Markets

China Stock Roundup: Baidu, Other Tech Giants Fund CloudFlare, Qihoo Ups Stake in JV with Coolpad

Markets gained on most days of the week following optimism over president Xi's first state visit to the U.S. The Shanghai Composite gained on Monday and Tuesday following positive sentiment over the visit. The Shanghai Composite Index slumped on Wednesday after data on manufacturing hit a six-year low. Continuing positive sentiment from the state visit to the U.S. helped stocks gain again on Thursday.

Baidu BIDU along with other tech giants, Google GOOGL , Qualcomm QCOM and Microsoft MSFT announced a strategic joint investment in Internet performance and cyber security startup, CloudFlare. Qihoo 360 Technology Co. Ltd. QIHU recently reached an agreement with China-based smartphone manufacturer Coolpad Group Limited to adjust their respective holding in the joint venture (JV), Coolpad E-commerce.

Last Week's Developments

Last Friday, the Shanghai Composite Index gained 0.4%, boosted by gains from property stocks. An index of property stocks moved up 0.7% after data indicated new homes priced had increased in more cities in August compared to July. Prices increased across 35 cities in August out of a total of 70 cities considered for the gauge. This is higher than the figure of 31 recorded in July.

The CSI 300 increased 0.4%. A sub-index of tech stocks moved up 2.2%, reducing weekly losses to 7%. The Hang Seng advanced 0.3% while the Hang Seng China Enterprises Index added 0.6%. This took weekly gains for the H-share index to 3.2%.

The benchmark index slumped 3.2% over last week, suffering its largest weekly loss till now in September. Commodity and tech stocks were the biggest losers. Economic reports released over the month that reform announcements and repeated monetary easing have still not had any major impact on the country's economy.

Markets and the Economy This Week

The Shanghai Composite Index moved up again on Monday, gaining 1.9%. Tech and industrial stocks gained ahead of president Xi Jinping's first state visit to the U.S. The benchmark index had dropped 1.2% at one point before regaining ground. According to China's foreign minister, China and the U.S. may conclude agreements across various areas such as energy and infrastructure during president Xi's visit.

As a result, tech and industrials gained, following speculation that their orders will increase after the visit. The CSI 300 gained 1.8%. Sub-indexes of tech and industrial stocks increased in excess of 3%, emerging as the highest gainers among the 10 industry groups.

The Hang Seng declined 1% while the Hang Seng China Enterprises Index declined 1.6%. The Chi-Next surged 4.8%. The state visit has created much optimism over a higher volume of business between the two countries. A collaborative bullet train project has already been announced while China may place a large order for U.S. made aircraft.

Optimism over President Xi's visit flowed into Tuesday as the benchmark index advanced 0.9%. The largest stock in terms of weightage on the Shanghai Composite, PetroChina Co PTR increased 0.9%, the highest gain this week.

Meanwhile brokerage stocks gained following the possibility of a Shanghai-London exchange link. British officials have stated that they will examine the viability of such a link. Analysts characterized the brokerage rally as a premature one. United Kingdom's chancellor of the exchequer stated that there will be discussions on the feasibility study for the exchange link during the next session of annual discussions.

The CSI 300 increased 0.9%. Tech and financials led gains for the CSI 300. It is being speculated that tech companies stand to gain the most from the president Xi's visit. The Hang Seng advanced 1% while the Hang Seng China Enterprises Index added 0.5%.

The Shanghai Composite Index lost 2.2% on Wednesday following disappointing data on manufacturing. The preliminary Caixin China Manufacturing Purchasing Managers' Index declined to 47 in September, lower than last month's final reading of 47.3. This is the lowest level recorded since Mar 2009.

Xi said that China's stock market was going through a "phase of self-recovery and self-adjustment". Analysts said these comments indicate that support measures from the government will gradually be eased off. They also said market sentiment was being dampened by economic data which continued to remain dismal.

The CSI 300 declined 2.3%. All of the index's 10 industry groups declined with energy and material stocks leading losses. The Hang Seng also lost 2.3% while the Hang Seng China Enterprises Index declined 2.7%. This was the lowest level experienced by the H-share index in three weeks.

Continuing positive sentiment from the state visit to the U.S. helped stocks gain again on Thursday. Tech and industrials gained the most following expectations that the visit will help push up exports to bolster the flagging economy. The Shanghai Composite increased 0.9% as eight stocks advanced for every decliner.

The CSI 300 gained 0.7%. Sub-indexes of tech and industrial stocks within the index moved up nearly 1.1%. The Hang Seng declined 1% while the Hang Seng China Enterprises Index lost 1.1%.

Meanwhile, Boeing Co. BA announced its largest investment in China . It has inked a cooperation document with Commercial Aircraft Corporation of China (Comac) for construction of an aircraft completion center for its 737 jet in China. The company also received $38 billion of orders and commitments following Xi's visit to its primary facility in the U.S.

Stocks in the News

Baidu along with other tech giants, Google, Qualcomm and Microsoft announced a strategic joint investment in Internet performance and cyber security startup, CloudFlare .

The funding round was led by Fidelity Investments along with Google's investment division Google Capital, Microsoft, Baidu and Qualcomm's investment arm Qualcomm Ventures. CloudFlare raised $110 million from this round of private financing, which valued its business at $182 million.

Launched in 2009, CloudFlare is a company offering a content-delivery network (CDN) with services that can speed up any Internet application or websites while also protecting them from hackers' attacks. Last week it partnered with Baidu to launch a unified global platform to help build a faster, more secure and more intelligent Internet in China and throughout the world.

Qihoo 360 Technology Co. Ltd. recently reached an agreement with China-based smartphone manufacturer Coolpad Group Limited to adjust their respective holding in the joint venture (JV), Coolpad E-commerce .

Earlier this month, Qihoo issued a notice to Coolpad stating its intention "to exercise its put option to require the latter to purchase the company's entire 49.5% stake in Coolpad E-Commerce Inc." The put option was exercisable if Coolpad breached non-compete clauses under the shareholders agreement. The recent deal which, Qihoo believes, would be beneficial to both the parties, came in response to the notice.

Under the new deal, Coolpad will redeem a portion of its shares in return for some of its Internet operating assets contributed to the JV. This will further increase Qihoo's equity stake in the JV to 75% from 49.5%, while Coolpad will only have 25%, down from 50.5%.

Nevertheless, both the companies have agreed to share their intellectual property, supply chain management, product development and app distribution to boost Coolpad E-commerce. Moreover, following the share redemption, Qihoo cannot exercise its put option issued on Sep 2, 2015 that allowed it to purchase Coolpad's 49.5% stake in the JV.

China Mobile Ltd.CHL , the world's largest telecom operator in terms of subscribers, reported that its subscriber base stood at a mammoth 820.1 million at the end of Aug 2015, increasing from 818.7 million in July. The growth was largely driven by a massive increase in 4G LTE connections where over 20 million subscribers were added, taking the tally of the same to 229.3 million.

The trend hints at the possibility of 3G customers switching to 4G, as evident from a decline in the 3G subscriber base. Meanwhile, rivals like China Unicom Ltd. CHU and China Telecom Ltd. CHA also reported subscriber additions.

ReneSola LimitedSOL will buy back $20 million worth of American depositary shares ("ADSs") in the next 12 months.

Separately, ReneSola announced that it has completed the sale of its 300-kilowatt ("KW") low-voltage project in Kyoto, Japan.

The project was purchased by a local firm with the intention of utilizing it for the capitalization of tax incentives for investments made in small-scale renewable projects. The project uses ReneSola's Virtus modules and is suitable for Japan's 36 Yen Feed-in Tariff scheme.

According to ReneSola, this was its first project sale in Japan. The sale represents the company's long-term strategy to create a portfolio of small-sized ground or commercial rooftop projects for sale to retail and institutional investors at lucrative prices and favorable terms of payment.

TAL Education GroupXRS , which offers tutoring services, said it has concluded an agreement to buy Firstleap Education. Firstleap offers tutoring services for all subjects in English. It caters to Chinese children between ages 2 to 15.

Further details of the deal were not revealed. Firstleap offers its services through a web portal and has more than 60 learnings centers. It now offers its services across 20 of China's cities. TAL said that the acquisition will help expand its services in the "pre-K to college space."

Noah Holdings LimitedNOAH disclosed that it had entered into a strategic partnership with UK Trade & Investment (UKTI). This partnership will provide an opportunity for high net worth individuals in China to receive education from the United Kingdom.

UKTI will design programs especially for clients of Noah Holdings. Also, it will provide them with wide access to the best opportunities across the domains of philanthropy, investment and cultural exchanges

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.

Ticker Last 5 Day's Performance 6-Month Performance
BABA -7.2% -28.8%
JD +0.5% -15.9%
VIPS +0.1% -42.8%
BIDU -8.1% -38.9%
SFUN -3.9% -10.8%
CTRP -5.6% +10.4%
YGE -25.2% -80.9%
QIHU +11% -6.2%
TSL -4.2% -29.3%
QUNR -12.2% -12.2%

Next Week's Outlook:

President's Xi's maiden official visit to the U.S. has provided stocks with a much needed boost this week. It has created optimism that tech and industrials will gain. As a result, exports will rise which will prop up an economy facing a slowdown. Economic data continues to be dismal and there are indications that the government will gradually ease off its support measures.

Meanwhile, a survey has shown that the government will revise its growth target for the year from 7% to 6.5%. At the same time, authorities are indicating that equity markets are stabilizing. A section of analysts believe that the worst is over for stocks and normality may soon return.

However, it is crucial for some indication of economic progress before markets find a firm footing. Several crucial reports on official and private manufacturing and services data are scheduled for next Wednesday. Any positive indications on this front will provide the impetus stocks need in the days ahead.

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BAIDU INC (BIDU): Free Stock Analysis Report

PETROCHINA ADR (PTR): Free Stock Analysis Report

BOEING CO (BA): Free Stock Analysis Report

MICROSOFT CORP (MSFT): Free Stock Analysis Report

CHINA UNICOM (CHU): Free Stock Analysis Report

CHINA MOBLE-ADR (CHL): Free Stock Analysis Report

RENESOLA LT-ADR (SOL): Free Stock Analysis Report

QUALCOMM INC (QCOM): Free Stock Analysis Report

NOAH HLDGS LTD (NOAH): Free Stock Analysis Report

QIHOO 360 TECH (QIHU): Free Stock Analysis Report

CHINA TELCM-ADR (CHA): Free Stock Analysis Report

TAL EDUCATN-ADR (XRS): Free Stock Analysis Report

GOOGLE INC-CL A (GOOGL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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