Chinese ADRs Retreat as Slowdown Concern Saps Consumer CompaniesBy
Online retailer JD.com contributes most to ADR index decline
Biggest ETF tracking mainland shares declines for second day
Chinese stocks trading in New York slumped for the seventh time in eight days, led by consumer shares, as a report showing industrial companies’ profits dropped the most since 2011 stoked concern the magnitude of the country’s economic slowdown is worsening.
Consumer discretionary stocks fell the most in the Bloomberg China-U.S. Equity Index, which declined 2.3 percent to 94.08 on Monday, the lowest level since August 2013. Online retailer JD.com Inc. contributed the most to the gauge’s decline, slumping 4.8 percent. Its larger competitor, Alibaba Group Holding Ltd., slid 3.1 percent to the lowest since the company’s September 2014 U.S. debut.
Stocks sank as a larger-than-forecast 8.8 percent decline in industrial companies’ profits in August was the latest signal to traders that the slowdown in the world’s second-largest economy might be worse than forecast. Investors have been withdrawing Chinese assets amid the weakest expansion in gross domestic product in 25 years and a mainland market rout that wiped out as much as $5 trillion in equity value. U.S. fund managers cutting their exposure to the country before the end of the quarter is also driving the retreat, according to Peter Halesworth, founder of Heng Ren Investments LP.
“This is the final stage of de-risking of China by some funds as the end of the quarter approaches,” Halesworth, whose firm invests in Chinese stocks, said by e-mail. “So even though growth in China for consumption remains relatively solid, as evidenced by Nike and Apple’s recent results, it’s just a change in portfolio construction away from China exposure. Even the family silver gets sold.”
Consumption now contributes as much as 60 percent to China’s economic growth, almost 10 percentage points higher than in 2014, Li Wei, president and senior fellow of the Development Research Center of China’s State Council, said in a Bloomberg View column last week. Led by sectors such as information and e-commerce, China’s service industries now account for a larger share in the economy, outpacing manufacturing industries in 2014 by 5.4 percentage points, Li said.
JD.com fell to $24.69. Alibaba dropped to $57.39. Jumei International Holding Ltd, an online beauty product retailer, slid 3.3 percent to $9.50. Ctrip.com International Ltd., China’s largest travel website, lost 5.3 percent to $61.33.
The Bloomberg gauge of U.S.-traded Chinese stocks has plunged 33 percent from its peak in June. The selloff has prompted some of the biggest companies to pursue record share buyback programs. Alibaba said it plans to repurchase as much as $4 billion of stock over two years, while JD.com has authorized $1 billion for the purpose.
“E-commerce companies have been particularly weak among Chinese ADRs,” Alistair Way, an Edinburgh-based portfolio manager at Standard Life Investments, said by e-mail. “Their weak performance reflects sentiment rather than fundamentals -- global investors have been selling or shorting them in order to express a view on Chinese macro weakness.”
China’s GDP expanded 7 percent in each of the first two quarters this year, compared with a five-year average of 10.2 percent. Growth is forecast to slow to 6.9 percent for all of 2015, according to the median estimate of 50 economists surveyed by Bloomberg.
The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, which tracks mainland-traded stocks, fell 0.4 percent to $31.77, dropping for a second day. The decline came after a 0.3 percent gain in the Shanghai Composite Index, as a rally in technology companies overshadowed the slump in industrial profits.
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