Markets had a volatile week, gaining and losing on alternate trading days. Stocks declined on Monday following concerns that the recent market rally is not in keeping with the country's economic outlook. However, the Shanghai Composite rebounded on Tuesday following bullish export data.
The benchmark index declined to its lowest point for the year on Wednesday after commodity stocks took losses. Stocks rebounded on Thursday after impressive credit growth increased speculation that further measures were be taken to boost the economy.
Bitauto Holdings Ltd ( BITA ) announced that JD.com, Inc. ( JD ) and Tencent Holdings Ltd will invest around $1.55 billion in the company. Alibaba Group Holding Ltd ( BABA ) and its unit Alipay have agreed to pay $575 million for a 30% stake in One97 Communications.
Last Week's Developments
Last Friday, the Shanghai Composite Index declined, negating an increase of nearly 3.4% in the final half hour of trading. Meanwhile, investors still expect further stimulus measures following indications that the economy was weakening. The benchmark index lost 0.2% as energy stocks emerged as the largest decliners. These companies took losses following the largest decline in factory-gate prices in two years.
Meanwhile, financial companies chalked up significant gains, following indications that further monetary easing will take place. This was sparked off by a 3.3% decline in last month's produce price index numbers, which exceeded most estimates. A continued slump in oil and metal prices has led to 34 consecutive monthly declines in the index.
The CSI 300 slipped 0.4%. A sub-index of energy stocks within the index lost 2.1%, the highest among the 10 industry groups. Meanwhile the Hang Seng advanced 0.4% while the Hang Seng China Enterprises Index added 0.5%. The benchmark index moved upward for the ninth consecutive week, advancing 1.6%. This is the longest series of gains since May 2007. Additionally, the index has increased 61% over last year.
Markets and the Economy This Week
Stocks declined on Monday following concerns that the recent market rally is not in keeping with the country's economic outlook. The Shanghai Composite Index declined 1.7% to the lowest close since Dec 30. UBS AG said that large cap stocks have reasonable valuations currently. This is why the rally might falter if profits do not increase. Analysts were of the opinion that the market was possibly undergoing a correction since large caps had already gained considerably.
The CSI 300 fell 0.9%. Sub-indexes of energy, material and industry stocks lost a minimum of 1.3%. A gauge of real estate stocks slipped 3.1%. Meanwhile, the H-share lost 0.5% even as the Hang Seng increased 0.5%.
The Shanghai Composite Index gained 0.2% on Tuesday following bullish export data. According to the customs administration, exports increased 9.7% in December exceeding most estimates. Additionally, imports declined 2.4%, considerably more than estimated resulting in a trade surplus of $49.61 billion.
The CSI 300 ended the day nearly flat. Economists were of the view that exports were sufficient to support current levels of growth. However, they were not strong enough to cause an economic revival. Meanwhile, the increase in imports indicated that domestic demand was stable, especially if the effect of the oil price slump was excluded. The Hang Seng gained 0.8% while the Hang Seng China Enterprises Index advanced 0.4%.
Meanwhile, Citigroup Inc. ( C ) said it was a good time to move out of brokerage stocks and into healthcare even as it reduced its rating on stocks of CSI 300 to neutral. According to the bank, economic fundamentals do not support further gains for the index. Additionally, earnings may not increase as much as during earlier rallies, the bank said.
The benchmark index declined to its lowest point for the year on Wednesday after commodity stocks took losses. A slump in oil and metal prices worldwide led to these declines. The Shanghai Composite Index lost 0.4% even as the continual slump in oil prices spreads to metals. Meanwhile, the World Bank slashed its global growth outlook, following economic weaknesses in Europe and China. Incidentally, China is the world's largest consumer of raw materials.
The CSI 300 declined 0.3%. A sub-index of materials stocks was the largest decliner among the index's 10 industry groups. The Hang Seng moved down 0.4% while the H-share index declined 0.5%. Analysts said that the divergence between gains in the equity market and economic fundamentals were significantly clear. It was only a matter of time when this gap was close, though it is difficult to predict exactly when.
Stocks rebounded on Thursday after impressive credit growth increased speculation that further measures were being taken to boost the economy. The Shanghai Composite Index jumped 3.5%, the highest increase since Jan 5. According to the People's Bank of China aggregate financing came in at 1.69 trillion yuan ($273 billion) for December. Shadow lending touched its highest level since 2012, even though new yuan loans came in under estimates. Equity market investors and local governments were primarily responsible for the increase in credit.
The CSI 300 advanced 2.9%. A sub-index of financial stocks advanced 4.4%, the highest among the 10 industry groups. The Hang Seng added 1% while the Hang Seng China Enterprises Index advanced 1.5%. The rise in credit was also a result of a change in the method the central bank uses to calculate loan to deposit ratios for banks. According to the Shanghai Securities News, interbank deposits and lending has been included for the first time. However, analysts believe this move had been partially priced into stocks.
Stocks in the News
Bitauto Holdings Limited announced that JD.com and Tencent Holdings will invest around $1.3 billion in the company. Additionally, the WeChat operator and JD.com will invest $250 million in the auto information site's YiXin Capital Ltd. unit. This consortium will offer online auto transaction services in China. Following this announcement, Bitauto shares gained 7.6% in early trading on the NYSE on Friday.
Tencent and JD.com will purchase $1.15 billion new shares, each priced at $73.31. (1 ADR= 1 share). Around $750 million worth of resources and $400 million cash will be provided by JD.com. Meanwhile, Tencent is buying shares worth $150 million. Additionally, JD.com and Tencent are purchasing YiXin shares worth $100 million and $150 million, respectively.
Following the completion of the deal in 1H15, Tencent and JD.com will hold 3.3% and a 25% share of the auto information site's outstanding shares. Meanwhile JD.com will also secure a seat on the company's board. Also, Tencent and JD.com will own 26.6% and 17.7% of YiXin Capital.
Alibaba Group Holding Ltd. and its unit Alipay have agreed to pay $575 million for a 30% stake in One97 Communications, according to the Wall Street Journal. This marks the e-commerce major's first strategic investment in India.
One97 owns Paytm, an online platform that users can access through mobile apps. According to the report, the deal is likely to be closed by the end of the month.
According to Satish Meena, a forecast analyst at Forrester, Paytm, is vital for Alibaba's expansion outside China as it offers a platform to capture the mobile-first users in India. He noted that over 40% of Paytm sales come through smartphones. He also added that the deal would enable Alibaba to bypass Indian e-commerce limitations like low credit card penetration.
WuXi PharmaTech (Cayman) Inc. ( WX ) has purchased bioinformatics and genomics company NextCODE Health for $65 million in an all-cash deal. The R&D outsourcing company will merge its new acquisition with its own Genome Center to form WuXi NextCODE Genomics. Based in Shanghai, the new company will also have bases in Reykjavik, Iceland and Cambridge, Massachusetts.
Additionally, the company has revised its 2014 guidance upward. WuXi now expects total revenues of around $674 million, significantly higher than its earlier guidance of $670-$672 million. Diluted EPS is now projected at around $1.87, higher than earlier guidance of $1.83-$1.86.
Mindray Medical International Ltd. ( MR ) has announced preliminary results for full year 2014 and also provided guidance for the current year.
For 2014, Mindray Medical expects net revenue to increase approximately 8.6% on a year-over-year basis to $1.32 billion, in line with the current Zacks Consensus Estimate.
Based on the estimated revenue figure, management expects non-GAAP net income to decline 7.2% to $220 million in 2014. The non-GAAP net income does not however include the tax benefits associated with the key software enterprise status. Also, it surmises a corporate income tax rate of 15% pertinent to the Shenzhen subsidiary.
For full year 2015, Mindray Medical expects its net revenue to increase by a mid-single digit percentage on a year-over-year basis.
Trina Solar Ltd. ( TSL ) declared that its 90-megawatt ("MW") solar power plant in Toksun, Xinjiang province in China has been connected to the grid and is ready to commence operations.
The 90-MW solar power plant will be able to generate about 118 million kilowatt hours of electricity annually. It will also help in reducing about 108,300 tons of carbon dioxide emissions and ensuring a cleaner environment. About 300,000 modules manufactured by Trina Solar have been installed in the solar plant.
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
Next Week's Outlook:
Markets have experienced considerable volatility this week due to a number of domestic and external factors. Concerns that the market rally is diverging from the country's economic outlook have continued to plague stocks. A worldwide slump in oil and metal prices emerged as a major external shock to the markets.
On the other hand, impressive trade and credit growth data boosted stocks. In particular, credit growth has lent weight to the view that the government is taking steps to boost the flagging economy. Going forward, external concerns may play a greater role in guiding stocks.
Meanwhile, several important economic reports are slated for release next week. This includes crucial GDP data as well as reports on industrial production, retail sales and manufacturing. Any positive indications on this front will provide a much needed boost to stocks going forward.
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