Bearish ETF Bets at 2007 High on Economy: China Overnight
Bets (FXI) on declines in the largest Chinese exchange-traded fund are surging to the highest level since 2007 on concern a slowdown in the world’s second-largest economy will stifle company earnings.
Short interest on the iShares FTSE China 25 Index Fund climbed to 48.6 million shares, or 3.2 percent of the total outstanding at the end of March, the most since June 2007, data compiled by Bloomberg show. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese stocks in the U.S. slumped 1.1 percent in New York last week, led by solar manufacturers.
Chinese economic growth slowed to 7.7 percent in the first three months of this year, government data released April 15 showed, missing the 8 percent median economist estimate. The Bloomberg China-US gauge fell to 11.7 times estimated earnings two days later, the cheapest level since September. Investors withdrew $256 million from the iShares ETF this month through April 18, after taking out $824 million in March, the most since January 2010, according to data compiled by Bloomberg.
“I am cautious,” Elena Ogram, who holds fewer Chinese stocks than global benchmarks in her $50 million portfolio of emerging-market assets at Bank Bellevue AG, said by phone from Zurich April 18. “There’s more uncertainty and less visibility. I am not expecting spectacular earnings from Chinese companies.”
Of the 55 companies on the China-US stock measure, 16 are scheduled to report quarterly earnings this week, including China Life Insurance Co., Yanzhou Coal Mining Co., Guangshen Railway Ltd. (GSH), China Petroleum & Chemical Corp. (386) and Baidu Inc.
Bona Film Group Ltd. (BONA), a Beijing-based film company, has lost 4.7 percent since April 1 when it unexpectedly reported earnings losses for the fourth quarter.
Adjusted income for China Petroleum, Asia’s largest refiner known as Sinopec, will probably decline to 0.22 yuan (3.6 cents) per share for the first quarter, from 0.24 yuan the previous three months, according to the average of two analysts estimates compiled by Bloomberg. The company is scheduled to report results April 25.
American depositary receipts of Beijing-based Sinopec tumbled 4 percent to $108.93 last week, the steepest weekly drop since February.
The iShares ETF ended last week 0.1 percent higher at $36.05, after sliding to the lowest level since Sept. 28 April 17. The fund, which tracks the FTSE China 25 Index (XIN0I) of the biggest Chinese companies, has slumped 11 percent this year, led by a 25 percent decline in Hong Kong-listed shares of China Coal Energy Co. and a 24 percent slide in shoe retailer Belle International Holdings Ltd. (1880)
The expansion of the Chinese economy accelerated for the first time in eight quarters at the end of 2012, stoking optimism that the nation would drive a global recovery. The disappointing first-quarter gross domestic product data pushed the Shanghai Composite Index (SHCOMP) to the lowest level since Dec. 24 April 15. The gauge of domestic Chinese stocks rallied 1.7 percent last week.
Shares of the China ETF on loan, or short interest, doubled from 24.8 million at the end of March 2012, Bloomberg data show. The short interest increased to 3.2 percent of total outstanding shares, from 1.39 percent a year earlier. Short sales involve borrowing a security such as a stock, then selling it in anticipation of a price decline.
The slower expansion in the first quarter is ``normal'' as China sacrifices economic growth to make structural reforms, People's Bank of China Governor Zhou Xiaochuan said in an interview at a meeting of the International Monetary Fund in Washington April 20.
China Telecom Corp., the nation’s biggest fixed-line carrier, rallied 3.6 percent April 19 to $48.33, trimming its weekly decline to 0.1 percent, after Morgan Stanley rated the company a top pick. The Beijing-based company has “strong execution, better earnings visibility and a rising dividend yield,” analysts led by Navin Killa wrote in a note April 19.
China Unicom (CHU), the country’s second-largest mobile-phone company, advanced 7.1 percent last week, the biggest five-day gain since November, to $13.68. China added 13.7 million new mobile phone subscribers in March, compared with 9.93 million in February, data from the Beijing-based Ministry of Information Industry show.
Guangshen Railway Ltd., which runs the only train line linking mainland China to Hong Kong, climbed 7 percent last week, the most in more than a month to $24.77 in U.S. trading. Shenzhen-based Guangshen and Daqin Railway Co. will benefit most from the reorganization of the Chinese rail system, China Galaxy Securities said in a note April 19.
E-House China Holdings Ltd. (EJ), a property agent based in Shanghai, increased 9.2 percent in the week, the most since January, to $4.64. E-House posted the biggest advance on the China-US index last week.
Housing prices in Guangzhou rose 11.1 percent from a year earlier, while those in Beijing climbed 8.6 percent and Shanghai posted a 6.4 percent increase, the National Bureau of Statistics said April 18. All cities showed the biggest gains since January 2011 when the government changed its methodology for the data.
LDK Solar Ltd., (LDK) once the world’s second-biggest maker of wafers used in solar panels, slipped 11 percent to $1.08 last week after it reported a seventh consecutive loss in the fourth quarter. Suntech Power Holdings Co., whose main unit was forced into bankruptcy after defaulting on a $541 million bond repayment last month, declined 13 percent to 65 cents.
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