NetEase Leads Decline as Xi Cautions on Economy: China Overnight

Chinese equities in New York fell the most in a week, led by NetEase Inc. and Hollysys Automation Technologies Ltd., as President Xi Jinping signaled caution on the economic expansion in 2014.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in New York fell 0.4 percent to 107.71 in New York, the biggest retreat since Nov. 25. NetEase, a web game operator, declined the most in more than two weeks, as Citigroup Inc. said competition in China’s Internet industry intensifies. Hollysys dropped for a second day after its Chairman Changli Wang resigned.

The environment for economic and social development next year isn’t optimistic, Xi said at a symposium on Nov. 22, the official Xinhua News Agency reported yesterday. China may set its 2014 growth target at 7 percent, down from 7.5 percent this year, the Economic Information Daily said yesterday, citing research groups. The average valuation of companies on the China-US gauge is at a 28 percent premium to the multiple of emerging-market peers.

“My view is negative,” John-Paul Smith, a London-based emerging-market strategist at Deutsche Bank AG, said by phone yesterday. “It’s going to be a very volatile market throughout 2014. It’s very difficult to find companies with good fundamentals and attractive valuation.”

Excessive Debt

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., dropped 0.9 percent to $39.43, the lowest since Nov. 26. The Standard & Poor’s 500 Index fell for a third day, dropping 0.3 percent, as investors weighed reports on car and retail sales before economic data this week that may offer clues on when the Federal Reserve will reduce stimulus.

American depositary receipts of Aluminum Corp. of China Ltd., the nation’s biggest producer of the metal, fell 1.3 percent to $9.07. The ADRs traded 1.7 percent below the shares in Hong Kong.

While industrial investment is picking up and the Ministry of Commerce says retail sales will rise more than 13 percent this year, China faces headwinds that include factory overcapacity, excessive corporate debt and slower export demand.

Premier Li Keqiang said in October that China needs annual growth of 7.2 percent to keep unemployment stable after indicating in July his “bottom line” for expansion was 7 percent. This pace of growth would be the slowest since 1990, according to data compiled by Bloomberg.

One-Child Policy

China last month vowed to allow more private investment in state-controlled industries, loosen its one-child policy and better protect farmers’ rights in the most sweeping reforms in two decades. The government also pledged to elevate the role of markets in the world’s second-largest economy.

“The reform announced is a positive surprise, but the devil is in the details,” Elena Ogram, a Zurich-based investor at Bank Bellevue AG, who oversees $50 million in emerging-market assets including Chinese stocks, said by phone yesterday.

NetEase declined 4 percent, the most since Nov. 14, to $69.31. China’s Internet industry is expected to consolidate in 2014 as segments including search, mobile-game distribution, e-commerce and online video face “severe” competition, Citigroup’s analysts led by Muzhi Li wrote in a note yesterday.

Citigroup’s top picks include Tencent Holdings Ltd., Baidu Inc., SouFun Holdings Ltd. and Vipshop Holdings Ltd.

SouFun, the nation’s biggest real-estate website owner, jumped 6.5 percent to a record $76.54. Vipshop, an online retailer, rose 1.1 percent to $85, while Baidu, owner of China’s largest search engine, fell 1 percent to $167.05.

Hollysys, an automation system manufacturer, declined 2.7 percent to $17.41. The company said on Dec. 1 that Wang resigned as chairman and chief executive officer. Jianfeng He, who was chief operating officer, was elected chairman, while Baiqing Shao, a senior vice president, became CEO.