Markets experienced a volatile week which was dominated by MSCI’s decision on including mainland stocks on their global indexes. The benchmark index slumped on Monday as investors remained cautious ahead of MSCI’s decision. The Shanghai Composite index rebounded on Tuesday even as volatility jumped to a three month high.

The benchmark index increased on Wednesday following speculation that funds with state linkages would act to stabilize markets following MSCI’s refusal to add the country’s stocks to its global indexes. The Shanghai Composite Index declined 0.5% on Thursday as investors dumped risky assets amid fears about global growth and the fallout of a possible pro-Brexit vote next week.

Yingli Green Energy Holding Company Ltd. , or Yingli Solar, reported operating income of 60 cents per American Depositary Share (“ADS”) in first-quarter 2016. Baidu, Inc. (BIDU Quick QuoteBIDU - Free Report) lowered its revenue guidance for the second quarter of 2016.

Last Week’s Developments

Last Wednesday, the Shanghai Composite Index recovered to decline only 0.3%, after losing nearly 0.9%. Exports for the month of May nearly matched estimates while imports declined by the lowest extent since the end of 2014. The Hang Seng moved 0.1% lower. Meanwhile, the Hang Seng China Enterprises Index increased 0.3%. This was its ninth successive day of gains, marking the longest series of increases since Mar 2007.

Markets were closed on the last two days of the trading week because of the Dragon Boat Festival Holiday. During the holiday shortened trading week, investors switched their focus to the state of the economy. Trade balance figures suggested that exports had stabilized. However, investors continued to remain wary since this did not immediately imply that a bull run would follow.

Markets and the Economy This Week

The benchmark index slumped on Monday, losing 3.2%, as investors remained cautious ahead of MSCI Inc.’s (MSCI) decision about including stocks traded on China’s exchanges into its global indexes. The small cap heavy ChiNext index nosedived, declined 6% to hit its lowest point in a month.

Meanwhile, the country’s fixed asset investment for the first five months of the year came in below forecasts. Additionally, the yuan neared a five-year low. The Hang Seng moved 2.5% lower. The Hang Seng China Enterprises Index lost 2.4%, taking its two-day losses to 4.5%. This was its sharpest decline over the last two months.

The Shanghai Composite index rebounded on Tuesday, gaining 0.3%. Meanwhile, volatility jumped to a three month high ahead of MSCI’s call over including mainland stocks into its global indexes. Disappointing fixed asset investment data and an aversion for Asian stocks ahead of the Brexit vote added to the volatility for the day.

An index of 10-day price changes on the benchmark index jumped to its highest since Mar 14. The index closed the day in the green after intermittently taking significant losses and then gaining nearly 11 times in a day. The Hang Seng China Enterprises Index moved 0.4% lower. The Hang Seng lost 0.6% with its three day losses amounting to 4.3%.

The benchmark index increased 1.6% on Wednesday after losing nearly 1.1% earlier in the day. The CSI 300 advanced 1.3%. The Shanghai Composite Index gained by the largest extent in two weeks following speculation that funds with state linkages would act to stabilize markets following MSCI’s refusal to add the country’s stocks to its global indexes.

The Shenzhen Composite Index jumped 3.1% and the small cap heavy ChiNext index surged 3.4% following speculation that a date for the commencement of the trading link with Hong Kong will soon be announced. Market watchers felt that the start date for the trading link would be brought forward in order to negate the effect of MSCI’s decision.   

The Shanghai Composite Index declined 0.5% on Thursday as investors dumped risky assets amid fears about global growth and the fallout of a possible pro-Brexit vote next week. Meanwhile, chances of the Fed hiking rates this year declined after Fed Chair Janet Yellen said the referendum on Britain’s relationship with the EU was a major reason behind the decision not to raise rates. The Hang Seng declined 2.1%. Meanwhile, the Hang Seng China Enterprises Index slumped 2.3% after only two stocks ended in the green.

Stocks in the News

Yingli Green Energy Holding Company Ltd. or Yingli Solar, reported operating income of 60 cents per ADS in first-quarter 2016. The Zacks Consensus Estimate was a loss of 97 cents. In the year-ago quarter too, the company had reported a loss of $1.90 per ADS. The company’s shares gained 20% during pre-market trading on Jun 14. Total revenue was $364.6 million, down 19.1% year over year. Revenues, however, surpassed the Zacks Consensus Estimate of $323 million by 12.9%.

Gross margin in the reported quarter expanded 590 basis points year over year to 20%. Operating expenses were down 40.7% to $43.9 million from the first quarter of 2015. Operating income in the first quarter of 2016 was $28.9 million. In the year-ago quarter, the company had reported operating loss of $10.7 million.

Total PV module shipments were 508.1 megawatts (“MW”) in the first quarter of 2016, compared with 754.2 MW in first-quarter 2015. For the second quarter, Yingli Green expects PV module shipments in the range of 580–620 MW. The company expects gross margin in the second quarter to be between 18% and 20%.

Baidu, Inc. lowered its revenue guidance for the second quarter of 2016. Following this announcement, the company’s shares fell more than 5% in after-hours trading on Jun 14 to $163.55.

The Internet giant now expects second-quarter sales in the range of RMB18.100 billion ($2.807 billion) to RMB18.200 billion ($2.823 billion), down from its earlier view of RMB20.110 billion ($3.119 billion) to RMB20.580 billion ($3.192 billion).

Management said that the guidance cut was on account of two reasons. First, increased scrutiny into healthcare and related ads by regulatory authorities has led to a reduction or delay in spend from a large number of Baidu’s medical customers. This will likely impact its sales in the near term. However, the company expects these new regulations to bring in more transparency and build trust among Baidu users, thus increasing profits in the long run.

Second, Baidu has reduced the number of sponsored links across the platform, which will definitely hurt its advertising revenue and thereby impact total revenue over the short term. However, better standards related to customer requirements and sponsored links will enhance user experience and benefit Baidu going forward.

Alibaba Group Holding Limited’s (BABA Quick QuoteBABA - Free Report) affiliate Ant Financial has reportedly invested in Shanghai Suntime Information Technology Co., a financial data provider. Though there hasn’t been any official announcement, media reports indicate that the deal is worth about $35 million and covers a 20% stake in Shanghai Suntime.

If the report is correct, Ant Financial is now the second largest shareholder in Shanghai Suntime, after the data provider’s Chairman Liao Bing. The new move could add a wide gamut of financial products to Alibaba’s portfolio, helping it to fetch more revenues. It will also push the company to expand beyond e-commerce.

Renesola Ltd. (SOL Quick QuoteSOL - Free Report) has announced an update on its project pipeline in the U.S. The China-based company intends to construct 107 megawatts (MW) of solar projects across the states of California, Massachusetts, Minnesota and North Carolina.

Per the plan, ReneSola will begin the construction of 37 MW of solar projects in North Carolina and Massachusetts in the second half of 2016. Construction of the remaining 70 MW, which will be based in Minnesota and California, will begin in 2017.

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:

Despite the market’s apprehensions stemming from the MSCI’s decision not to include China’s stocks on its global indexes, there are indications that the country’s economy is stabilizing. A series of indicators released this week have led to fresh optimism about the economy. For once, external factors such as the vote on Brexit have impacted markets significantly.

Next week is relatively devoid of any major releases. However, the housing price index and the business sentiment indicator are still important releases. Along with expectations that state backed funds could support the market, positive indications on this front would help boost stocks in the days ahead.    

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