China’s 2-to-1 Profit Surprise Ratio Spurs Stock Rally
Bitauto Holdings Ltd. (BITA) and Cheetah Mobile Inc. (CMCM) soared in August after posting earnings that beat analyst estimates, helping extend a rally in U.S.-traded Chinese equities that began in April.
Bitauto, an automobile pricing website, soared 62 percent last month while mobile software developer Cheetah jumped 38 percent. The Bloomberg China-US Equity Index rose 2.8 percent in August for the fourth month of gains, pushing its increase during the period to 17 percent. China Mobile Ltd. (941), the world’s biggest mobile-phone carrier by users, rose the most since 2008. American equity markets are closed today for a holiday.
At least 44 of 65 companies in the China-US gauge have reported results that exceeded average profit estimates for the second quarter, according to data compiled by Bloomberg. The earnings are catching analysts off-guard after they had cut projections for some companies that figured to be hurt the most by China’s economic slowdown.
“Certainly seems like larger names have more or less shown better-than-expected profits likely due to low expectations and some focus on costs,” Jeff Papp, an analyst at Oberweis Asset Management Inc. who helps oversee more than $1.5 billion, said in an Aug. 29 e-mail. In the online-services sector, “you are still seeing very strong adoption of mobile Internet products.”
Bitauto’s second-quarter adjusted profit beat analysts’ mean estimates by 18 percent, according to data compiled by Bloomberg. It closed at $87.83 on Aug. 29, finishing its best month since a 2010 initial public offering. The company recently announced joint ventures with a dealership group and a car auction service provider in the world’s biggest auto market.
Cheetah, based in Beijing, posted sales that were 10 percent higher than projections and provided a third-quarter revenue forecast that surpassed the average analyst estimate compiled by Bloomberg before earnings were issued. Cheetah has gained 88 percent to $26.37 since its U.S. share offering in May.
Premier Li Keqiang’s government has promoted railway spending, cut some banks’ reserve requirements and reduced taxes to protect an annual growth goal of about 7.5 percent that’s been under threat from a weakening real estate market.
The government is pushing telecommunications operators to reduce marketing costs, which may boost profit. China Mobile said Aug. 14 it will cut $2 billion in smartphone subsidies, after a state agency told the carriers to cut promotional expenses because of overspending on phone subsidies and advertising, according to people familiar with the matter. China Unicom (Hong Kong) Ltd. and China Telecom Corp. both said they plan to cut spending.
China Mobile jumped 14 percent last month to a six-year high of $62.28. China Telecom rose to $61.51 after a 10 percent gain and China Unicom added 2.1 percent to $17.73.
“In the telecom sector, second-half earnings will be good as you see these handset subsidy reductions will contribute to their bottom line,” David Riedel, president and founder of Riedel Research Group in New York, said in a phone interview on Aug. 29 from San Francisco.
The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., ended August unchanged at $40.47, after posting three months of gains. The Standard & Poor’s 500 Index (HSCEI) climbed 3.8 percent to a record.
The Hang Seng China Enterprises Index declined 1.5 percent to 10,963.59 in August, the first monthly retreat since April. The Shanghai Composite Index (SHCOMP) rose 0.7 percent to 2,217.20 last month.
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