Spreadtrum Drops on Fed as Ctrip Soars: China Overnight

Chinese stocks fell in New York for the first time in six days, led by Spreadtrum Communications Inc., on concern the Federal Reserve will step back from more stimulus, curbing inflows into emerging markets.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. dropped 0.2 percent to 95.67 in New York. Spreadtrum, a mobile chip-maker, sank. Internet travel agency Ctrip.com International Ltd. surged the most since 2008 as firms including Bank of America Corp. boosted their recommendations on the shares, while AutoNavi Holdings Ltd. advanced a ninth day amid takeover speculation.

The China-US gauge reversed an earlier gain of as much as 0.1 percent after Fed Bank of Philadelphia President Charles Plosser said the benefits of the U.S. debt buying program were “pretty meager.” Chinese government data showed the producer price index fell more than economists predicted last month and an editorial in the state-run China Securities Journal opined that the nation doesn’t need economic stimulus as leaders’ tolerance for slowing growth will be higher than the market’s.

“There was a rumor that the Federal Reserve was going to taper its bond buying,” Greg Lesko, managing director at Deltec Asset Management LLC where he helps manage about $750 million including investments in Chinese stocks, said by e-mail in New York. “A correction should be expected. But I don’t think the economic data is so strong that the Fed would move yet.”

ETF Retreats

The iShares FTSE China 25 Index Fund, the largest Chinese exchange-traded fund in the U.S., lost 1 percent to $38.22 in New York, the first decline in six days. The Standard & Poor’s 500 Index dropped 0.4 percent to 1,626.67 after reaching a record high May 8.

Spreadtrum, based in Shanghai, tumbled 7.8 percent to $19.26, the steepest one-day slump in five months. The company’s profit margin narrowed to 10.7 percent in the first quarter from 15 percent a year ago, according to data compiled by Bloomberg.

“We remain more cautious given strong incumbent competition and the likely research and development investments needed” to carry out a plan for new products, Michael Walkley, an analyst at Canaccord Genuity Inc., wrote in a note to clients yesterday where he maintained a hold rating on the stock.

HSBC Holdings Plc. cut Spreadtrum to the equivalent of hold yesterday.

Crude Producers

Chinese oil producers fell after crude declined. China Petroleum and Chemical Corp. slid 1.8 percent to $111.11, retreating from the highest level since April 12. American depositary receipts of PetroChina Co. dropped 0.7 percent to $131.11, falling for the first day this week, while Cnooc Ltd. lost 1.4 percent to $189.99, the first decline in six days.

China Life Insurance Co., the nation’s biggest insurer, sank 2.8 percent to $42.36. The Beijing-based company’s ADRs traded 0.9 percent below its Hong Kong stock, the first discount since April 26, data compiled by Bloomberg show.

Ctrip, the biggest online travel agency in China, surged 26 percent to $29.93 in New York, the biggest daily advance since September 2008.

The Shanghai-based company said May 8 that first-quarter revenue jumped 27 percent from a year earlier to $187 million, exceeding the $171.9 million mean of eight analysts’ estimates compiled by Bloomberg. Net income for the period also beat the average projection. Ctrip forecast sales growth of as much as 20 percent for the second quarter.

‘Pay Off’

“Investors were looking for a mess because of Ctrip’s profit margin issues due to its promotions, but it not only beat in first-quarter earnings but also raised second-quarter sales guidance,” Kirk Adams, director of research at Wedge Partners Corp. said by phone from Greenwood Village, Colorado. “Obviously their investments in the business are starting to pay off now.”

Morgan Stanley analyst Philip Wan raised his recommendation on Ctrip to the equivalent to buy from equal-weight, according to a note yesterday. He cited a “solid” performance across the board. Wan also lifted his price target for the stock by 50 percent to $30.10.

Analysts at Bank of America and CLSA Ltd. also upgraded the company to buy yesterday.

E-Commerce China Dangdang Inc., the nation’s biggest online book retailer, jumped 3 percent to $4.48 in U.S. trading, the highest close since January.

AutoNavi Stake

AutoNavi Holdings Ltd., a digital map content provider, added 1.2 percent to $14.77, the highest price since September 2011.

Alibaba Group Holding Ltd., China’s biggest e-commerce company, will buy a 20 percent to 30 percent stake in Beijing-based AutoNavi, Sina Corp.’s news service reported on its website citing several people it didn’t identify. The deal may be announced May 13, according to the report.

Speculation of investment in AutoNavi comes after Baidu Inc. said May 7 that it was buying PPS Net TV’s Internet video business to merge it with video website iQiyi.com, and after Alibaba bought 18 percent of Shanghai-based Sina’s Twitter-like Weibo service April 29.

“There is upside room for potential acquisition targets when many M&A activities are going on in the industry,” Echo He, a senior analyst at Maxim Group LLC in New York, said by phone yesterday. “Alibaba is buying businesses to expand its position in the mobile space before a planned initial public offering.”

Helen Zhu, AutoNavi’s investor relations manager in Beijing, declined to comment on “rumors or market speculation,” according to an e-mail yesterday.

The Shanghai Composite Index slid 0.6 percent to 2,232.97 yesterday after rising in the previous four days, while the Hang Seng China Enterprises Index in Hong Kong retreated 0.2 percent to 11,266.89, dropping from the highest level in almost two months.

(Corrects story to remove reference to Spreadtrum’s sales forecast being below estimates in second paragraph.)
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