SMIC Slides on Downgrade as ADRs Decline: China Overnight

Chinese stocks fell in New York as Semiconductor Manufacturing International Corp. tumbled on an analyst downgrade and a government pledge to boost fuel standards sank China Petroleum and Chemical Corp.

The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. retreated 1.8 percent to a six-week low of 96.04 yesterday. American depositary receipts of chip foundry Semiconductor Manufacturing slid 12 percent after HSBC Holdings Plc cut it to neutral from the equivalent of buy. China Petroleum traded at its biggest discount to Hong Kong in three days. NetEase Inc., a web games developer, jumped the most since 2011 as fourth-quarter net income beat estimates.

Chinese U.S.-listed stocks have slumped 4.1 percent this month, after rallying 8 percent in December and January, while the average valuation on the China-US gauge has increased 12 percent from a Sept. 4 low to 13 times estimated earnings. The Shanghai Composite Index of domestic shares will drop about 8 percent before resuming gains because its 6.6 percent jump this year has exhausted buyers, according to Tom DeMark, chief executive officer and founder of Market Studies LLC.

“The market is overextended and the correction is healthy,” Elena Ogram, who manages $50 million in emerging market assets, including Chinese stocks, at Bank am Bellevue AG in Zurich, said by phone yesterday. “People are also looking for confirmation of the right market direction from more company earnings. We need to see a broader picture rather than just a few companies.”

ETF Plunges

The iShares FTSE China 25 Index Fund, the largest Chinese exchange-traded fund in the U.S., sank 2.3 percent to $39.52, the lowest level since Dec. 26. The Standard & Poor’s 500 Index fell 0.2 percent to 1,509.39 after a two-day advance.

The Hang Seng China Enterprises Index slipped 1.4 percent to 11,681.96 yesterday. The Shanghai Composite lost 0.7 percent to 2,418.53, ending its longest stretch of gains in a year.

Semiconductor Manufacturing, also known as SMIC, tumbled to $2.97, the biggest slump since May 31.

SMIC, based in Shanghai, said Feb. 6 that they expect first-quarter revenue will be in the range of a 2 percent drop to a 1 percent increase from the previous three months, when the company posted a record $485.9 million in sales. Net income of $39.7 million for the quarter through December beat the $11.4 million mean projection of analysts.

Sinopec Sinks

ADRs of China Petroleum, Asia’s biggest refiner known as Sinopec, lost 3.8 percent to $110.5, set for the lowest level since Dec. 7. A 0.9 percent discount in the ADRs to the Hong Kong stock was the widest in three days. Each ADR equals 100 underlying shares.

Oil refiners in China, the world’s biggest emitter of greenhouse gases, should accelerate plans to produce cleaner fuel, the nation’s cabinet said in a Feb. 6 statement. The government will publish new standards for diesel in June and gasoline in December, capping sulfur content at 10 parts per million, with the rules being implemented nationwide by 2017, the cabinet said.

Sinopec will spend about 30 billion yuan ($4.8 billion) a year to upgrade its plants to produce the fuel, Chairman Fu Chengyu said in an interview with CCTV.

Guangshen Railway Co., which operates trains in China’s Guangdong province, tumbled 5.7 percent to $20.43, the largest drop since June.

NetEase Advances

NetEase, operator of China’s second-largest games website, climbed 6.8 percent to $48.75, the steepest rally since October

2011. Trading volume on the shares was 2.8 times daily average over the past three months. Shares were the biggest gainers on the China-US gauge.

The Beijing-based company reported fourth-quarter earnings of $1.23 for each ADR, exceeding the $1.08 mean forecast of seven analysts surveyed by Bloomberg. Its total sales of $373.5 million for the three months also exceeded the mean estimate of $351.3 million.

Credit Suisse Group AG raised yesterday the price target for NetEase to $70, reiterating a rating equivalent to buy, while HSBC lifted it to $50.

BYD Co., the Chinese carmaker partly owned by Warren Buffett’s Berkshire Hathaway Inc., jumped 6 percent in a third day of gains in over-the-counter trading to $3.69. Trading volume was 2.5 times daily average in the past three months, data compiled by Bloomberg show.

The company is in “good position” to achieve its sales target of 2013, Leping Huang, an analyst at Nomura Holdings Inc. said in an interview yesterday. The Shenzhen, China-based company plans to sell 500,000 units this year, according to a statement on its website.

(Corrects SMIC sales outlook in eighth paragraph.)
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