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Stocks have had an excellent week so far, with an economic turnaround seeming imminent. The benchmark index gained on Monday ahead of the release of manufacturing reports which were expected to be on the positive side.

Stocks gained on Tuesday as well after both official and private numbers indicated an expansion in manufacturing. The effects of these reports spilled over into today’s session as markets enjoyed their longest winning streak in three weeks. LightInTheBox Holding Co., Ltd. (LITB - Snapshot Report) raised its guidance for 2Q14 while Tencent Holdings purchased a stake in 58.com Inc. .

Last Week’s Developments

The benchmark index slipped on Friday, recovering from early losses. Gains by growth sensitive metal producers negated losses by insurance companies. Comments about the timing of a possible U.S. rate hike by a Fed official also acted as a drag on indices. The Hang Seng China Enterprises Index declined 0.3%.

The Shanghai Composite Index declined 0.1% while the CSI 300 moved up 0.1%. All the three IPOs which made their debut last Thursday gained 10% each over the trading day. The Bloomberg China-US Equity Index increased 0.3%.

The Shanghai Composite Index gained 0.5% over the week while the CSI 300 increased 0.6%. In contrast, the Hang Seng China Enterprises Index lost 0.9% over the week. The tech heavy ChiNext gained 5.2%, its highest weekly gain in five weeks. This was primarily due to the resumption of new share sales.  

Markets and the Economy This Week

The benchmark index gained on Monday, ahead of manufacturing data to be released on Tuesday which was expected to indicate that the economy has improved. The Shanghai Composite Index increased 0.6% over the day. The benchmark also gained 0.7% over the quarter, its first increase since September.

A reduction in reserve-ratio requirements for certain banks has provided a fillip to the economy. An increase in expenditure on infrastructure to arrest a slowdown in property markets is another stimulus measure from the government which has contributed to markets’ gains.  The CSI 300 closed 0.7% higher.The Hang Seng China Enterprises Index gained 0.3%.The Bloomberg China-US Equity Index increased 0.2%.

The Shanghai Composite Index increased 0.1% on Tuesday, with the majority of stocks chalking up gains. Technology and materials stocks moved upward as the Purchasing Managers’ Index touched a six-month high of 51 for June. Meanwhile, the final reading of the HSBC PMI also increased to 50.7 in June from 49.4 in May.

China Petroleum and Chemical Corp. (SNP - Analyst Report), also known as Sinopec, declined 3.2%, taking losses for the first time in six days. The decline occurred after Sinopec revealed the rules it will use to evaluate potential investors for its fuel retailing operations. 

The CSI 300 ended nearly flat. A sub-index of tech shares within the CSI 300 gained 1.8%. Markets in Hong Kong were closed to mark the anniversary of the handover of power from Great Britain to China. The Bloomberg China-US Equity Index gained 1%.

Stocks rose for a third successive session today, marking the longest series of gains in three weeks. Indications that the government’s efforts to combat an economic slowdown were taking effect have fuelled this bull run. Gains were led by industrial stocks. The effects of a significant increase in the Purchasing Managers’ Index spilled over into today’s session.

The Shanghai Composite Index gained 0.4% while the CSI 300 increased 0.3%. The Hang Seng China Enterprises Index moved up 0.8% after markets resumed trading after yesterday’s holiday.

Stocks in the News

LightInTheBox has raised its guidance for 2Q14. The online retail company now expects net revenues of $86 million and $88 million, reflecting a 19% to 22% year-on-year increase. Previously, revenue guidance was projected to be $84 million to $86 million. Shares of the company surged 25% on Friday.

The company reported first quarter loss of 9 cents per share and revenues of $81.5 million. LightInTheBox had reported revenues of $78.8 million and loss of 12 cents per share in the year-ago period.

58.com Inc.has sold a 19.9% stake in the company to Tencent Holdings. The stake was sold for $736 million. Earlier this year, Asia’s biggest Internet company also purchased a stake in e-commerce platform JD.com. Inc.

58.com will sell 36.8 million Class A and B ordinary shares to Tencent for $20 per share. Tencent and 58.com have also named each other as preferred partners for local services.

58.com will be able to expand its user base by tapping into WeChat and QQ, Tencent’s messaging platforms. Similarly, Tencent users will be benefited because they will have more local services and merchants to choose from 58.com, which offers online classified ads.  

China Unicom (Hong Kong) Ltd. (CHU - Analyst Report) and China Telecom Corp. Ltd. (CHA - Snapshot Report) have been awarded 4G mobile network test licenses for 16 cities. These licenses are for the FDD-LTE standard. This development was revealed by state TV channel CCTV’s microblog.

Both companies prefer the FDD-LTE standard over the domestic TD-LTE 4G standard. The licenses will enable the telecom companies to compete more effectively with China Mobile Ltd. (CHL - Snapshot Report). China Mobile received licenses in December last year and prefers the TD-LTE standard.

Yingli Green Energy Holding Co. Ltd. (YGE - Snapshot Report) will supply 400 to 600 kilowatt (KW) of solar power to a project that is slated to be among the largest solar energy installation system in Brazil.

The company is teaming up with FIFA to develop the project, which is a part of the official Corporate Social Responsibility project of the 2014 World Cup. The company has been playing its role of offering economically sustainable solar energy solutions to developing countries.

Yingli Green is taking a step forward with the practice and intends to offset all carbon emissions produced from its onsite sponsorship activations in Brazil during the event. The company also obtained carbon emissions reductions certificates for its two biomass-fueled factories in Caatinga region of Alagoas in Brazil in an effort to preserve the country’s rich biodiversity.

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

JD

+9.07%

NA

SFUN

+12.20%

-37.58%

BIDU

+5.71%

+6.27%

NQ

-9.13%

-60.34%

TSL

+3.20%

-16.02%

YGE

+1.11%

-41.88%

CTRP

+11.74%

+32.00%

SINA

+2.87%

-41.13%

YOKU

+9.32%

-25.47%

QIHU

+5.29%

+16.11%

Next Week’s Outlook:

Government and private data has unambiguously indicated that the Chinese economy is emerging from a slowdown. These reports also show that stimulus measures implemented by the government have had their desired effect. The reduction in reserve requirements for some banks and spending on infrastructure has been potent enough to energise the economy.

China seems to be on track to meet its growth target for the year. Positive developments on the economic front have also negated concerns over IPOs. On the other hand, technology stocks have chalked up gains because of the resumption of new share sales. Next week has several economic reports lined up. These include inflation numbers and trade data. If these are also on the positive side, the momentum built up this week could continue going forward.

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