Stocks had a mixed week once again after gaining substantially on the first two days of the week. Gains in shipping and tech stocks helped markets negate a decline in property stocks on Monday. The benchmark index rose to its highest level in eight months on Tuesday after President Xi said reforms in state-owned media enterprises would be undertaken.
Stocks took a breather on Wednesday ahead of HSBC Flash PMI numbers, and the benchmark index declined. The manufacturing gauge declined to its lowest level in three months on Thursday as stocks took losses. JinkoSolar Holding Co., Ltd. (JKS) and SINA Corp. (SINA) beat second quarter earnings estimates. China Mobile Limited's (CHL) net income dropped during the first half of 2014.
Last Week’s Developments
Stocks gained last Friday following speculation that the government would take further measures to boost the economy. According to the China Securities Journal, gains were led by technology and financial companies. The Shanghai Composite Index increased 0.9% to touch its highest level since Dec 10 last year. The CSI 300 increased 1.1% while the Hang Seng China Enterprises Index gained 0.4%.
The benchmark index gained 1.5% over the week, marking its fifth consecutive week of gains. This is its longest series of weekly gains after May 2013. Stocks gained over the week after inflation declined last month. On the other hand, credit growth and industrial production came in below expectations, giving rise to speculations about monetary easing. A sub-index of tech stocks within the CSI 300 increased 2.5% over the week, the highest among the index’s 10 industry groups.
Markets and the Economy This Week
The Shanghai Composite Index moved up 0.6% on Monday to close at its highest level in eight months. Shipping and technology stocks outweighed a decline in China’s property sector. Government data revealed that home prices dropped in 64 out of 70 cities during July. Prices fell in the highest number of cities since the government revised data compilation methods in Jan 2011.
The Hang Seng China Enterprises Index declined 0.4%. This was primarily due to a 17% decline in FDI during July. The CSI 300 increased 0.6%. A technology sub-index of the CSI 300 increased 1.7%, the highest among the 10 industry groups.
Stocks gained once again on Tuesday following a statement from President XI Jinping on reforms in state-controlled media companies. The Chinese president said that the country will set up media groups which are credible and will encourage integration between traditional and new media. The statement led to a rally in media stocks which fuelled larger market gains.
Analysts are of the view that President Xi’s remarks have led investors to believe that media reforms will be expedited. The Shanghai Composite Index increased 0.3% to close at its highest level since Dec 5. The CSI 300 closed nearly flat. Utility, financial and healthcare stocks were the largest losers among the index’s 10 industry groups.
The ChiNext, a gauge of small cap stocks, moved up 0.5%. The Hang Seng China Enterprises Index moved up 0.3% following impressive earnings reports. The Bloomberg China-US Equity Index gained less than 0.1%.
Property and energy stocks led losses as stocks declined on Wednesday. The Shanghai Composite Index lost 0.2%, moving lower for the first time in four days ahead of HSBC flash PMI numbers. Analysts took the view that investors were taking a breather following long period of gains.
The CSI 300 declined 0.4%. A sub-index of energy stocks lost 0.9%. This was the largest decline among the index’s 10 industry groups. The Hang Seng China Enterprises Index lost 0.4%. On the other hand, the Hang Seng gained 0.2% following optimism surrounding a stock-trading linkage with Shanghai. The Bloomberg China-US Equity Index declined 0.3%.
The Shanghai Composite Index lost 0.4% on Thursday following a decline in HSBC PMI numbers. The manufacturing gauge declined from 51.7 recorded in July to 50.3 in August. This is the index’s lowest level in three months and raises questions about the economic recovery.
The CSI 300 lost 0.5% and a sub-index of financial stocks moved down 0.9%. This was the largest declined among the index’s 10 industry groups. Meanwhile, a report in the China Securities Journal quoted a government official who said state-owned companies will move toward mixed ownership in the days ahead. The Hang Seng China Enterprises Index declined 1%.
Stocks in the News
China Mobile Limited, the world’s largest mobile operator in terms of subscriber base, announced results for the first six months of 2014 with adjusted net income of RMB57.7 billion ($9.4 billion). Net income dropped 8.5% year over year owing to higher infrastructure cost and stiff competition.
Total revenue climbed 7.1% year over year to RMB324.7 billion ($52.9 billion). Telecommunication service revenues, comprising roughly 94% of total revenue, increased 4.7% year on year to RMB297.9 billion ($48.5 billion). Steady revenue growth was attributable to rapid growth of wireless data revenue, which was up by a massive 51.8%.
JinkoSolar Holding Co., Ltd. reported second-quarter 2014 non-GAAP earnings per American Depositary Share (ADS) of 80 cents (non-GAAP earnings of 20 cents per share), beating the Zacks Consensus Estimate by 15.9%. In the prior-year quarter, the company’s adjusted earnings per ADS was 56 cents (non-GAAP earnings of 14 cents per share). The outperformance was primarily driven by higher revenues and a rise in total solar product shipments.
In the first quarter of 2014, the company’s non-GAAP earnings per ADS was 20 cents (non-GAAP earnings of 5 cents per share).
Despite posting favorable earnings, JinkoSolar shares edged down 1.6% to $27.38.
JinkoSolar provided third-quarter 2014 total solar module shipment guidance in the range of 800–850 MW. For 2014, the company expects total solar module shipments in the band of 2.9–3.2 gigawatts (:GW).
SINA Corp. reported second-quarter 2014 earnings of 7 cents per share, which were much-better than the Zacks Consensus Estimate of a break even. Earnings rebounded from a loss of 26 cents per share reported in the year-ago quarter.
Revenues increased 20.7% year over year to $187 million and were slightly higher than management’s guided range of $177 million to $182 million. Revenues are adjusted for deferred revenues of $4.1 million, mostly related to the license agreements resulting from the E-House/CRIC transaction. Revenues were in line with the Zacks Consensus Estimate.
SINA expects revenues for the third quarter of 2014 in the range of $193 million to $199 million. Management believes that increasing investment by Weibo on product development and marketing will hurt its and also SINA’s operating results in 2014. SINA also expects to invest in its own portal (mobile and video). This will also keep margins under pressure.
JA Solar Holdings Co. Ltd. (JASO) announced earnings of 14 cents per ADS in the second quarter of 2014, missing the Zacks Consensus Estimate by 17.6%. Earnings also dropped 56.3% from 32 cents per ADS a year ago and 75.9% from 58 cents per ADS in the preceding quarter.
Higher operating expenses led to lower-than-expected profits with the stock price tumbling 6.31% in yesterday’s trading session to close at $9.36.
JA Solar reported revenues of $390.5 million, beating the Zacks Consensus Estimate of $385.0 million. Revenues also increased 52.9% year over year and 6.5% sequentially.
JA Solar expects to ship 730–760 MW of cells and modules in total for the third quarter. For 2014, the company lifted its full year cell and module shipment guidance to 2.9–3.9 GW from its earlier expectation of 2.7–2.9 GW. The revised outlook includes 200 MW of module shipments to the company's downstream projects.
E-House (China) Holdings Limited (EJ) reported second-quarter 2014 earnings of 9 cents per diluted ADS, significantly higher than 5 cents per ADS in the year-ago quarter. Earnings excluding share-based compensation expense and amortization of intangible assets increased from 11 cents per ADS in the year-ago quarter to 14 cents per ADS in the second quarter.
The jump in profits can be attributed to a significant increase in revenues and a decline in charges. Revenues increased 29% from $163.4 million in the year-ago quarter to $210.1 million. Real estate online service revenues increased 63% to $117.3 million on a year-over-year basis. The major factor behind this surge was a 159% increase in e-commerce services, which came in at $68.3 million.
The company maintained its revenue outlook for fiscal year 2014 within $910- 930 million. This is a projected increase of 24-27% from the $731.1 million recorded in 2013.
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:
Stocks have had a mixed run this week after an unexpected decline in HSBC PMI numbers. Coming on the back of disappointing industrial production and credit growth data, dismal manufacturing data raises concerns about the economic recovery. Meanwhile, speculation has gathered strength that monetary easing will be used to achieve the year’s growth target.
Next week is bereft of economic reports that can have any significant impact on market movements. However, the government continues to make announcements regarding structural reforms. This week was witness to a statement on reforms of state-controlled media enterprises, which helped markets chalk up gains. Any further indications of a similar nature would help stocks return to their winning ways in the days ahead.
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