Melco Leads ADR Drop on Europe Concerns: China Overnight

Chinese equities fell in New York for a third day, led by Melco Crown Entertainment Ltd., on concern political turmoil in Europe will derail the recovery of China’s biggest trading partner from its debt crisis.

The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. dropped 0.2 percent to 97.49 by 2:59 p.m., set for the lowest close this year. Melco, a Macau casino operator, slid the most in two months on a report China will crack down on junkets bringing gamblers to the city. Spreadtrum Communications Inc. retreated after jumping the most in nine months Feb. 5, while Aluminum Corp. of China erased a premium to Hong Kong shares as it will be removed from the Hang Seng Index.

Chinese stocks in the U.S. have slipped 3.5 percent this week to the lowest average valuation in a month. Spanish Prime Minister Mariano Rajoy is facing calls to resign and former Italian Premier Silvio Berlusconi, who opposes austerity measures aimed at helping the nation emerge from its economic contraction, is leading in polls before elections this month.

“The retreat in Chinese equities is mainly caused by negative sentiment from Europe,” Tony Hann, who oversees $400 million of assets as head of emerging-market equities at Blackfriars Asset Management Ltd., said by phone from London yesterday. “Concerns about Europe are coming back again as the underlying situation hasn’t changed much. So we’re seeing a bit of negative news flow.”

The iShares FTSE China 25 Index Fund, the largest Chinese exchange-traded fund in the U.S., dropped 0.6 percent to a five-week low of $40.36. The Standard & Poor’s 500 Index retreated 0.2 percent to 1,507.93.

Export Market

The Hang Seng China Enterprises Index gained 0.3 percent to 11,849.25 yesterday, capping a 3.6 percent jump in 2013. The Shanghai Composite Index of domestic Chinese shares advanced 0.1 percent to 2,434.48, climbing for an eighth day in the longest stretch of gains since February last year.

Europe is China’s biggest export market, taking 19 percent of Chinese shipments in 2011, according to International Monetary Fund data collated by the European Commission.

Companies on the China-US gauge traded at an average 13 times estimated forward earnings, the lowest level since Jan. 1, data compiled by Bloomberg show.

Melco’s American depositary receipts tumbled 6.6 percent to $19.29, the steepest slide since Dec. 4. The ADRs, each representing three underlying shares in the casino operator, traded 3 percent below its Hong Kong stock, the largest discount since Jan. 11.

Attract Gamblers

The Chinese government will start taking action later this month against operator of junkets that attract gamblers to Macau, the Times reported on its website yesterday, citing unidentified people in law enforcement. The action will involve police operations in six Chinese cities and is part of an anti-corruption campaign led by Xi Jinping, the Communist Party general secretary, according to the report.

Melco’s fourth-quarter profit was little changed from the previous year, according to a filing yesterday. Sales for the quarter increased 9.3 percent to $1.1 billion, compared with the $1.06 billion average of nine estimates compiled by Bloomberg.

Melco’s peers traded in Hong Kong from Galaxy Entertainment Group Ltd. to Sands China Ltd. and Wynn Macau Ltd. retreated yesterday.

The casino shares overreacted to the Times report, Daisy Lu, a Hong Kong-based analyst at JPMorgan Chase & Co., wrote in a note yesterday. David Bain, an Woodland Hills, California-based analyst at Stern Agee & Leech Inc., recommended buying the stocks, saying the decline provides an opportunity.

Chalco, Dangdang

Aluminum Corp., China’s biggest producer of the metal, also known as Chalco, slid 2.2 percent to $11.6. Its ADRs traded 0.9 percent below Hong Kong shares, from a 1.3 percent premium the previous day. One ADR equals 25 ordinary shares.

Hang Seng Indexes Co., the compiler of the Hang Seng Index, said yesterday Chalco will be removed from the benchmark and Lenovo Group Ltd. will be added.

Chalco was unchanged at HK$3.63 in Hong Kong trading yesterday while Lenovo climbed 4.7 percent.

Spreadtrum, a Shanghai-based chipmaker for mobile devices, lost 5.6 percent to $16.23 in New York, sliding the most since Dec. 10. Its ADRs surged 11 percent on Feb. 5, the largest rally since May.

E-Commerce China Dangdang Inc., China’s biggest online book retailer, advanced 4.7 percent to $4.22, poised for the biggest one-day gain since Jan. 14.

The company is among the first online retailers that will partner with the shopping website of Baidu Inc., the biggest search engine in China, according to a report yesterday on the website of Tencent Holdings Ltd.

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