Markets experienced another disappointing week, shortened by a major military parade to be held on Thursday and Friday. The Shanghai Composite Index slipped on Monday on fears that government measures to boost the markets will prove to be ineffective.

Stocks declined again on Tuesday after an official manufacturing index fell to a three-week low. The benchmark declined again on Wednesday but speculation that the government was boosting markets ahead of the military parade to be held on Thursday and Friday led to stocks cutting losses.

PetroChina Co. Ltd. PTR announced first-half 2015 earnings of RMB 25.4 billion or RMB 0.14 per diluted share, compared with RMB 68.1 billion or RMB 0.37 per diluted share a year earlier. Qihoo 360 Technology Co. Ltd. QIHU reported second-quarter 2015 earnings per ADS of 66 cents, surpassing the Zacks Consensus Estimate of 50 cents on the back of higher revenues

Last Week’s Developments

Last Friday, the Shanghai Composite Index increased 4.8%, gaining for the second consecutive day. Indications of additional measures by the government intended to prop up markets led to stocks moving upward. On Friday, senior government functionaries said local government managed pension funds will begin investing 2 trillion yuan ($313.05 billion) in stocks and other securities shortly.

Additionally, the central bank took actions to ensure yuan stability in order to address concerns about more depreciation taking place. However, the benchmark index still lost 7.9% over the week, following apprehensions earlier in the week that the government was gradually withdrawing support measures. The blue-chip CSI 300 index increased 4.3%, cutting its weekly decline to 6.9%.

The small-cap heavy Shenzhen Composite Index surged 5.4% while the ChiNext jumped 6%. However, the Hang Seng took losses in the final session, ending 1% lower.  Banking stocks, which had posted strong gains on Thursday took losses after reporting nearly no addition in profits and a jump in bad loans. These developments further heightened worries about the economy.

Markets and the Economy This Week

The Shanghai Composite Index slipped 0.8% on Monday on fears that government measures to boost the markets will prove to be ineffective. The benchmark index declined 12% over the month after losing 14% in July. This is the Shanghai Composite’s largest two-month loss in seven years.

However, the SSE 50 Index, which represents the country’s largest stocks, staged a strong recovery, gaining 6.7% from an intraday low. Meanwhile, the benchmark index ended the trading session at the highest level for the day for the third consecutive time. Speculation was rife that funds backed by the government are making share purchases in the afternoon to boost markets before a major military parade to be held this week in China.

Traders opined that the government was purchasing shares in order to stabilize the bourses at current levels. However, confusion prevailed about stock purchases by funds with government linkages since information on this count was extremely limited.

The CSI 300 Index gained 0.7% after losing nearly 4.1% earlier in the day. Sub-indexes of material, tech and consumer stocks lost a minimum of 1.1%. The Hang Seng increased 0.3% while the Hang Seng China Enterprises Index slipped by 0.1%.

Stocks declined again on Tuesday after an official manufacturing index fell to a three-week low. Concerns that government measures to boost the markets would prove to be inadequate also led to losses for stocks. The Shanghai Composite Index lost 1.2%, recovering from a decline of nearly 4.8%.

Oil and bank stocks helped reduce losses. This came as a much-needed breather for stocks after the government’s manufacturing PMI declined from 50 to 40.9 in August. This is the lowest level registered in three years and was in keeping with preliminary numbers from Markit and Caixin’s PMI which slumped to a reading not experienced in a period exceeding six years. 

Meanwhile, the benchmark index ended the trading session at the highest level for the day for the fourth consecutive time. The SSE 50 Index gained 0.9%, overcoming intraday losses of nearly 4.8%. Market mover PetroChina Co. increased almost 3%.

The CSI 300 lost 0.1%, while ChiNext slumped 5.4%. Sub-indexes of consumer discretionary and tech stocks lost a minimum of 2.4%, emerging as the largest decliners among the CSI’s industry groups. The Hang Seng declined 2.2% while the Hang Seng China Enterprises Index lost 3%.

The Shanghai Composite Index lost 0.2% on Wednesday, rebounding from a nearly 4.7% intra-day decline. Speculation that the government was boosting markets ahead of the military parade to be held on Thursday and Friday led to stocks cutting losses. Shares of large companies recovered to post gains for a sixth day. This was possibly due to substantial stock purchases made by funds with government linkages.

The CSI 300 increased 0.1%, overcoming an intraday decline of nearly 4.4%. This was due to gains made by utility and tech shares. Sub-indexes of financial and utility stocks within the index gained a minimum of 0.7%.

However, seven stocks declined for every two which posted increases, despite government measures. A gauge of tech stocks slipped 0.9%, erasing gains of nearly 2.3% made earlier in the day. The Hang Seng lost 1.2% while the Hang Seng China Enterprises Index declined 1.6% to close at its lowest point since Mar 2014.   

Stocks in the News

PetroChina Co. Ltd. announced first-half 2015 earnings of RMB 25.4 billion or RMB 0.14 per diluted share, compared with RMB 68.1 billion or RMB 0.37 per diluted share a year earlier. Earnings per ADR came in at $2.30 (exchange rate: US$1.00 = RMB 6.1, 1 ADR = 100 shares). Moreover, total revenue for the six months fell 23.9% from the 2014 period to RMB 877.6 billion.

Crude oil output – accounting for 65% of the total – rose 2.6% from the year-ago period to 477.5 million barrels (MMBbl), while marketable natural gas output was up 3.6% to 1,549.6 billion cubic feet (Bcf). As a result, PetroChina’s total production of oil and natural gas increased 2.9% year over year to 735.9 million barrels of oil equivalent.

The company’s ‘Refining & Chemicals’ business turned profitable for the first time since 2011, generating an operating income of RMB 4.7 billion. This is a significant turnaround from the year-earlier period loss of RMB 3.4 billion.

PetroChina was able to take advantage of high natural gas consumption, which was up 2.1% year over year to 90.6 billion cubic meters. This helped the group’s natural gas business to report an income of RMB 14.9 billion in the first half, a massive 264.1% jump from the year-earlier profit of RMB 4.1 billion.

Qihoo 360 Technology Co. Ltd. reported second-quarter 2015 earnings per ADS of 66 cents, surpassing the Zacks Consensus Estimate of 50 cents on the back of higher revenues. Earnings per ADS exclude the interest expense of convertible senior notes but include share-based compensation expenses.

Qihoo’s total revenue was $438.3 million, up 14% sequentially and 37.9% year over year, driven by continued momentum in online advertising. Reported revenues were at the lower end of management’s expected range of $435 million to $445 million but missed the Zacks Consensus Estimate of $441 million.

Online advertising revenues were $293.9 million, up 19.8% sequentially and 71.6% year over year. Internet value-added service revenues were $122.2 million, down 8.6% sequentially and 16.4% year over year.

E-Commerce China Dangdang Inc. DANG reported second quarter loss per ADS of 4 cents, narrower than the Zacks Consensus Estimate of a loss of 7 cents.  However, the reported figure compares unfavorably with earnings of 6 cents per share reported in the year-ago quarter.

Dangdang posted revenues of $373 million in the second quarter. This represents a 29.8% increase compared to the same period last year. The company had around 9.7 million active customers, which includes 3.5 million new customers during this period. These figures are 15% and 19% higher than those recorded in the year-ago period.

Yingli Green Energy Holding Co. Ltd. YGE announced preliminary second-quarter 2015 results and its earnings release date. The company will announce its earnings results before the opening bell on Sep 8, 2015.

Per initial data, Yingli Green projects second quarter 2015 module shipments in the range of 720–730 megawatt (“MW”), within the earlier guided band. Module shipments in the second quarter of 2014 were 887.9 MW.   

The company estimates that its overall gross margin in the second quarter of 2015 will be in the range of 6–7%, compared with 14.1% recorded in the first quarter of 2015 and 15.6% clocked in the prior-year quarter. The gross margin for the sale of PV module is estimated in the range of 7–8%.

Yingli Green hinted that apart from a drop in the average selling price of PV modules, higher shipments to China also had an adverse impact on the company’s total net revenues for the to-be-announced quarter.

Baidu, Inc. BIDU launched a service that will enable China's ever increasing Internet population to schedule a doctor’s appointment online through its health information portal, Jiankang.baidu.com.

Currently, this service is free, but eventually the company plans to charge doctors a small portion of their consultation fees. Baidu believes this service will have high demand in China due to its rising health issues but inadequate medical workers.

JA Solar Holdings Co., Ltd. JASO announced that Australia's Moree Solar Farm has started installing JA Solar’s modules supplied since June this year. JA Solar will continue to supply its JAP6-315 and JAP6-310 modules to meet all module requirements for the project.

Located 10 km south of Moree in northern New South Wales, the Moree Solar Farm is a 70 megawatt facility. Fotowatio Renewable Ventures, the owner of the project, obtained financing in Aug 2014. Total project financing of $164 million included a $102 million grant from the Australian Renewable Energy Agency and $47 million debt financing from the Clean Energy Finance Corporation. Construction of the project started in Nov 2014.

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:

China’s markets experienced another week of losses as investors remained unconvinced about the effectiveness of measures taken by the government to boost markets. However, stocks managed to cut losses following speculation that the government had stepped up large scale purchases of shares ahead of the major military parade on Thursday and Friday.

Meanwhile, uncertainty prevails about government intervention in market activity going forward. This is primarily because very little information is available on this count. However, at this point it seems the reformist bloc of the policymakers has an upper hand at this point and intervention may be minimized going forward.

Ultimately, the key lies with economic data which has been extremely dismal for some time now. It is imperative for them to acquire a positive tone for the markets to acquire a strong basis for gains. Next week features some important economic reports. This includes data on trade balance and inflation. Investors would receive a much needed boost going forward if these reports are positive in nature.

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