Chinese Stocks Advance in Volatile U.S. Trading; ETF Advances

  • Price swings in Bloomberg ADR index near widest since 2011
  • Biggest A-shares ETF in U.S. posts first inflow in a month

Chinese stocks trading in New York rose from a two-year low in volatile trading as investors weighed the potential of unprecedented state intervention to prop up the economy and financial markets against signs that growth is faltering.

The Bloomberg China-U.S. Index increased 0.8 percent to 94.84 in its second gain in four days. Online game company NetEase Inc. contributed the most to the advance, rallying 3.7 percent. Melco Crown Entertainment Ltd., a Macau-based casino operator, slumped to the lowest since November 2012 as Nomura Holdings Inc. said the impact on the gambling enclave by junket operators reducing credit may be worse than it had expected.

Price swings in the Bloomberg index of U.S.-traded Chinese companies are near the widest since late 2011 following a rout that pushed the gauge down more than 33 percent from its June peak. The government has implemented unprecedented measures to prop up economic growth and quell a selloff in mainland equity markets. Meanwhile, there have been signs that the slowdown in gross domestic product expansion is worsening. Uncertainty about the timing of a U.S. interest rate increase is also contributing to the volatility, said Tony Hann, a money manager at Blackfriars Asset Management.

“The markets have really struggled to find any direction after the Fed’s decision not to raise interest rates,” Hann, who helps manage $350 million, said by phone from London. “We find the stocks on a day-to-day basis are very volatile. You could perhaps take a view that a lot of bad news is being discounted, but that isn’t to say share prices won’t go lower.”

Economic Slowdown

The Federal Reserve this month decided not to raise the near-zero interest rates that have supported demand for riskier assets in developing nations. Traders are split on whether the Fed will raise rates this year. They are pricing in about a 40 percent chance of an increase in December, and a 47 percent probability in January, data compiled by Bloomberg show.

China’s industrial profits in August dropped the most in at least four years, according to government data on Monday. An official manufacturing report this week will probably show a contraction, according to economists surveyed by Bloomberg.

China has tried to bolster the weakest GDP growth in 25 years with measures including five interest-rate cuts since November and a surprise currency devaluation last month. The chance of a bank reserve-ratio cut before Thursday is “exceptionally high,” due to weak Chinese economic data and a short-term liquidity drain, Aviate Global LLP wrote in a research note this week.

NetEase, Melco Crown

NetEase dropped to $118.59, a one-week low. Melco Crown slumped 5 percent to $13.58. A government crackdown on corruption combined with an economic slowdown in China has curbed spending by high rollers in Macau, prompting some junket operators to reduce the amount of credit they’re offering. Nomura analyst Harry Curtis said the situation may be “even worse than we expected” after Neptune Group Ltd. warned that it may have to stop operating in Macau.

The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, which tracks mainland-traded stocks, rose 1 percent to $32.09. Traders added $8.1 million to the fund on Monday, its first inflow since Aug. 31, according to data compiled by Bloomberg.

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