Markets had a dismal week, despite a series of measures taken by the government to boost markets. Stocks declined on Monday as new steps taken by the government failed to shore up stocks. The Shanghai Composite declined again on Tuesday as tech and healthcare stocks emerged as the biggest losers.
The benchmark index slumped to its lowest level in three months on Wednesday. Stocks rebounded on Thursday, with the benchmark index posting its largest gains in six years.
Mindray Medical International (NYSE:MR) recently announced a definitive agreement to acquire the remaining 49% stake in Wuhan Dragonbio Surgical Implant for approximately $72.6 million. Noah Holdings Ltd. said that it will buy back $50 million of outstanding ADSs over a one-year period. Additionally, three of the company’s executive directors will buy Noah Holdings ADSs via the open market.
Last Week’s Developments
The Shanghai Composite lost 5.8% last Friday, slumping 29% from the peak achieved on Jun 12. The benchmark index marked its sharpest loss over a three-week period in more than 20 years. A number of steps taken to arrest the decline of China stocks proved to be ineffective as margin traders continued to rapidly reduce their positions.
The CSI 300 lost 5.4%. Sub-indexes of industrials and utility stocks lost a minimum of 6.7%, emerging as the poorest performers among the 10 industry groups. The ChiNext declined 1.7%, negating an increase of nearly 5.3%. The Hang Seng slipped 1.4% while the Hang Seng dipped 0.8%. Meanwhile, the HSBC Services PMI declined to its lowest level in five months in June.
Earlier in the week, the country’s securities regulator had said it would take stringent action against illegal trading activity. According to reports, short-selling for stock-index futures was being minutely examined. However, these have been proved to be ineffective with the benchmark index posting a weekly loss of 12%.
Markets and the Economy This Week
Stocks continued to decline on Monday as new steps taken by the government failed to shore up stocks. Apart from some advance made by state-owned companies, the majority of stocks declined. The benchmark index gained 2.4%, but two stocks fell for each one that posted gains on the Shanghai Composite.
The index was lifted by gains from its two largest members: Petrochina (NYSE:PTR) and Industrial & Commercial Bank of China Ltd. This was true for other large state-owned companies such as China Southern Airlines Company (NYSE:ZNH) as well. However, small stocks continued to fall and the CSI Smallcap 500 index had lost 40% since Jun 12.
Fresh measures from the government included stopping new share sales, central bank assistance to financial margin trading and share purchases made by state-owned finance companies. However, these measures failed to boost investor sentiment. The market rally had been fueled by small investors, who seemed to be disillusioned at this point.
The CSI 300 advanced 2.9%. However, a sub-index of tech stocks within the index slumped 4%. A decline in such stocks also caused the ChiNext to lose 4.3%. Meanwhile the Shenzhen Composite declined 2.7%. The Hang Seng lost 3.2%, and had declined 11% from the highs achieved in April. The H-share index dipped 3%.
The Shanghai Composite declined 1.3% on Tuesday as tech and healthcare stocks emerged as the biggest losers. Government measures to stop the selloff remained ineffectual. However, PetroChina advanced 4.2% following speculation about share purchases made by state funds. Nearly 700 stocks of the 1,106 which make up the benchmark index declined by 10% of the daily limit.
The CSI 300 lost 1.8%. Sub-indexes of consumer, drug and telecom stocks within the index declined nearly 5%, emerging as the largest losers. The small-cap dominated ChiNext slumped 5.7%. The Hang Seng dipped 1%.
However, the Hang Seng China Enterprises Index declined 3.3%. At that point, the H-share index had plunged 20% from the high achieved on May 26. Meanwhile 200 stocks stopped trading after the market closed on Monday. A majority of these are listed on the small-cap dominated Shenzhen exchange.
The benchmark index slumped to its lowest level in three months on Wednesday. Additional steps taken by the government could not reassure margin traders who continued to reduce their positions. The benchmark declined 5.9% as margin traders offloaded shares worth $15.8 billion on the Shanghai exchange. These shares had been acquired through borrowed funds.
Among new government measures, the China Financial Futures Exchange increased margin requirements needed to short contracts on the CSI 500, which is dominated by small caps. Additionally, China Securities Finance Corp. announced it would purchase additional shares of small and mid-cap companies. Meanwhile, the government instructed state-owned companies to refrain from reducing their stake in listed companies.
The CSI 300 slumped 6.8%. Sub-indexes of energy and financial stocks lost in excess of 7%, emerging as the largest decliners. The Hang Seng declined the most in nearly seven years. Meanwhile, the H-share index lost 5.9%.
Stocks rebounded on Thursday, with the benchmark index posting its largest gains in six years. The Shanghai Composite advanced 5.8%, negating a loss of nearly 3.8%. Nearly 600 stocks increased by the benchmark’s 10% limit. However, more companies continued to suspend trading. Additionally, margin traders continued to reduce positions built up with borrowed money.
Meanwhile, the CPI improved, gaining 1.4% compared to last month. However, the PPI declined 4.8%, following declines over three successive years. The CSI 300 added 6.4%. Healthcare, consumer staples and industrial sub-indexes gained. Eight out of 10 industry groups posted advances. The Hang Seng increased 3.7%, recovering from its largest intraday decline in seven years suffered on Wednesday. The H-share index gained 3.1%.
Stocks in the News
Alibaba (NYSE:BABA) announced that it has invested in luxury flash sale website, Mei.com.
Financial terms and conditions were kept under wraps. However, according to Chinese media, Alibaba has agreed to invest more than $100 million.
According to 163.com, the investment will fetch Alibaba a 50%+ stake in Mei.com. The company will also form a dedicated service team which will help the website to increase the customer base and logistic service.
Mindray Medical International (NYSE:MR) recently announced a definitive agreement to acquire the remaining 49% stake in Wuhan Dragonbio Surgical Implant for approximately $72.6 million.
However, the news of the acquisition has failed to cheer investors, as share prices fell nearly 5% on Jul 7.
Dragonbio is a China-based manufacturer of trauma, spine and joint medical devices, and other surgical products. In 2012, Mindray Medical had purchased 51% stake in Dragonbio for $35.5 million. The total business is valued at $148.2 million. According to management, the integration procedure has been well on track, post 2012.
The recently announced transaction, which is expected to close in Jul 2015, will be funded through Mindray Medical’s existing cash reserves. Per management, this deal will not have any significant material impact on the company’s 2015 financials.
Renesola Ltd (NYSE:SOL) announced that it has sold its 13.5 megawatt (MW) Wedgehill utility scale solar project in the UK to a renowned solar energy generator. ReneSola is gradually scaling down its OEM manufacturing business to focus more on project development. The monetization of the Wedgehill utility scale solar project is part of this change in strategy.
In a separate development, the company said it has sold its 6.4 megawatt (MW) Field House utility scale project in the United Kingdom to funds managed by Foresight Group. ReneSola is gradually transitioning toward downstream development and servicing from OEM manufacturing. The monetization of the Field House utility scale solar project is part of this transition.
Trina Solar Limited (NYSE:TSL) announced that its partnership plans with a Malaysian original equipment manufacturer (“OEM”) are on track. The confirmation came soon after several reports cropped up in the Malaysian and U.K. press about Malaysia’s Sustainable Energy Development Authority COO Datu Dr Ali Askar Sher Mohamad turning down an application from Trina Solar to make photovoltaic or PV cells in the country. The reports claimed that Malaysia has taken steps to prevent the country from being turned into a “transshipment hub.”
Trina Solar ADRs slumped over 10% early on Jul 7 following the reports, ultimately settling down at a loss of 5.66% in late afternoon trading.
Trina Solar’s head of investor relations Yvonne Young, however, stated that the company’s current operations in Malaysia involve a cooperative pact with a local OEM partner, wherein the company supplies the components that are assembled into a solar panel. This business model was legally registered and is in compliance with local laws and regulations.
Noah Holdings Ltd (NYSE:NOAH) said that it will buy back $50 million of outstanding ADSs over a one-year period. Additionally, three of the company’s executive directors will buy Noah Holdings ADSs via the open market.
The outstanding shares will be bought back from the open market at current market prices. These repurchases may also take place through block traders and will conform to rules related to price, timing and volume.
China Nepstar Chain Drugstore Ltd (NYSE:NPD) said Simin Zhang, chairman of the Board has offered to take over the company. Zhang’s China Neptunus Drugstore Holding Ltd has offered to purchase outstanding shares and ADSs (each equal to two shares).
These shares and ADSs will be acquired at $1.30 and $2.60, respectively, in cash via a “going private” transaction. The purchase is expected to be funded through either debt or equity or a combination of both.
China Petroleum & Chemical Corp (NYSE:SNP) or Sinopec (HK:0338) and CNOOC Ltd (NYSE:CEO) are seeking to increase their exposure in Brazil’s deep-water oilfields. Recently, Petroleo Brasileiro S.A. or Petrobras (NYSE:PBR) announced its intention to divest assets worth $15 billion in 2015–16 in its latest 5-year plan.
According to sources, Petrobras has requested some international upstream companies, which have experience in the offshore exploration and production industry, to place bids for stakes in some concessions. The assets that are up for bidding include the company’s pre-salt blocks. According to Bloomberg, Sinopec and CNOOC Ltd intend to purchase stakes in the aforesaid offshore exploration blocks.
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.
Next Week’s Outlook:
Markets have lost $3.9 trillion within less than a month. Stocks’ dream run seems to have halted, primarily due to the rout unleashed by margin traders. With every passing day, positions built up through borrowed money are being reduced at a record clip.
A series of government measures are being consistently unveiled, but their effects have been limited to large state-owned enterprises. These have ranged from stringent regulation from the securities regulator as well as fund injection into state run enterprises.
Next week features key data on new yuan loans, balance of trade, fixed asset investment, industrial production and retail sales. Additionally, crucial GDP numbers will also be released. If most of these are on the positive side, stocks might receive a much needed boost. Meanwhile, it remains to be seen whether a series of measures taken by the government have their desired effect.