Profit Drop at Carrier Widens Discount: China Overnight

China Mobile Ltd., the world’s biggest wireless carrier by users, led declines among Chinese companies traded in New York after reporting the biggest profit drop since 1999 for the third quarter.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. fell 1.1 percent to 106 yesterday, the first slump in four days. China Mobile’s American depositary receipts traded at the biggest discount to Hong Kong stock in two years and wealth management company Noah Holdings Ltd. dropped after surging 24 percent last week. Baidu Inc. retreated from a record high after the Wall Street Journal said the company will offer financial services online.

Hong Kong-based China Mobile said third-quarter net income fell 8.8 percent to a lower-than-estimated $4.7 billion as costs to build its new network rose and users switched to third-party messaging applications. While the Chinese economy is “stable and trending for the better,” the foundations of a rebound are “not yet firm,” the State Council said in a statement Oct. 20 after an Oct. 18 meeting led by Premier Li Keqiang.

“China’s mobile’s earnings weren’t good overall, and profit margin has narrowed due to increasing expenses,” Di Zhou, a Santa Fe, New Mexico-based equity analyst at Thornburg Investment Management, said by phone. “Concerns about rising competition from China Mobile’s smaller rivals in third-generation services and from third-party message service providers will remain until the second half of next year. The market expects China to issue 4G licenses later this year.”

Volatility Climbs

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., rose less than 0.1 percent to $38.18 in New York, after declining 0.5 percent last week. The Chicago Board Options Exchange China ETF Volatility Index, measuring predictions of price fluctuations in the ETF, slid for a fourth day. The Standard & Poor’s 500 Index was little changed as investors watched corporate earnings to assess the strength of the economy before jobless data.

China Mobile’s ADRs slumped 4.2 percent to $52.98 in New York, the largest decline in two months. Their 3.4 percent discount to Hong Kong shares was the widest since August 2011. Trading volume of the ADRs was 3.3 times the three-month average compiled by Bloomberg.

The company’s profit was 8.7 percent lower than the average estimate of five analysts in a Bloomberg survey. The carrier lacks a deal to sell Apple Inc.’s iPhone and said it faces “severe difficulties” from instant messaging apps such as Tencent Holding Ltd.’s WeChat. The operator faces “challenges and opportunities” as it moves toward fourth generation, Chairman Xi Guohua said in a statement yesterday. Its share of wireless users fell to 63 percent at the end of August from 68 percent a year earlier.

Noah, Baidu

China Unicom (Hong Kong) Ltd., the nation’s second-biggest mobile-phone company added 0.2 percent to $16.46 in New York. China Telecom Corp., the third largest, slid 0.8 percent to $53.16, the first decline in a week.

Noah Holdings, based in Shanghai, tumbled 4 percent to $20.22 in New York. Its ADRs have lost 10 percent over the past two days, after a seven-day rally sent it to a record high on Oct. 17. The company declined to comment on “unusual market activity or rumors” in an Oct. 15 statement, citing its policy.

Baidu sank 2.8 percent to $161.21, the most in two weeks. The Beijing-based company will introduce a new product next week on an Internet-only financial services platform, the Wall Street Journal reported yesterday, citing the company.

YY Inc., owner of a social entertainment website, fell 2.9 percent to $53.39, the largest retreat since Oct. 8.

The Hang Seng China Enterprises Index gained 0.2 percent to a four-day high of 10,668.20 yesterday, while the Shanghai Composite Index jumped 1.6 percent to 2,229.24, rising the most in a week.

TAL Education Group is set to report earnings for the three months ended Aug. 31 before U.S. market opens today. Adjusted net income may have risen 24 percent from a year earlier to $22.5 million, according to the average projection of three analysts surveyed by Bloomberg.

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