Markets gained marginally over the week as stocks traded within a narrow range. The benchmark index increased on Monday, primarily due to gains made by raw materials stocks. The Shanghai Composite increased on Tuesday, boosted by consumer and industrial stocks.
The benchmark index gained on Wednesday after gains in raw materials and infrastructure stocks outweighed declines in healthcare and consumer shares. The Shanghai Composite index increased slightly on Thursday after encouraging economic data was countered by declining expectations about further monetary stimulus.
Alibaba Group Holding Limited BABA-owned Alibaba (Australia) Company Pty. Ltd. has signed a strategic agreement with the Australian Trade and Investment Commission (“Austrade”). Ctrip.com International, Ltd. CTRP reported adjusted second-quarter 2016 loss of 17 cents per share, narrower than the Zacks Consensus Estimate of loss per share of 21 cents.
Last Week’s Developments
Last Friday, the Shanghai Composite increased 0.1% following a recovery in property stocks. However, investors continued to search for direction in the midst of a recent trend of range bound trading. The CSI 300 gained 0.4%, increasing 0.2% over last week. The benchmark index declined marginally, by 0.1% over the same period. Fresh results from companies listed in China indicated that a recovery was underway in sectors suffering from excess capacity, such as steel and coal.
However, investors continued to remain tentative. The CSI 300’s trading volume was 19% lower than the 30-day average. Real estate stocks staged a rebound with the sector’s sub-index gaining 0.8%. Shares of financial companies added 0.5%. The Hang Seng gained 0.5% and advanced 1.6% over last week. The Hang Seng China Enterprises Index increased 0.8%, with weekly gains amounting to 1.4%.
Markets and the Economy This Week
The benchmark index gained 0.2% on Monday, primarily due to gains made by raw materials stocks. However, trading remained range bound in nature. The CSI 300 also increased by 0.2%. Raw materials stocks were among the leading gainers for the day. The sub-index of raw materials stocks increased by 1%. These gains were primarily attributable to comments made by President Xi Jinping at the G20 summit.
President Xi said that the strategy to reduce excess capacity in the coal and steel sectors was in keeping with specific considerations. Such plans were in consonance with China’s long term growth and structural adjustment objectives. The Hang Seng advanced 1.7%, increasing by the highest degree since Jul 12. The Hang Seng China Enterprises Index added 1.5%.
The Shanghai Composite increased 0.6% on Tuesday, boosted by consumer and industrial stocks. The CSI 300 gained 0.7%. Speculations that government backed funds were reducing their involvement in currency and equity markets curbed the day’s gains. Market watchers believed that this was leading investors to move funds from equity markets into real estate.
The small cap heavy ChiNext advanced 2.1% to touch its highest level in a month. The sub-index for consumer staples stocks increased by 1% over the day. The Hang Seng increased 0.6% while its 14-day relative strength index rose to 77. This indicated that a section of trader deemed the rally to be excessive in nature. The Hang Seng China Enterprises Index rose to its highest level since Dec 2015.
The benchmark index gained 0.1% on Wednesday after gains in raw materials and infrastructure stocks outweighed declines in healthcare and consumer shares. These stocks gained after the government promised to take further fiscal policy initiatives to boost the economy. China’s cabinet said that it would encourage key banks to provide additional credit. Additionally, it reemphasized the government’s resolve to cut overcapacity.
The CSI 300 gained 0.1%. The sub-index of infrastructure stocks increased 0.7%. The raw materials sub-index added 0.3%. This was a result of investor’s hopes that the government would provide approval to additional infrastructure projects. Meanwhile, stocks related to the environment also gained following sustained efforts by the government to fight pollution. The Hang Seng China Enterprises Index advanced 0.3%.
The Shanghai Composite index increased only 0.1% on Thursday after encouraging economic data was countered by declining expectations about further monetary stimulus. The CSI 300 closed the day nearly flat. Analysts took the view that markets had already accounted for encouraging trade data. This was because official PMI data released earlier had indicated that China’s economy was stabilizing.
Imports rose for the first time in around two year, primarily due to the inflow of commodities. This hinted that the domestic demand was picking up. The Hang Seng China Enterprises Index added 0.4%, marking the sixth consecutive day of gains.
Stocks in the News
Alibaba Group Holding Limited owned Alibaba (Australia) Company Pty. Ltd. has signed a strategic agreement with the Australian Trade and Investment Commission (“Austrade”). The agreement is aimed at increasing trade opportunities for Australian food producers and merchants engaged in other businesses. It will help them to reach out to global consumers through Zacks Rank #3 (Hold) ranked Alibaba, the e-commerce juggernaut.
With over 434 million registered users, Alibaba processes 12.7 billion orders every year. Collectively, over 1300 Australian brands do business on the two platforms. Of these, 80% didn’t have access to Chinese markets before. (Read: Alibaba Partners Austrade to Promote Small Businesses)
China Petroleum and Chemical Corp. SNP, aka Sinopec, reported net profit of 19.9 billion yuan ($3.0 billion) or 0.151 yuan per diluted share for the first half of 2016. The bottom line came in below the year-ago profit level of 25.4 billion yuan ($4.14 billion) or 0.194 yuan per diluted share.
During the first half of 2016, Sinopec’s crude oil production decreased 11.4% year over year to 154.17 million barrels. Nonetheless, natural gas volumes increased 10% year over year to 388.69 billion cubic feet in the same period.
Capital expenditures for the first half of 2016 totaled 13.474 billion yuan. Out of this, 5.168 billion yuan was spent on exploration and production projects. Zacks Rank #2 (Buy) rated Sinopec spent 2.774 billion yuan on the Refining segment, while the Chemical Business segment was allocated 2.44 billion yuan. (Read: Sinopec's (SNP) 1H16 Profit Falls Y/Y as Production Declines)
Ctrip.com International, Ltd. reported adjusted second-quarter 2016 loss of 17 cents per share, narrower than the Zacks Consensus Estimate of loss per share of 21 cents. This was also significantly worse, given the earnings of 8 cents reported in the same period last year. However, the figure was a substantial improvement over adjusted loss of 54 cents per share reported in the first quarter of 2016.
Ctrip.com reported revenues of $664 million, in line with the Zacks Consensus Estimate. This was also 62.7% higher than the figure posted in the year-ago quarter. This was also higher than the first quarter figure of $548 million. The stock has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
JinkoSolar Holding Co., Ltd. JKS reported second-quarter 2016 non-GAAP earnings per American Depositary Share (ADS) of $1.86, missing the Zacks Consensus Estimate of $2.00 by 7%. However, the reported figure increased from earnings of $1.04 per ADS reported in the year-ago quarter.
Zacks Rank #5 (Strong Buy) rated JinkoSolar’s total revenue of $896.1 million missed the Zacks Consensus Estimate of $930 million by 3.6%. However, on a year-over-year basis, the top line surged 86.1% for this Zacks Rank #5 (Strong Sell) stock, primarily on the back of higher shipments and an increase in electricity revenues from solar projects.
JinkoSolar expects third-quarter 2016 total solar module shipment in the range of 1.5–1.7 gigawatts (GW). For 2016, the company reiterated its total solar module shipments expectation in the band of 6–6.5 GW. (Read: JinkoSolar (JKS) Misses Q2 Earnings and Revenue Estimates)
ReneSola Ltd. SOL reported earnings of 5 cents per ADS in the second quarter of 2016, beating the Zacks Consensus Estimate of 3 cents by 66.7%. The reported figure also compared favorably with the year-ago tally of a loss of 2 cents.
ReneSola’s second-quarter net revenue of $250 million missed the Zacks Consensus Estimate of $282 million by 10.7%. Reported revenues also deteriorated 6.8% year over year and 4.1% sequentially for this Zacks Rank #3 rated stock.
The company expects third-quarter 2016 revenues at around $200 million and gross margin of roughly 10%. For 2016, management lowered its revenue guidance to the range of $900 million to $1.1 billion from its previous projection of $1.0 billion to $1.2 billion. (Read: ReneSola (SOL) Tops Q2 Earnings, Stock Down on View Cut)
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 traded within a tight range during this week. Investors remain uneasy about the role of state backed funds in propping up markets. In case these funds decide to reduce their leverage, markets may have to suffer losses in the near future. Meanwhile, economic reports remain encouraging in nature. However, analysts believe that markets had already priced in such positive developments.
Several crucial economic reports are lined up for release in the weeks ahead. This includes data on new yuan loans, money supply, fixed asset investment, industrial production and retail sales. If most of these reports are encouraging in nature, stocks could gain significantly in the days ahead.
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CTRIP.COM INTL (CTRP): Free Stock Analysis Report
CHINA PETRO&CHM (SNP): Free Stock Analysis Report
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JINKOSOLAR HLDG (JKS): Free Stock Analysis Report
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