Stocks had a good week but for Monday when familiar market concerns returned to haunt investors. The benchmark index declined following fears over new share sales and concerns that earnings will come in below expectations.
However, markets returned to their winning ways on Tuesday after several government measures propelled stocks upward. Stocks ended Wednesday nearly flat as new share sales resumed. The Shanghai Composite ended at its highest level in three months today.
Promising manufacturing data indicated that the nation is well placed to achieve its growth target for the year. Earnings from TAL Education Group ( XRS ) beat estimates while a unit of Yingli Green Energy Holding Company Ltd. ( YGE ) secured an order to supply 32 MW of PV modules to a Japanese project.
Last Week's Developments
Stocks gained on Friday as a sub-index of real estate companies posted its largest increase in nearly two months. Speculation that a decline in home prices will lead to more cities easing restrictions on house purchase regulations led to these gains. Prices declined in 55 of the nation's 70 cities last month compared to May. This is the highest decline since Jan 2011.
Housing Minister Chen Zhenggao has asked cities with large housing inventories to lower them using all means possible. The Shanghai Composite Index increased 0.2% while the CSI 300 moved up 0.3%.
The Hang Seng China Enterprises Index declined 0.6% after a Malaysian Airlines passenger jet was shot down near the Ukraine-Russia border. The Bloomberg China-US Equity Index increased 0.9%.
The benchmark index gained 0.6% over the week. The Hang Seng increased by 1% while the Hang Seng China Enterprises Index gained 0.6% over the week.
Markets and the Economy This Week
The Shanghai Composite Index declined 0.2% on Monday, as Chinese stocks took losses for the third time in four days. Fears that earnings reports will come in under par and IPOs will lure funds away from older stocks returned to haunt markets.
Market watchers believe that earnings growth will be modest. Meanwhile, 11 new share sales are scheduled for the week. The seven day repo rate jumped the most in a month, adding to speculation that investors are securing funds to buy new shares. The CSI 300 gained 0.1% while the Hang Seng China Enterprises Index declined by 0.8%. This was its fourth successive day of losses, despite a revival in gambling stocks.
The benchmark index closed at its highest level since Jun 16 on Tuesday. A large volume of gains propelled indexes upward as the automobile, banking and property sectors gathered strength. A government announcement on Monday which will benefit hybrid and electric cars lifted auto stocks.
Property stocks registered gains following media reports that cities are easing house purchase regulations. Metal stocks rose as London zinc and aluminium touched record highs. The Shanghai Composite Index increased 1% while the CSI 300 gained 1.2% to close at its highest level since April 23.
The Hang Seng China Enterprises Index gained 2.4% following speculation that the government will announce additional stimulus measures for the economy. This was the index's highest increase in four months.
Stocks ended Wednesday nearly flat as five companies began new share sales. These IPOs are expected to lure funds away from existing stocks. The ChiNext Composite Index was hit hard by the IPOs, declining 2.8%. The tech heavy index suffered its largest one day decline in nearly a month. Brokerage companies posted good performances, gaining from the resumption of IPOs and expanding the scope of their business. Insurance stocks also registered gains.
The Shanghai Composite Index gained 0.1% to reach its highest level since June 16. The CSI 300 increased 0.2% to end at its highest level in more than three months. The Hang Seng China Enterprises Index gained 2%.
The Shanghai Composite Index jumped 1.3% today to close at a three-month high. A significant expansion in the country's manufacturing sector added strength to expectations that China will be able to achieve its growth target for the year. The HSBC flash PMI increased to 52, its highest level in one and a half years.
A gauge of financial stocks increased 3.1%, the highest among the CSI 300's industry groups. The CSI 300 moved up 1.8%, bolstering the index's monthly increase of 3.3%. The ChiNext lost 1.6%, taking monthly losses to 9.5%. The Hang Seng China Enterprises Index increased 1.1%. The index closed at its highest level since Dec 18.
Stocks in the News
TAL Education Group reported first quarter earnings of 17 cents per share, compared to the Zacks Consensus Estimate of 13 cents. Sales increased 45% to $89 million on a year-over-year basis, exceeding the higher bound of its guidance by 1%. Reduction in costs and higher demand for its small class offerings were major growth drivers.
Earnings improved primarily because the company reallocated resources from one-on-one tutoring sessions to small classes which offer high margins. Small class centers increased from 183 to 191 compared with the last quarter of 2013. On the other hand, one-on-one learning centers increased from 90 to 91
However, second quarter sales guidance was disappointing. TAL Education expects revenues to increase 31-34% year over year. This is lower than consensus estimate of 37%. The company says sluggish growth in English and one-on-one classes is the reason for setting lower sales guidance. However, TAL Education says full-year growth of 35% is still possible.
Yingli Green Energy Holding Company Ltd 's unit Yingli Green Energy Japan Corporation has entered into a contract to provide 32 megawatts (MW) of multicrystalline photovoltaic (PV) modules to a large-scale Japanese project. The market reacted positively to the news with the company's share price edging up around 3.2% to $3.56 on Jul 23, 2014 from the prior session.
Per the agreement, Yingli Green Energy will supply 108,000 YGE 72 Cell Series modules. The delivery will commence from Jan 2015 and will complete in Dec 2015.
The solar project located in Okayama, Japan will be constructed by the Tokyo-based power plant development company Pacifico Energy K.K. GE Energy Financial Services, a division of General Electric Co. ( GE ), will finance the project. The project's estimated annual power generation capacity is 37,000,000 Kilowatt-hour (KwH).
ReneSola Ltd. ( SOL ) has entered into an agreement with China Seven Star Holdings Ltd, a Hong Kong-based company. Per the agreement, ReneSola will sell 200 MW of solar power projects by the end of 2015.
The agreement encompasses new projects and four existing solar parks in Bulgaria and Romania. ReneSola will also sell two projects with a combined capacity of 9.7 MW located in Bulgaria to China Seven Star.
China Mobile Ltd. ( CHL ) announced on its official microblog on Monday that it plans to have more than 500,000 4G base stations by the end of 2014. Currently, China Mobile has 14 million 4G subscribers. This constitutes around 2% of its 791 million mobile customers. The company aims to have 50 million 4G users by the end of the year.
Speaking at a press conference, Huang Wenlin, vice president of China Mobile said the world's largest mobile carrier in subscriber terms will offer 4G international roaming services in 50 additional countries frequently visited by Chinese tourists. These services can be accessed using a new 4G USIM card without a change of number or a new registration.
Performance of Most Actively Traded US-listed Chinese Stocks
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:
This has been one of the best weeks for Chinese markets in the recent past. Measures introduced by the government to boost growth seem to be having their desired effect. This is being supported by gains in real estate and auto stocks. On the other hand, manufacturing data has provided optimism that the country could well achieve its growth target for the year.
The resumption of new share sales seems to have had little effect on major indices till now. Only the tech heavy ChiNext has been impacted, undergoing a significant decline. However, economic data indicates a recovery is on track.
Next week has several key reports lined up. This includes official and HSBC data on the manufacturing and service sectors. If these reports are on the positive side, good times for markets are likely to continue.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free reportCHINA MOBLE-ADR (CHL): Free Stock Analysis ReportRENESOLA LT-ADR (SOL): Free Stock Analysis ReportGENL ELECTRIC (GE): Free Stock Analysis ReportYINGLI GREEN EN (YGE): Free Stock Analysis ReportTAL EDUCATN-ADR (XRS): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research