China ADRs Drop as Factory Stabilization Eases Stimulus Urgency

  • Manufacturing PMI signals improvement for second month
  • Search-engine Baidu leads decline as regulators investigate

U.S.-traded Chinese stocks fell to the lowest in a month as fresh data showing stabilization in the Asian nation’s economy rekindled concern that the government will provide less stimulus this year.

Baidu Inc.’s American depositary receipts posted a decline of 7.9 percent to $178.91, the steepest since July amid a regulatory probe. It was the second-worst performance in the Bloomberg China-U.S. Equity Index, which dropped 1 percent to 116.57 at the close in New York. Markets in China and Hong Kong were closed Monday for a holiday.

China’s official factory gauge stood at 50.1 percent in April, a second month above the level of 50, which indicates improving conditions, the nation’s statistics bureau reported over the weekend. The report came after the central bank last month signaled less of an appetite for expanding monetary stimulus after China’s economy gathered pace in March with a surge in new credit.

“There’s a lot of confusion and uncertainty around what the next policy response will be,” Ankur Patel, the chief investment officer at R-Squared Macro Management, said by phone from Birmingham, Alabama. “Without any additional moves, investors aren’t willing to take on too much risks in China.”

Baidu Investigation

Baidu, which operates China’s biggest search engine, fell 7.4 percent to $179.97. Regulators have begun an investigation into the company’s practices after the death of a college student linked to search information triggered a debate about its obligation to police its network.

“The announcement of an investigation into Baidu is a reminder to all investors what a strong role government regulators play in the Internet business in China,” David Riedel, president of New York-based Riedel Research Group Inc. who has a hold rating on the stock, said by e-mail. “This is an extension of the policy that holds companies responsible for comments and content that others put online through their systems.”

The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF the biggest U.S. exchange-traded fund investing in mainland shares, added 0.1 percent to $23.95. The iShares China Large-Cap ETF fell 0.2 percent to $33.47.

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