Baidu Drives ADR Drop After 5-Week Surge: China Overnight

Chinese equities fell in New York, led by Baidu Inc. and solar stocks, on speculation a five-week rally in the benchmark index of U.S.-traded shares is overdone.

The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. dropped 0.9 percent to 100.77 yesterday, the biggest slide in two weeks. Baidu, owner of China’s most-used web search engine, dropped the most in a month after Barclays Plc cut its rating on the stock, while Suntech Power Holdings Co. fell the most since October 2011. Oil producer Cnooc Ltd. slid to trade at the widest discount to its Hong Kong shares in eight days.

The China-US gauge surged 5.1 percent last week, the steepest advance since September and extending the longest stretch of weekly rallies since February, as manufacturing data added to signs the world’s second-largest economy is emerging from its slowdown and U.S. lawmakers reached a budget deal. China’s CSI 300 Index of mainland-traded stocks entered a bull market yesterday, after gaining 20 percent from its 2012 low.

“It’s unrealistic to expect the stocks to continue to go along as far as they have,” Mark Luschini, the chief investment strategist at Janney Montgomery Scott LLC, which manages $54 billion in assets including Chinese equities, said in a phone interview from Philadelphia yesterday. “Chinese equities are poised to move higher over the course of the upcoming year. This is not going to be a linear progression at this annualized pace like what we’ve seen in the past few weeks.”

ETF Slips

The iShares FTSE China 25 Index Fund, the largest Chinese ETF in the U.S., sank 0.8 percent to $41.29 in New York yesterday, after jumping 5.2 percent last week. The Standard & Poor’s 500 Index slipped 0.3 percent to 1,461.89, paring last week’s 4.6 percent advance, as investors waited for the start of the U.S. company earnings season.

Baidu dropped 2.3 percent yesterday to $102.29 in New York, the biggest slump since Dec. 5. The Beijing-based company’s smaller competitor, Qihoo 360 Technology Co., climbed 2.6 percent in a sixth day of gains to $32.49, the highest level since April 2011.

Barclays analyst Alicia Yap cut her recommendation on Baidu to equal-weight, the equivalent of hold, from overweight yesterday, and reduced the price target by 18 percent to $113, according to a client note. Gains in Baidu’s shares will be limited by risks to its earnings, a lack of clarity on its mobile Internet strategies, and Qihoo’s monetization of its search traffic, Yap wrote.

Suntech, LDK

Echo He, a senior analyst at Maxim Group LLC, raised her price estimate for Qihoo by 32 percent to $37 yesterday, saying the Beijing-based company’s advertising partnership with Google Inc. will boost revenue in the first quarter. She maintained a buy rating on Qihoo’s American depositary receipts.

Suntech, the world’s largest solar maker, tumbled 21 percent to $1.48 in New York, the biggest decline since Oct. 3,

2011. The Jiangsu, China-based company’s ADRs rallied 34 percent last week, the steepest weekly gain since October 2011, after the Chinese government announced measures to boost domestic demand for solar energy. Trading volume on the ADRs was more than five times daily average over the past three months, Bloomberg data showed.

LDK Solar Co. retreated 11 percent to $1.9, while Yingli Green Energy Holding Co. sank 6.8 percent to $2.61. Trina Solar Ltd. lost 4.3 percent to $4.71.

China’s biggest solar manufacturers accumulated total debt of $17.5 billion by the end of third quarter, Taipei-based Digitimes reported yesterday, citing its research data. “Despite having government support, it is difficult to turn the situation around quickly,” according to the report.

Dangdang Gains

Cnooc, China’s biggest offshore oil explorer, dropped 2.2 percent to $219.95 yesterday, the biggest loss since Nov. 7. The producer’s ADRs, each representing 100 underlying shares, traded

0.5 percent below its stock in Hong Kong, the widest discount since Dec. 24.

New Oriental Education & Technology Group Inc., the nation’s biggest private educational company, slid 2.5 percent to $19.5, the biggest slump in a month.

Beijing-based New Oriental is scheduled to report earnings on Jan. 29 for the three months ended Nov. 30. The company may report net loss of $6.46 million, according to the average estimate of four analysts surveyed by Bloomberg. That would be the first quarterly loss since the quarter ended May 31, 2007. Analysts’ sales projection of $166 million compared with the company’s forecast of as much as $171.6 million given in October.

E-Commerce China Dangdang Inc., the nation’s largest online book retailer, advanced 6.8 percent to $4.69, the highest price since Nov. 28. Youku Tudou Inc., owner of China’s most-popular video websites, increased 4.4 percent to $20.34, the highest level since Oct. 25.

Melco Advances

ABR Investment Strategy LLC yesterday gave Youku a new rating, equivalent to buy, and set a price target of $24.

Melco Crown Entertainment Ltd., the Macau casino operator, jumped 5.8 percent to $19.25 yesterday, the highest level since February 2007. Its ADRs traded 2.8 percent above Hong Kong shares, reversing discounts in the previous two days.

Gaming revenue in Macau may rise 18 percent this month from a year earlier to about 29.5 billion patacas ($3.7 billion), David Bain, an analyst at Sterne Agee Group Inc., wrote in a note yesterday. That was up from his previous estimate of 15 percent growth, and may exceed a monthly record of 28.2 billion patacas in December, he said.

The Shanghai Composite Index of domestic Chinese shares added 0.4 percent to 2,285.36 yesterday, closing at the highest level since June 20. The Hang Seng China Enterprises Index advanced 0.3 percent to 11,937.07, after climbing 4.9 percent last week.

‘More Money’

The Chinese economy is poised to grow 8.1 percent this year, from 7.7 percent in 2012, according to the median estimates of 49 economists surveyed last month by Bloomberg. The world’s second-largest economy is capable of growing in excess of 8 percent annually over the next 20 years should the nation undertake reforms, Lin Yifu, a former World Bank chief economist, said at a conference yesterday at the New York Stock Exchange.

China’s CSI 300 Index, which tracks 300 yuan-denominated A shares traded in Shanghai and Shenzhen, gained 0.5 percent to 2,535.99 yesterday. The index has rebounded 20 percent since hitting a near four-year low Dec. 3, signaling a bull market.

“China is going to look good this year because they are doing all they can to revive the A market,” Mark Mobius, who oversees more than $40 billion at Templeton Emerging Markets Group, said in an interview in Kuala Lumpur yesterday.

“As the Chinese government opens up, you’re going to see more money going into the A from foreigners.”

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