Best Quarter Since 2010 as Credit Easing Looms: China Overnight
Chinese equities traded in the U.S. posted their best quarter since 2010 on prospects policy makers will step up monetary easing to combat further slowing in the world’s second-largest economy.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. added 1.1 percent to 102.99 on March 30 in New York, bringing this year’s advance to 14 percent, the most since the third quarter of 2010.
Tudou Holdings Ltd. (TUDO), a video sharing website that agreed to be acquired by competitor Youku Inc. last month, was the biggest gainer on the gauge, surging 169 percent in the first quarter. Online book retailer E-Commerce China Dangdang Inc. (DANG) and social- networking website Renren Inc. recorded their first quarterly advances since starting trading in the U.S.
“The Chinese market will rally like crazy if they open up the liquidity flood gate again,” Uri Landesman, who helps oversee more than $1 billion, including Chinese equities, as managing general partner of New York-based hedge fund Platinum Partners LLP, said by phone on March 30. “The Chinese want a bigger growth number.”
After cutting banks’s reserve requirements by one percentage point since November, policy makers will probably reduce them the same amount by the end of the second quarter to free up lending, according to the median estimate of 15 analysts in a Bloomberg survey released on March 30. China is contemplating the lowest economic growth target in eight years as the European debt crisis and a faltering U.S. recovery impede demand for goods from the world’s largest exporter.
China ETF Climbs
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., gained 1 percent to $36.67 at the end of last week, extending its second straight quarterly gain to 5.2 percent.
American depositary receipts of Tudou, China’s second- largest online video company, jumped 169 percent in the first three months of 2012 for the first quarterly gain since its U.S. initial public offering on Aug. 16.
Youku, China’s largest video website, said on March 12 that it planned to buy Tudou in a stock swap. The announcement ignited a 157 percent one-day surge in Tudou’s ADRs, boosting the cost of the takeover by 40 percent to $1.29 billion, the most expensive takeover premium among pending deals around the world, data compiled by Bloomberg at the time showed. The deal currently values Tudou at $870 million.
Shanghai-based Tudou slid 1.7 percent on March 30 to a three-week low of $29.53. The ADRs reached a record-high $42.50 on March 13.
Beating Hang Seng
Youku, which means “excellent and cool” in Chinese and is based in Beijing, gained 40 percent in the first three months of the year in New York after three quarters of losses. The shares posted their biggest quarterly gain since the December 2010 IPO. Youku retreated 0.9 percent March 30 to a one-month low of $21.99.
The quarterly jump in the Bloomberg gauge of U.S.-traded Chinese stocks this year exceeded a 12 percent rally in the Standard & Poor’s 500 Index (SPX) and a 7.1 percent advance in the Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong. The Shanghai Composite Index (SHCOMP) -- whose A share market is only open to domestic investors and approved foreign institutions -- added 2.9 percent during the period.
China’s economy expanded 8.9 percent in the last quarter of 2011, the least since the three months to the end of June 2009. The pace of growth slowed to 9.2 percent last year from 10.4 percent in 2010. Premier Wen Jiabao said on March 5 that the government is targeting a 7.5 percent economic growth rate this year, after keeping the goal at 8 percent over the last seven years.
E-Commerce, China’s biggest online book seller known as Dangdang, surged 84 percent in the first three months of the year, the first quarterly gain since its IPO in December 2010. Dangdang’s ADRs jumped 7.9 percent on March 30 to $8.10.
Beijing-based Renren (RENN), which runs a social networking website where users are required to give their real names, surged 55 percent last quarter, the first advance since the company’s May IPO in the U.S. Renren’s ADRs were unchanged on March 30 at $5.52.
The Bloomberg measure of Chinese U.S.-traded stocks is trading at 24 times estimated earnings for member companies, compared with a multiple of eight times for the Hang Seng China Enterprise Index and 9.6 for the Shanghai gauge.
Cnooc Ltd. (883), China’s largest offshore oil explorer, rose the most in the first quarter among major state-controlled, U.S.- listed Chinese companies as 2011 profit beat analysts’ estimates due to climbing oil prices.
Cnooc’s 2011 net income jumped 29 percent in 2011 to 70.3 billion yuan ($11 billion), according to a March 28 statement. That beat the 2 percent advance reported by China Petroleum & Chemical Corp. (600028), whose refining unit posted an operating loss last year, and a 5 percent drop in net income for PetroChina Co., the country’s biggest oil producer, figures released last week showed.
ADRs of Cnooc advanced 1.5 percent to $204.29 on March 30, gaining 17 percent in the quarter. The ADRs, each representing 100 underlying shares in the company, traded 0.6 percent below Hong Kong shares, which added 0.3 percent March 30 to HK$15.96, or $2.06 per share.
China Petroleum, known as Sinopec, slipped 0.3 percent to $108.72 in New York, trimming its advance in the quarter to 3.5 percent. Sinopec’s ADRs traded 0.2 percent below its Hong Kong stock on March 30, from a 0.1 percent premium the day before. PetroChina’s ADRs added 2 percent to $140.53, taking its quarterly advance to 13 percent.
The People’s Bank of China has kept the benchmark one-year lending rate on hold since raising it to 6.56 percent in July, the highest level since 2008. The one-year cost of borrowing will be reduced this year, according to nine of 20 economists surveyed by Bloomberg. Six see a decline in the 3.5 percent deposit rate. China hasn’t cut benchmark rates since the global financial crisis.
“Chinese stocks are very sensitive to policies,” said Qiwei Wang, a London-based economist at Capital Economics Ltd. who focuses on China’s economy and markets. “We expect China to lower banks’ reserve requirements further this year as data showed economic conditions are still weak,” and they will probably start to cut rates from the second half, Wang said.
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