Markets experienced a strong week of gains as the government’s intervention measures to stop the downslide seemed to be having their desired effect. Stocks moved up on Monday, riding on gains made by small cap stocks. The Shanghai Composite moved above the 4,000 mark on Tuesday as this effect continued.
Stocks managed to ride out an initial decline on Wednesday, recovering within the last hour of trading. The Shanghai Composite Index increased on Thursday, with financial and materials stocks emerging as the largest gainers.
Alibaba Group BABA and Unilever plc UL recently entered into a strategic alliance to facilitate the international FMCG group to reach more consumers in China. New Oriental Education & Technology Group Inc. EDU reported fourth quarter earnings per share of 23 cents, lower than 27 cents in the same quarter last year.
Last Week’s Developments
The Shanghai Composite gained 3.5% last Friday, notching up its largest increase in a week. Speculation that the government was increasing funds to bolster the country’s equity market pushed stocks upward. The benchmark’s gain helped to negate a weekly decline. Meanwhile, the Shenzhen Composite jumped 5% on gains from tech shares. This was its largest gain recorded in three years.
The day’s gain resulted from news that China Securities Finance Corp. possesses funds to the tune of 2.5 trillion yuan to 3 trillion yuan ($483 billion). The agency offers margin finance and liquidity to capital markets. These funds will be used to provide liquidity to brokerages and buy stocks and mutual funds.
This was the latest in a series of measures being used by the government to support markets. As a result, the benchmark index has gained 9% between July 8 and 16 after a massive slide. Last Friday, the CSI 300 increased 3.9%.
Gauges of phone and tech stocks within the CSI 300 each gained 6.3%. Meanwhile, a separate sub-index of property stocks increased 4.5%. The small cap heavy ChiNext surged 6%. The Hang Seng moved up 1% while the Hang Seng China Enterprises Index advanced 0.9%.
Markets and the Economy This Week
Stocks moved up again on Monday, riding on gains made by small-cap stocks. The Shanghai Composite Index added 0.9% and had fluctuated within 2.4% during the trading session. This was the lowest range of price swings experienced since Jun 12. Tech shares jumped, powering a 2.3% increase in the ChiNext.
Meanwhile, the number of companies which had stopped trading on mainland exchanges, declined from 635 at the close of Friday’s trading to 576. The CSI 300 advanced 0.2%. Sub-indexes of tech and phone stocks increased in excess of 2%. PetroChina PTR jumped 4.3%, heading the gains for energy stocks. The Hang Seng’s decline was lower than 0.1% while the H-share index declined 0.6%.
The Shanghai Composite moved above the 4,000 mark on Tuesday and notched up a 0.6% increase. Stocks recorded their largest period of gains in nearly two months as small-cap stocks continued to move upward. Indications that the government’s efforts have reduced market volatility were another reason for these gains.
The tech and new economy heavy ChiNext index increased 1.2%. Meanwhile, more companies returned to the exchanges. The number of stocks which had suspended trading declined from 576 on Monday to 543. The CSI 300 increased 0.1%. The Hang Seng moved up 0.5% while the Hang Seng China Enterprises Index advanced 0.8%.
The measure of 10-day volatility for the benchmark index declined to the lowest level in a month. This was possibly a result of several government measures taken to bolster equity markets. Meanwhile, China’s FDI increased 0.7% in June, coming in ahead of estimates.
Stocks managed to ride out an initial decline on Wednesday, recovering within the last hour of trading. The Shanghai Composite advanced 0.2% on a fifth day of gains. The ChiNext increased 0.2%. However, the CSI 300 lost 0.2%. Sub-indexes of tech and telecom stocks led gains within the CSI 300, moving up by a minimum of 2.3%.
Shipping stocks led gains on the mainland. These gains came after a gauge of commodity shipping rates increased to its highest level in more than seven months. However, the H-share index lost 1.2%. The Hang Seng declined 1%. Fears that a lower rate of growth will weigh down earnings was one of the reasons for the decline.
Additionally, significant equity market intervention by the government led to fears that market reform would be pushed back. Analysts opined that foreign investors are concerned about lower growth since most of the companies on the exchanges are large caps with a high level of exposure.
The Shanghai Composite Index increased 2.4% on Thursday, with financial and materials stocks emerging as the largest gainers. A measure of 10-day volatility declined to its lowest level in a month. The benchmark has rallied 18% since the low it hit on Jul 8. An article in the People’s Daily said that the government should pull back some market stabilization over time and regularize others which are in keeping with reforms.
The CSI 300 increased 2.3%. The Hang Seng moved up 0.6% while the Hang Seng China Enterprises Index increased 1%. Materials stocks gained ahead of the manufacturing data scheduled for release on Friday. Additionally, brokerages gained the most among financial stocks.
Stocks in the News
Alibaba Group and Unilever plc recently entered into a strategic alliance to facilitate the international FMCG group to reach more consumers in China.
According to a statement issued by the companies on Sunday, the comprehensive partnership would include product sales and cover innovation and collaboration across a broad range of applications and logistics.
The partnership mainly aims to expand Unilever's access to rural Chinese consumers. However, it will also entail cooperation on digital advertising to reach more consumers through online-offline retail integration (Via Alimama, Alibaba's online marketing platform), cross-border e-Commerce distribution channels (on Tmall Global), big data analytics and supply chain management.
The partnership will also check the sale of forged Unilever goods with the help of Alibaba's Blue Star program, which uses an exclusive QR code to help customers validate the authenticity and origin of products.
Trina Solar Ltd. TSL has inked a deal with an affiliate of China Energy Engineering Group Co. Ltd. to supply 51 megawatt (“MW”) of dual glass solar modules for a photovoltaic (“PV”) power project at tea plantations in Xishuangbanna, Yunnan province of China. This is the first project of its kind in the country.
A unit of China Energy Engineering Group − Yunnan Electric Power Design Institute − is the engineering, procurement and construction provider for the 100 MW agricultural PV power plant project. Under the first phase, Trina Solar will supply approximately 43,516 of its TSM-255 modules and 154,284 of its TSM-260 model. The shipments are expected to be completed in the third quarter of 2015.
CNOOC Ltd. CEO announced the commissioning of its Luda 10-1 comprehensive adjustment project.
Located in Liaodong Bay of the Bohai Sea, the Luda 10-1 oilfield lies in an average water depth of about 30 meters. Moreover, a wellhead platform has been constructed by this adjustment project to completely utilize the existing facilities of Luda 10-1. Currently, 13 producing wells are yielding about 3,300 barrels of crude oil per day.
In 2016, the adjustment project is anticipated to touch its ODP-designed maximum production of about 6,000 barrels of crude oil per day. CNOOC fully owns and operates the independent oilfield Luda 10-1.
New Oriental Education & Technology Group Inc. reported fourth quarter earnings per share of 23 cents, lower than 27 cents in the same quarter last year. Net earnings also declined from the year-ago figure of $42.9 million to $35.2 million in the fourth quarter.
However, total revenue increased from $287.5 million in the year-ago period to $328.8 million. Educational programs and services provided net revenue of $267.6 million. This is 13.3% from the same period last year.
Additionally, the company has announced a special cash dividend of 40 cents per ADS. The dividend will be paid on Oct 7, 2015 and the ex-dividend date is Oct 5, 2015. Shareholders on record as of Sep 4, 2015 at the closing of business will be eligible.
JD.com, Inc. JD has announced that it will begin selling goods of U.S. origin. It will be creating a new channel on its site for this purpose. This move is part of its efforts to take on its larger competitor Alibaba. Each of these rivals has begun selling products from France, Australia, Japan and South Korea.
This channel, which has been named “U.S. Mall” will offer several U.S. brands. This includes the likes of Nautica, Converse, Ocean Spray, Samsonite and apparel from Jeep. By offering such brands, JD.com is looking to tap the fast expanding base of middle class customers in China.
Additionally, JD.com will begin selling Taylor Swift merchandise for the first time in China. This will include a special line of clothing for customers of JD.com.
Yingli Green Energy Holding Co. Ltd. YGE said that its subsidiary company Yingli Energy (China) Company Ltd. or Yingli China has been chosen to build a 50 MW solar power plant at the National Advanced PV Technology Demonstration Center. This facility will we located in Datong in the Shanxi province of China.
This facility will be among the leading demonstration projects at this center, which is located in Datong on land reclaimed from mining. The demonstration center has recently received approval from the National Energy Administration and is part of its "Top Runner" program.
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.
Ticker | Last 5 Day’s Performance | 6-Month Performance |
BABA | +4.8% | -19.1% |
SFUN | -0.5% | +4.6% |
JD | +9.2% | +45.4% |
VIPS | -5.2% | -1.8% |
BIDU | +9.6% | -10.5% |
TSL | -7.5% | +12.5% |
EDU | -2.5% | +19.2% |
QIHU | +3.4% | +10.8% |
BZUN | +7.7% | -14.1% |
DANG | +5.3% | -23.6% |
Next Week’s Outlook:
Markets have responded enthusiastically to the series of government measures taken to bolster equities. The benchmark index has staged a successful recovery from a downturn which erased market value of $4 trillion. Measures have included suspension of trading for 1,400 and more companies, preventing shareholders from offloading stakes, delaying IPOs and providing a government agency with access to funds in excess of $480 billion to fund purchase of equities.
Concerns over sluggish growth still continue. Meanwhile, international investors believe that excessive equity market intervention by the government could delay reforms. However, volatility has declined significantly and markets seem to have stabilized. The effects of such extensive government measures will possibly last for quite some time as normalcy returns to the markets and the government slowly removes some of these measures. This is why stocks could possibly continue to notch up gains in the days ahead.
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Click to get this free report PETROCHINA ADR (PTR): Free Stock Analysis Report CNOOC LTD ADR (CEO): Free Stock Analysis Report UNILEVER PLC (UL): Free Stock Analysis Report TRINA SOLAR LTD (TSL): Free Stock Analysis Report YINGLI GREEN EN (YGE): Free Stock Analysis Report NEW ORIENTAL ED (EDU): Free Stock Analysis Report JD.COM INC-ADR (JD): Free Stock Analysis Report ALIBABA GROUP (BABA): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research