Markets experienced a volatile week, gaining and losing on alternate days. The Shanghai Composite Index slumped on Monday after stocks experienced the worst selloff for the year. The benchmark index rebounded on Tuesday as healthcare and tech stocks led the gainers for the day. The Shanghai Composite Index declined heavily on Wednesday, closing at its lowest level since Aug 26. The benchmark index rebounded late in the day to close in the green on Thursday.

PetroChina Co. PTR has partnered with Chevron Corp. CVX to produce natural gas in the southwestern area of China at the end of last year, after a long delay. Gas well-A in the Luojiazhai field of Southwest China commenced production of natural gas commercially on Dec 30. China Unicom (Hong Kong) Ltd. CHU and China Telecom Corp. Ltd. CHA, the second and third largest mobile phone carriers in China respectively, have reportedly entered into an agreement to share their resources for various strategic initiatives.

Last Week’s Developments

Last Friday, the Shanghai Composite index surged 2% at the end of trading, after losing nearly 2.2% earlier in the session. Stocks moved upward after the contentious circuit breaker mechanism was discontinued by the government. An early end to trading on last Monday and Thursday triggered this decision.

Additionally, the People’s Bank of China increased the daily reference rate for the yuan marginally higher. This increase followed eight successive cuts which had disturbed global markets. Meanwhile, government backed funds bought shares, concentrating on financials and key index components, leading to gains for stocks.

The CSI 300 added 2%. The Hang Seng advanced 0.6%. The Hang Seng China Enterprises index rebounded from its lowest level in four years, gaining 1.1%. China Petroleum & Chemical Corp. SNP or Sinopec, was the leading gainer among energy companies. The benchmark index reduced its weekly decline to 10%. However, this was the largest weekly loss experienced since August.

Markets and the Economy This Week

The Shanghai Composite Index slumped on Monday, losing 5.3% after stocks experienced the worst selloff for the year. Investors have started losing confidence in the steps being taken by the government to boost the economy and reduce market volatility. Factory get price declined for the 46th successive month in December, heightening concerns about the economy.

Additionally, PPI declined 5.9% on a yearly basis in December. In contrast, the CPI increased 1.6% on a yearly basis. This further exacerbated fears about the economy. Major market component PetroChina slumped, falling 3.6%. This Chinese oil major has reportedly been supported by government purchases over a long period.

The CSI declined, losing 5%. A sub-index of tech stocks on the CSI 300 slumped 5.8%, emerging as the largest loser among the industry groups. The ChiNext lost 6.3%. The Hang Send declined 2.8% while the Hang Seng China Enterprises Index lost 3.9%.

The benchmark index rebounded on Tuesday, gaining 0.2% after falling by nearly 1.3% earlier in the session. Healthcare and tech stocks led the gainers for the day. According to sources, China’s central bank acted more than once to boost offshore yuan during the day. Meanwhile, China’s officials seem determined to change the view that the yuan is on a downward path.

The CSI 300 gained 0.7% with healthcare and tech stocks leading the gainers. The Hang Seng declined, losing 0.9%. Meanwhile, the Hang Seng China Enterprises Index lost 0.8%. The benchmark index had fallen below the 3,000 mark during the session. Also, the index’s 10-day volatility remained close to levels last witnessed in September. 

The Shanghai Composite Index lost 2.4% on Wednesday, closing at its lowest level since Aug 26. PetroChina fell to its lowest level in more than a year. Stocks fell to their lowest point since 2015’s major selloff. A surprising increase in exports and steps taken by the government to stabilize the yuan could not assuage investors fearful of an economic slowdown.

The benchmark index fell below the 3,000 mark for the first time since the selloff experienced in August 2015. Nearly $5 trillion was obliterated following a major selloff which was caused by excessive marginal lending.

The CSI 300 lost 1.9%. Telecom, healthcare and industrial shares were the largest losers for the day. The Hang Seng advanced 1.1% while the Hang Seng China Enterprises Index increased 0.7%.

The benchmark index rebounded late in the day increasing 2% at the end of Thursday’s trading session. Stocks were perilously close to slipping into a bear market comparatively low valuations lured investors hunting for bargains. A section of small companies also promised to prop up share prices.

The Shanghai Composite recovered from losses as grievous as 2.8% even as an index of volatility increased to its highest point since September. The ChiNext gained 5.6% after a number of member companies promised to take steps to stabilize the market.

The CSI increased 2.1%. All of its 10 industry groups posted gains. Assurances by the government that it would take steps to support the market also helped stocks recover. The Hang Seng lost 0.6% while the Hang Seng China Enterprises Index declined 0.6%.

Stocks in the News

PetroChina has partnered with Chevron to produce natural gas in the southwestern area of China at the end of last year, after a long delay. Gas well-A in the Luojiazhai field of Southwest China commenced production of natural gas commercially on Dec 30. This is eight years after the companies entered into a 30-year production sharing deal in 2008.

The Luojiazhai project is the first of the three phases of the Chuandongbei development, which will likely cover 309 square miles. As per sources, the first phase is projected to produce 3 billion cubic meters of gas annually. Chevron and PetroChina will operate in the same area for the second and the third phases.

Chevron with a 49% interest in the sour gas project is the operator. PetroChina is the owner of the remaining stake.

China Unicom (Hong Kong) and China Telecom Corp., the second and third largest mobile phone carriers in China respectively, have reportedly entered into an agreement to share their resources for various strategic initiatives. The partnership is being largely seen as a strategic cooperation to challenge the dominance of the much larger China Mobile Limited (). Presently, China Mobile enjoys a 63% share of the Chinese mobile market in terms of subscribers, far ahead of the combined 36% market share held by China Unicom and China Telecom.

Network sharing of rural 4G infrastructure is one of the key components covered in the agreement. China’s 4G market is growing at a fast rate and these two companies foresee a large opportunity in the rural sector to grow their customer base. Such strategic cooperation is expected to provide 40% savings in capital expenditure versus building the infrastructure alone, thereby generating positive return for the companies. In addition, further synergies of about 50% savings in operational costs will make way for a higher return on investments in the long term.

Other plans like promoting a high end ‘six-mode’ smart phone capable of supporting various bands, developing new ventures for creating innovative services, and improving customer experience also find priority in the agreement.

Yingli Green Energy Holding Co. Ltd.’s YGE European subsidiary, Hainan Yingli New Energy Resource Co, LTD. ("Hainan Yingli"), has formed a joint venture (“JV”) with a Demeter Corporation PLC subsidiary, Demeter Power Company Limited.

The JV aims to set up a new solar panel factory in the Pruckdang district in Rayong, Thailand, which will have an annual capacity of 300 megawatts (“MW”) of photovoltaic (“PV”) panels.

Per the agreement, Yingli will have a 40% stake, while Demeter holds the remaining 60% in in the JV, which has a capital investment of around $19 million. Yingli will sell the panels under its own brand name. Operations are expected to begin in the second half of 2016.

Trina Solar Ltd TSL completed three distributed generation ("DG") projects and successfully connected them to the grid in Suqian City, Jiangsu Province, China at 2015 end.

Powered by 110,000 Trina Solar “Honey” modules, these wholly owned projects have a total capacity of 27 megawatt (“MW”). With this addition, the total number of DG PV projects in Trina Solar’s portfolio exceeded 100 MW by the end of 2015.

The latest projects are installed on the rooftops of three big manufacturing factories located in the Suqian Economic & Technological Development Zone ("SEDZ") and will likely eradicate up to 29,000 tons of carbon dioxide emissions per year.

The DG projects will generate approximately 30 million kilowatt hour (kWh) per year over the next two decades. The power is being supplied to the local grid through power purchase agreements.

The projects were said to have been eligible for a 20-year benchmark on-grid tariff of 1.0 RMB/kWh based on the former feed-in-tariff program in China. The company had expected to connect to the grid between 700 MW and 750 MW of PV power plants in 2015.

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:

The government has taken several steps to boost the yuan and prop up financial markets. Markets have responded to these measures favorably and seem to have recovered from the reverses suffered earlier this week. However, it remains to be seen whether or not stocks are able to sustain their momentum.

Meanwhile, data on exports has been encouraging, even though other reports have been discouraging. Data on housing prices, retail sales, fixed asset investment, industrial production and GDP is scheduled for release over the next few days. If most of these reports are encouraging in nature, markets may be able to sustain their winning ways. 

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