Markets breached the key 5,000 mark during a week of substantial gains for stocks. The Shanghai Composite gained on Monday, to close at its highest level boosted by manufacturing data and expectations of further reforms. Stocks gained for a successive day on Tuesday, following optimism that additional steps will be taken by the government to boost the economy as well as encouraging earnings results.
The Shanghai Composite closed nearly flat on Wednesday, but hovered near a seven-year high. A rally from financial and energy stocks helped the benchmark index erase significant losses to end higher on Thursday. The Shanghai Composite Index gained on Friday, breaching the 5,000-mark on the first occasion in seven years.
ReneSola Ltd. SOL reported adjusted loss of 7 cents per American Depositary Share (“ADS”) in the first quarter of 2015, wider than the Zacks Consensus Estimate of a loss of 5 cents. Qunar Cayman Islands Ltd. QUNR reported adjusted loss of 52 cents per ADS in the first quarter of 2015, narrower than the Zacks Consensus Estimate of a loss of 58 cents by 10.3%.
Last Week’s Developments
Last Friday, the Shanghai Composite declined 0.2% on Friday. Concerns that China’s record breaking rally has continued at a pace which is too rapid and for too long led to the decline. Analysts also opined that the market would experience significantly high levels of volatility going forward. The Hang Seng China Enterprises Index declined 0.6% while the Hang Seng lost 0.1%.
Despite such losses, the CSI moved up 0.1%. A sub-index of energy stocks declined 1.5%, becoming the highest loser among the indexes’ 10 industry groups. However, sub-indexes of technology and healthcare gained a minimum of 2.4%.
The benchmark index declined 1% over the week. Following Thursday’s losses, seven successive days of gains came to a close. During this period, the benchmark gained 15% and nearly crossed the 5,000 mark for the first time in eight years. Thursday’s substantial losses were caused by brokerages’ decision to increase lending restrictions. Additionally, the central bank pulled out money from the financial system, which also dampened investor sentiment.
Markets and the Economy This Week
The Shanghai Composite rebounded on Monday, gaining 4.7% to close at its highest level since January. While government manufacturing data indicated an expansion for the third successive month, further government reform measures also boosted stocks. May PMI increased to 50.2 in May from 50.1 in April.
China’s ministry of finance is likely to take steps to improve the debt situation of local governments. Additionally, a measure of utility stocks surged 6.8%, led by Huaneng Power International Inc. HNP. These gains were a result of indications that the government will encourage power companies to merge.
The CSI 300 jumped 4.9%. A sub-index of utility stocks within the CSI 300 gained the most among its 10 industry groups. The ChiNext surged 5%, rising to a record level. The Hang Seng advanced 0.6% while the H-share index added 1.4%.
Stocks gained for a successive day on Tuesday, following optimism that additional steps will be taken by the government to boost the economy as well as earnings results. China’s benchmark index moved up 1.7%, negating a 0.7% loss incurred earlier during the day.
The CSI 300 also increased by 1.7%. The ChiNext surged 4.9% to close at another record high for the second successive day. The Hang Seng declined 0.5% while the Hang Seng China Enterprises Index moved down 0.7%.
The CSI 300 Information Technology Index gained 4.2% to touch record levels. This sub-index has surged 137% in 2015. The current advance was a result of investors’ belief that such stocks would post better earnings. New economy stocks are emerging as the clear favorite, reflected in gains made by the ChiNext and Shenzhen indexes.
The Shanghai Composite closed nearly flat on Wednesday. For every four stocks that gained, five stocks declined. However, the benchmark index hovered near a seven-year high. The Shenzhen Composite gained 0.4%, and had increased by 10% over 10 days at that point. Market watchers opined that the bull run would continue despite rising volatility.
The CSI 300 declined 0.4%. Eight of the index’s 10 industry groups took losses. Sub-indexes of consumer staples and utilities stocks declined 1.5% and 2% respectively, emerging as the index’s highest losers. The Hang Seng gained 0.7% while the H-share index slumped 0.5%.
A rally from financial and energy stocks helped the benchmark index erase losses of 5.4% to end higher on Thursday. The Shanghai Composite moved up 0.8%, despite nearly two shares losing for each share moving upward. Stocks had taken losses earlier following news that a brokerage had ceased margin financing for investors who mostly trade small cap stocks.
Analysts opined that investors had overreacted to news about a relatively small brokerage which led to panic selling. The ChiNext declined by 1%, recovering from a loss as wide as 7.2%. The CSI 300 gained 0.7%. Sub-indexes of energy ad financial stocks added in excess of 3%, emerging as the highest gainers among the 10 industry groups. The Hang Seng dropped 0.4% while the Hang Seng China Enterprises Index advanced 0.1%.
The Shanghai Composite Index gained 1.5% on Friday, breaching the 5,000-mark for the first time in seven years. Materials and industrial stocks led gainers. The benchmark index increased 8.9% over the week, the highest weekly gains since Dec 2014. The CSI 300 advanced 1%. Sub-indexes of industrial and material stocks advanced by a minimum of 3.2%. Eight of the index’s 10 industry groups gained.
The tech-heavy ChiNext slumped 1.5% but still gained 8% over the week. This was the index’s eighth successive weekly gain. The H-share index declined 1.5%, losing 1.4% over the week while the Hang Seng lost 1.1%. The Hang Seng China AH Premium Index registered weekly gains of 8.9%, the highest since Sep 2011.
A record growth in margin debt has helped to increase the value of China’s shares by $4 trillion till now this year. Meanwhile, the benchmark index has jumped by 55% during the same period. Some market watchers believe that President Xi’s efforts to transform the economy into one powered by consumer expenditure are bearing fruit. Others believe prevailing valuations indicate that a bubble is in the making.
Stocks in the News
ReneSola Ltd. reported adjusted loss of 7 cents per ADS in the first quarter of 2015, wider than the Zacks Consensus Estimate of a loss of 5 cents.
The company has shifted its focus from the low-margin wafer business to high-margin module business, but witnessed lower average selling price (“ASP”) of modules. Results were also impacted by a foreign exchange loss of $16.1 million due to the depreciation of European currencies and the yen against the U.S. dollar.
Investors reacted negatively to the wider-than-expected loss, resulting in shares losing 7.7% in two days’ trading session to close at $1.32 on Jun 3.
ReneSola’s net revenue of $349 million missed the Zacks Consensus Estimate of $362 million. Reported revenues also declined 15.9% from $415 million in the prior-year quarter and 9.8% from $387 million in the preceding quarter.
Qunar Cayman Islands Ltd. reported adjusted loss of 52 cents per ADS in the first quarter of 2015, narrower than the Zacks Consensus Estimate of a loss of 58 cents by 10.3%.
Qunar’s net revenue of $108 million beat the Zacks Consensus Estimate of $101 million. Revenues from the mobile sales segment jumped 275.7% year on year.
However, sales and marketing expenses increased 150.7% while general and administrative expenses rose 68.6% compared to the year ago period. Both these increases were attributable to increases in salary and related expenses due to a higher headcount.
Total Estimated Hotel Room-night volume increased 81.7% from the year-ago period to 10.7 million. Total Estimated Flight Ticket volume rose 54% to 27 million compared to a year ago.
SINA Corp. SINA shares jumped over 23% on Jun 1 after the company announced that it has signed an agreement to sell as many as 11 million newly issued shares to Charles Chao, the company’s CEO and Chairman. This was the highest increase recorded by the company in a single trading session in more than a decade.
The shares will be priced at $41.49 each, which is the average closing trading price of the company’s shares for 30 trading days trailing the agreement on May 29. The total value of the deal comes to approximately $456 million.
According to the deal, CEO Chao has entered into a six-month lockup restriction, per which he will not able sell any of these shares for a period of 6 months. This further boosted investors’ confidence.
E-Commerce China Dangdang Inc. DANG reported adjusted loss of 12 cents per ADS in the first quarter of 2015, which compared unfavorably to the Zacks Consensus Estimate of breakeven earnings.
Dangdang’s net revenue of $358 million missed the Zacks Consensus Estimate of $361 million. Gross merchandise value and principal business’ product revenue together amounted to $632.4 million, representing a 37.3% increase from the year-ago period.
The number of new customers increased 46% to 4.1 million. As a whole, active customers rose 18% to 10.2 million.
However, marketing expenses increased to $15.4 million due to higher expenditure on promoting mobile Dangdang and also due to higher marketing expenditure.
Alibaba Group Holding Ltd. BABA has purchased a 30% stake in $193.5 million in China Business News. This is an important media organization and part of Shanghai Media Group Inc, which is owned by the Chinese government.
Together, these companies will set up a service which will offer financial data. This will leverage Alibaba’s data on customers and trends in sales. The service targets small and medium sized companies and provides an entry point for Alibaba into the investment news and information business.
Mobile users of auction site Taobao, owned by Alibaba, will also have access to the wealth management service of China Business News.
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:
The benchmark index has exceeded the key level of 5,000 this week. The series of nearly unbroken gains this week add further weight to arguments about those market watchers who believe the bull run will continue.
The naysayers have had to beat a hasty retreat for now and it seems President Xi’s efforts to transform China’s economy are bearing fruit. This week’s manufacturing numbers also indicate that the economy will be on a firmer footing soon.
However, there is no denying that investors will have to contend with volatility. The length and pace of the bull run has also created a degree of wariness in investors. This is borne out by Thursday’s bout of panic selling. Yet, stocks continue to gain with new economy shares posting substantial gains.
Several important economic reports are scheduled for next week. This includes data on trade balance, inflation, retail sales, industrial production, fixed asset investment and new loans. Together, they may be a good indicator about where the economy is headed. Any good news on this front will help stocks chalk up further gains in the days ahead.
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SINA CORP (SINA): Free Stock Analysis Report
RENESOLA LT-ADR (SOL): Free Stock Analysis Report
E-COMMRC CH-ADR (DANG): Free Stock Analysis Report
HUANENG POWER (HNP): Free Stock Analysis Report
QUNAR CAYMN LTD (QUNR): Free Stock Analysis Report
ALIBABA GROUP (BABA): Free Stock Analysis Report
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