Markets suffered a week of significant losses, following concerns over new share sales and no announcements of additional monetary stimulus. The Shanghai Composite fell from a seven-year high on Monday following concerns that IPOs will draw funds away from older shares. Stocks declined again on Tuesday on similar fears and also due to concerns that valuations were exceeding earnings by a wide margin.

The benchmark rebounded on Wednesday after power producers gained following indications that industry-wide reforms will lead to an increase in earnings. By Thursday, stocks were set for their sharpest weekly loss in more than six years.

Alibaba’s BABA digital entertainment business’ president Liu Chunning said it plans to launch China’s very own version of Netflix Inc. NFLX and HBO -- Tmall Box Office (TBO). Qihoo 360 Technology Co. Ltd. QIHU has received a takeover offer from a group of buyers headed by the company’s CEO Hongyi Zhou.

Last Week’s Developments

Last week, the benchmark index gained 2.9%. The Shanghai Composite Index advanced 0.9% on Friday. Prospects of additional monetary stimulus negated concerns that IPOs would lure funds away from existing stocks. Meanwhile, China Merchants Co. said the country’s central bank may lower reserve requirement ratios by this weekend itself, boosting investor sentiment further.

Stocks gained last week following optimism about the economy created by bullish economic data. Industrial output increased 6.1% in May, exceeding the 5.9% recorded in April. Retail sales surged 10.1% while fixed asset investment gained 11.4%.

New home sales increased at a faster clip than the 16% year-over-year increase recorded in April. Additionally, aggregate financing exceed estimates, coming in at 1.22 trillion yuan. New yuan loans also exceeded expectations, coming at 900.8 billion yuan.

Markets and the Economy This Week

The Shanghai Composite lost 2% on Monday, recording the highest decline since May 28. The benchmark fell from a seven-year high following concerns that IPOs will draw funds away from older shares. Losses were led by tech stocks. The small-cap Chi-Next index slumped 5.2% following concerns created by the upcoming 25 new share sales.

The CSI 300 declined 2.1%. All of its 10 sub-indexes suffered losses with tech and telecom stocks losing a minimum of 4.3% and emerged as the largest losers. The Hang Seng China Enterprises Index lost 2.6% while the Hang Seng moved down 1.5%. No announcements of further monetary stimulus, which was expected to come in over the weekend, also dented sentiments.

Stocks declined again on Tuesday, marking the Shanghai Composite’s largest two day loss for June. Fears that valuations were exceeding earnings by a wide margin and concerns that IPOs would lure funds away from older stocks were responsible for the day’s losses. The benchmark index slumped 3.5% taking two-day losses to 5.4%.

The CSI 300 lost 3%. Gauges of telecom and tech stocks within the index declined a minimum of 3.5%. The ChiNext declined 2.9% and had retreated 9.8% from the record high achieved on Jun 3. The Hang Seng declined 1.1%.

The H-share index moved down 2.7% and had lost 10% since the record level achieved on May 26. The Shenzhen Composite declined 3.5%. Technical issues have led to a delay in the announcement of the date of commencement of the Hong Kong-Shenzhen exchange link.

The Shanghai Composite rebounded on Wednesday, gaining 1.7%. Stocks moved upward after power producers gained following indications that industry-wide reforms will lead to an increase in earnings. Additionally, lenders gained after the government agreed to allow partial privatization of government owned enterprises.

The ChiNext index of small-cap stocks spiked 4.2% while the CSI 400 increased 1.5%. Sub-indexes of tech and utility stocks increased by a minimum of 3.3%, emerging as the best performing industry. The Hang Seng moved up 0.7% while the Hang Seng China Enterprises Index advanced 1.2%.

Stocks were set for their sharpest weekly loss in more than six years on Thursday. New share sales tied up funds and investors pondered whether markets’ gains have come too fast and were excessive in nature. The Shanghai Composite slumped 3.7%, losing 7.4% over the week. Tech and consumer stocks led losses.

The CSI 300 declined 4.1%. The ChiNext slumped 6.3% while the Hang Seng declined 0.2%. The H-share index lost 1.1%. Meanwhile, home prices declined in a lower number of cities in May, marking the third successive month when the number of cities witnessing price decline has come in lower. Additionally, FDI increased 7.8% in May on a year-over-year basis.

Stocks in the News

Alibaba’s digital entertainment business’ president Liu Chunning said that the company’s goal is to become like Netflix and HBO in the US. On Sunday, Chunning, in a press briefing announced Alibaba’s plan to launch China’s very own version of Netflix and HBO - Tmall Box Office.

The new service, set to be rolled out in two months, will be offered via Alibaba’s set-top box and smart televisions manufactured by Haier Group Corp. While some of the content will be domestically produced, some of it will be purchased overseas. No details regarding how much TBO will cost to viewers were revealed.

Qihoo 360 Technology Co. Ltd. has received a takeover offer from a group of buyers headed by the company’s CEO Hongyi Zhou. Qihoo 360, which makes mobile security software, joins the slew of China-based tech companies that have received offers to delist from the NYSE and return home.

Zhou’s investor group has offered to pay $77 per ADS to purchase all outstanding stock. This is 17% higher than Tuesday’s closing price. On Wednesday, Qihoo spiked 6.2% to $70.15 on the NYSE. The stock was primarily responsible for a 1.6% increase in the Bloomberg China-US Index.

Meanwhile, SouFun Holdings Ltd. SFUN and Xunlei Limited XNET each gained a minimum of 9%. Analysts believe both these companies may also soon receive takeover offers. Qihoo had a market cap of $8.63 billion as of the end of Tuesday’s trading. According to analysts, it is possibly the largest China tech company listed in the U.S. to receive a takeover offer recently.

Trina Solar Limited TSL is planning to set up a $500 million plant in India along with Welspun Energy Ltd. The 2-GW factory is likely to be located in the state of Andhra Pradesh, located in the southern part of the country or Gujarat which is situated in the west.

Senior vice president of Trina, Zhiguo Zhu said the products manufactured at this facility will be exported to the US or Europe. Market watchers believe that this is another attempt by the world’s largest supplier of solar panels to work around US and EU sanctions on Chinese solar exports.

Meanwhile, Trina expects India’s demand to amount to 600 MW in the current year. Zhiguo said that by 2016, India will emerge as its third largest market. This means that the bulk of the plant’s output would be used to meet local and regional demand.

Yingli Green Energy Holding Company Limited YGE or “Yingli Solar” announced that it has connected its 50 MW PV power plant, located in Hebei Province, China, to the utility grid.

The 50 MW PV power plant is the first and largest power plant in Handan City, Hebei Province. This province neighboring Beijing is one of the most polluted in China due to its thriving steel industry. This province has loads of coal based power generation units, supplying power to the steel industry. However, the State Council has ordered the Hebei Province to cut production of iron and steel to reduce smog.

The new solar project is expected to generate nearly 54 million kilowatt-hours of solar electricity annually, equivalent to offsetting about 50,000 tons of carbon emissions per year. This project will generate annual revenues of $8.7 million (RMB 54 million) from national feed-in-tariffs for the next 20 years.

Yingli Solar is planning to transfer this project to a third party, which is expected to be completed in the second half of 2015. With this, the company has added nearly 180 MW of green energy to the grid.

China National Offshore Oil Corp. CEO or CNOOC subsidiary CNOOC Finance Corporation Ltd recently saw rating action by Moody’s Investors Service. The outlook of the subsidiary was affirmed at stable.

The rating agency has also maintained CNOOC Finance Corporation Ltd's Aa3 issuer rating. CNOOC Finance Corporation is a corporate finance company wholly owned by the members of CNOOC Group and also functions as an exclusive internal treasury center.

The rating agency believes that CNOOC Group might endeavor to preserve the financial strength of CNOOC Finance. CNOOC Finance's strong balance sheet, with no external debt also lends credibility to the picture.

JD.com, Inc. JD has entered into a partnership with Russian online retail company Ulmart. The company now joins other online retailers like eBay EBAY and Alibaba who are attempting to make an entry into the country’s growing online retail market.

The country has the highest population of Internet users in Europe, according to web analytics company comScore. Russia overtook Germany in terms of Internet Users in 2011. Speaking to reporters, Victor Xu, president of the company’s international business group said that this was the beginning of the company’s global expansion push.

JD.com said cross-border online trade in Russia is projected to increase two-fold this year and touch $14 billion, based on data from research company Gfk. In 2014, China contributed 63% of Russia’s foreign online shopping. 

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:

Stocks suffered their starkest losses this week, following concerns over new share sales. The lack of monetary stimulus, expected to have been implemented over the weekend, also contributed to these losses. Economic data was more or less positive in nature, but could not prevent the slump in stocks.

Meanwhile, fears that IPOs would lock up funds have come true to a great extent. One survey estimates that new share sales will attract $1.1 trillion worth of funds. Market watchers opine that an equity bubble has built up due to gains which have been excessive and have come at a fast clip. Over the last 12 months, the benchmark has increased two-fold and breached a seven-year high last week.

Next week is bereft of any major economic reports but for HSBC flash PMI data. In the absence of such data, government reforms will occupy the spotlight. Measures such as speeding up the pace of reforms in state-owned enterprises, allowing mixed ownership and loosening regulations on real estate have received a positive response from investors. Any similar move will help stocks rebound. In particular, further monetary stimulus will certainly help stocks to return to their winning ways.

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