Stocks had an excellent run for the week, but for Wednesday when
property stocks took losses. The benchmark index touched a
seven-month high on Monday, following expectations of an increase
in the pace of banking sector reforms. Technology companies led
gains for the Shanghai composite on Tuesday, the sixth successive
day when stocks finished in the green.
Stocks declined on Wednesday after a slump in property
companies. However, the benchmark index rebounded today to post its
highest monthly gains since Dec 2012. Baidu, Inc.'s (
) earnings and revenue beat estimates during the second quarter of
2014. In contrast, Sohu.com Inc. (
) posted losses, which were narrower than estimates.
Last Week's Developments
Stocks rallied on Friday with the benchmark index posting its
largest weekly gains in three months. Markets seemed confident that
the Chinese economy can stabilise.
The Shanghai Composite Index gained 1% and moved up 3.3% for the
week. This was its largest weekly gain since April. The HSBC flash
PMI jumped to its highest level in one and a half years during the
week. Reforms by cities in property purchases also aided gains. The
CSI 300 increased 1.1% while the Hang Seng China Enterprises Index
moved up 0.5% to its best close since Dec 13.
Markets and the Economy This Week
The Shanghai Composite Index gained 2.4% to touch a seven-month
high on Monday. The benchmark index closed in the green for a fifth
successive session following indications of an economy recovery.
Gains were also fuelled by expectations that the government will
increase the pace of banking sector reforms.
The "Big Four" Banks gained 2-3.5% while smaller operators in
the sector increased over 5%. Analysts believe that such reforms
will increase efficiency for all state owned banks. The CSI 300
moved up 2.8% to finish at its highest point for the year. The Hang
Seng China Enterprises Index gained 0.7%.
The benchmark index gained for a sixth successive day on Tuesday as
technology companies led gains for stocks. This is its longest
series of gains in nearly a year. Markets have regained their
confidence in the economy as fundamentals continue to improve.
Meanwhile, investors in Hong Kong will soon be able to trade in
shares listed on the mainland. These factors have combined to
create a bull run of sorts. Following record gains on Monday, the
Shanghai Composite Index increased 0.2% while the CSI 300 gained
0.3%. The Hang Seng China Enterprises Index added 0.5%.
Energy stocks notched up gains on Wednesday after the Communist
Party began a high level probe. Property stocks slumped and there
were indications that the next few days might see profit taking.
The country's largest oil producer, PetroChina Co. Ltd. (
) gained significantly after a probe was initiated against its
earlier parent company head. China Petroleum & Chemical Corp. (
) touched a one month high.
The Shanghai Composite Index lost 0.1%, ending a series of six
successive days of gains. The initiation of the probe indicates the
government's anti corruption campaign is nearing its close. This
means the government will now focus on economic issues and raises
expectations of additional reforms. The CSI 300 lost 0.4% while the
Hang Seng China Enterprises Index ended almost unchanged.
The Shanghai Composite Index gained 0.9% today to post its highest
monthly gains since Dec 2012. The benchmark index gained 7.5% over
the month, following monetary easing, an increase in government
spending and bullish manufacturing data. A gauge of property stocks
within the benchmark index increased 1%, following the removal of
home purchase restrictions.
There are also indications that there would be reforms in the
household registration system. The CSI 300 added 1.2%, led by gains
in consumer staples and increased 8.6% in July. The Hang Seng China
Enterprises Index increased 0.2%.
Stocks in the News
's second-quarter 2014 core earnings per share of $1.63 breezed
past the Zacks Consensus Estimate of $1.24 by 31.5% and improved
from year-ago earnings by 33.6%. Expansion in the operating margin
was behind the beat. Solid revenues coupled with cost containment
boosted the operating margin.
Total revenue of $1.93 billion surged 58.5% year over year,
exceeding the Zacks Consensus Estimate of $1.80 billion helped by a
57% rise in online marketing revenues. Management noted that a
focus on mobile-related services including mobile search, mobile
map and app distribution made the company a winner this season.
This was the first time Baidu generated as much as 30% of its
revenues from mobile-oriented product and services.
In the quarter under review, operating profit grew about 22.5%
mainly on the back of lower bandwidth cost in the proportion of
revenues. Though content costs as a percentage of sales rose in the
quarter, they slid sequentially.
The outlook was enthusiastic too. Baidu anticipates that its total
revenue for Q3 will range between $2.163 billion and $2.221
billion. The projected revenue will likely register a
year-over-year expansion of 50.9−55.0%. Not only this, but
management indicated enhanced investment in mobile applications in
the latter half of 2014.
Quite expectedly, Baidu's beat enthused investors as the stock
traded in the green in after-hour trade. Following the earnings
release on July 24 after the closing bell, its shares advanced
In any case, investors were extremely confident about such a
performance, borne out by a 2.07% rise in shares during the trading
session of July 24. In fact Baidu had gained 62% over the last one
year as of July 24, while shares soared by over 10.8% in Friday's
. reported loss of $1.16 per share in the second quarter of 2014,
which was narrower than the Zacks Consensus Estimate of a loss of
$1.29 per share. However, Sohu had reported earnings of 56 cents
per share in the year-ago quarter.
The second quarter loss can be attributed to a massive surge in
operating expenses related to compensation and promotional
Revenues jumped 18.1% year over year to $400.2 million, which
however missed the Zacks Consensus Estimate of $405.0 million. The
year-over-year increase was primarily driven by strong performance
from online advertising, brand advertising and search & other
segments, which more than offset the decline in revenues in the
Online Games segment.
Gross margin contracted 900 basis points (bps) from the year-ago
quarter to 57.5%. Operating expenses jumped 81.6% year over year to
$292.1 million. The year-over-year increase in operating expenses
was mainly due to an increase in salaries and compensation expenses
as a result of increased headcount and higher marketing and
For the third quarter of 2014, Sohu expects revenues in the range
of $427.0 million-$442.0 million. Management estimates brand
advertising revenues in the range of $148.0 million to $153.0
million, representing 19.0% to 23.0% year-over-year growth.
) reported earnings of 4 cents per share in the second quarter of
2014, as against the Zacks Consensus Estimate of a loss of 19 cents
However, revenues for the second quarter declined 3% to $177.8
million, missing the Zacks Consensus Estimate of $188 million.
Revenues from online gaming dropped 9% to $153.9 million. On the
other hand, online advertising revenues increased 46% to $14.7
The company expects non-GAAP loss per ADS between $0.00 - $0.11
during the third quarter. Total revenues are projected between
$186.0 million - $192.0 million.
Trina Solar Ltd
) responded to the anti-dumping duties levied by the U.S.
Department of Commerce (DOC) on imports of solar modules and
photovoltaic cells from China and Taiwan. The DOC has levied a
preliminary anti-dumping rate of 26.33% on Trina Solar following
its investigations. Taken together with anti-subsidy duties
announced in June, Trina Solar will face an effective rate of
Though the company opposed the preliminary findings, it said it is
committed to serving customers in the U.S. as well as its business
partners. In a statement the company said: "Trina Solar believes
that because of its competitive cost structure, in-house
manufacturing capacities, global strategies, strong brand image and
quality products and global strategies, it will continue to grow
its business in the United States and to play an important role in
the U.S. market."
Yingli Green Energy Holding Co. Ltd.
) also voiced its discontent regarding such duties, but also
promised that it would continue to serve customers in the U.S.
Yingli faces an anti-dumping duty of 42.33% and a combined tariff
of 47.27%. Companies which refuse to cooperate with the DOC will
have to pay the highest possible rate of 165%, which amounts to
191%, taking into account the anti-subsidy duty.
Performance of Most Actively Traded US-listed Chinese
The table given below shows the price movements of 10 Chinese
companies with the highest three-month average trading volume on
U.S. exchanges. Price movements over the last five days and during
the last six months have been included.
Last 5 Day's Performance
6 Month Performance
Next Week's Outlook:
The market has ended July on a high, posting its best monthly
gains since Dec 2012
Economic reports and manufacturing sector data in particular has
been encouraging. Investors seem convinced that the economy is on
track for a recovery. Stimulus measures are bearing fruit even as
the government continues to undertake further sectoral reforms.
Several analysts believe that final numbers on manufacturing
will also be encouraging. This will provide a further boost to
markets which continue to move higher. If the majority of earnings
are also on the positive side, stocks would continue to surge
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SOHU.COM INC (SOHU): Free Stock Analysis Report
BAIDU INC (BIDU): Free Stock Analysis Report
PETROCHINA ADR (PTR): Free Stock Analysis
CHINA PETRO&CHM (SNP): Free Stock Analysis
TRINA SOLAR LTD (TSL): Free Stock Analysis
CHANGYOU.COM (CYOU): Free Stock Analysis Report
YINGLI GREEN EN (YGE): Free Stock Analysis
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