investors were looking for some signs of stabilization in the growth, and the purchasing managers’ index is one of those signs,” Audrey Kaplan, lead manager of the $532 million Federated InterContinental Fund at Federated Global Investment Management, said by phone in New York yesterday. “People’s confidence in Chinese equities is picking up. It looks like the beginning of a rally.”
MSCI China’s Gain
The Bloomberg China-US gauge jumped to 95.83 yesterday in its steepest advance in a month. The Standard & Poor’s 500 Index added 1.1 percent to 1,427.59, paring a 2 percent slump in October, as U.S. employment and manufacturing reports topped economists’ estimates.
The Shanghai Composite Index (SHCOMP) of Chinese domestic shares surged 1.7 percent to 2,104.43 yesterday after losing 0.8 percent last month. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong climbed 1.1 percent to 10,701.21 after posting a monthly gain of 7.6 percent in October.
The MSCI China Index (MXCN) has advanced 13 percent this year, compared with gains of 21 percent in a similar gauge for India. Russian stocks added 3.8 percent, while Brazil’s dropped 5.2 percent. The Chinese measure may climb at least 15 percent in 2013, Kaplan said.
AsiaInfo, which sells telecommunications software to China’s largest phone carriers, surged to $10.65 in New York, in the steepest rally since Aug. 6.
The Beijing-based company expects fourth-quarter adjusted net income of 40 cents to 43 cents per share, surpassing the 35- cent average estimate of four analysts surveyed by Bloomberg. The company posted earnings per share of 6 cents in the third quarter, compared with the median analysts’ projection of 7 cents, according to a statement dated Oct. 31.
AsiaInfo also said it is still evaluating an offer received in January from CITIC Capital China Partners II to take the company private, adding that it is considering other options and there is “no assurance” that the deal will be completed.
“Shares will continue to trade on the offer to take AsiaInfo private,” James Friedman, a senior analyst at Susquehanna International Group, wrote in a report yesterday. “But fundamentally, the third quarter was decent and fourth- quarter guidance surprisingly strong.”
Qihoo, which owns China’s most popular Web browser and started an online search engine in August, jumped 6.1 percent to $21.82, the biggest one-day gain since Aug. 22.
Twelve Chinese Internet search companies, including Baidu Inc. (BIDU), the biggest, and Qihoo, signed a code of conduct yesterday in Beijing seeking to protect users’ privacy and refrain from improper competition, the Sina Corp. news service said on its website. The agreement was reached under the guidance of the nation’s Ministry of Industry and Information, according to the report.
China National Radio said in an Oct. 27 report that the ministry had started to review a case in which an Internet user accused Qihoo’s browser of privacy infringement, citing ministry spokesman Zhang Feng.
“Investors had worried that Qihoo would get punished after the government started the investigation,” Echo He, an analyst at Maxim Group LLC in New York, said in a phone interview yesterday. “The signing of this conduct code means that it isn’t likely to happen, relieving people’s concern.”
China Petroleum, Asia’s largest refiner, climbed 4 percent to $109.43, the biggest advance since January. The company known as Sinopec’s ADRs, each reach representing 100 underlying shares, traded 1 percent above its Hong Kong stock, the highest premium since Sept. 14.
Sinopec’s parent China Petrochemical Corp. is considering an acquisition of French oil explorer Etablissements Maurel (MAU) & Prom, three people with knowledge of the matter said, asking not to be identified as the deliberations are private. A deal could value Maurel at more than $2 billion, two of the people said. Buying Maurel would allow the group to boost oil output in African countries including Gabon while avoiding the regulatory scrutiny that’s held up Chinese deals in the U.S. and Canada.
Thirty-day volatility in the China-US gauge rebounded to 15.77 yesterday from 15.13 the previous day, the lowest level since May 2011. Those readings compare with this year’s average of 22.9. The Bloomberg Chinese Reverse Mergers Index (CHINARTO), which tracks a basket of companies that gained U.S. listings after buying firms that already trade, jumped 2.1 percent to 73.39, the strongest close since May 14.
U.S. President Barack Obama and candidate Mitt Romney both say an undervalued yuan gives China an unfair edge in trade, with Romney threatening to label the nation a “currency manipulator.” The yuan is forecast to depreciate 1 percent to 6.3 against the greenback by the end of this year as the currencies of Brazil, India and Russia strengthen, according to median estimates of analysts surveyed by Bloomberg.
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