Markets rose to their highest level in two months before undergoing a correction over the two previous trading sessions this week. The benchmark index gained on Monday after coal stocks surged and property companies racked up gains following excitement over a major developer buying up a rival’s shares. The Shanghai Composite Index increased on Tuesday, closing at its highest level since the end of Jul 26.

The benchmark index declined on Wednesday primarily due to losses taken by property companies as investors indulged in profit taking after a six day stretch of gains. The Shanghai Composite moved lower on Thursday due to a significant correction and grievous losses incurred by small cap stocks which outweighed gains made by financial stocks.

JD.com (JD Quick QuoteJD - Free Report) reported loss of 3 cents a share in the second quarter of 2016, better than the Zacks Consensus Estimate of a loss of 7 cents per share. SINA Corp. reported second-quarter 2016 adjusted earnings of 6 cents per share, which was way better than the Zacks Consensus Estimate of a loss of 1 cent and loss of 19 cents reported in the year-ago quarter.

Last Week’s Developments

Last Friday, the Shanghai Composite lost 0.2% and closed the week nearly unchanged following concerns over the health of the economy and firm steps taken by regulators to reduce market risk. These developments reduced trading volumes as investors stayed away from the bourses. Additionally, the appetite for risk taking declined following signs of an economic revival and doubt about how much additional stimulus would be forthcoming.

The CSI 300 gained 0.1% while the small cap heavy ChiNext declined by 1%. Meanwhile, the Hang Seng China Enterprises Index advanced 1.4%, boosting weekly gains to 1.9%. This was its highest point in three months. Investors in Hong Kong were encouraged by speculation that the central bank would undertake fresh stimulus measures.

Markets and the Economy This Week

The benchmark index gained 0.9% on Monday after coal stocks surged and property companies racked up gains following excitement over a major developer buying up a rival’s shares. These positives negated the effect of disappointing trade data. Both exports and imports declined to a larger extent than expected last month, indicating weakness in global demand remained.

Coal mining companies gained following reports that the borrowings made by some of them will be converted into medium and long term special loans. This is part of the efforts being made by the government to boost the embattled coal sector.

The Hang Seng added 1.6%, rising to its highest level in seven months. Gains were led by real estate stocks and producers of building materials following impressive U.S. jobs data which indicated that the largest economy in the world showing improvement.   

The Shanghai Composite Index gained 0.7% on Tuesday, closing at its highest level since the end of Jul 26. Stocks advanced to its highest level in two weeks, with consumer and industrial stocks leading gains, following signs that the U.S. economy may be attaining some degree of stability. The Hang Seng fell from the highest level that it had hit in eight months.

China’s PPI declined in July, falling 1.7% on a year-over-year basis. The metric declined by the lowest extent in nearly two years. Meanwhile, sales of passenger vehicles increased by the highest degree in nearly one and a half years. Consumer staples and industrial stocks were the highest gains on China’s exchanges. Sub indexes for these stocks gained by a minimum of 11%.

The benchmark index declined by 0.2% on Wednesday primarily due to losses taken by property companies as investors indulged in profit taking after a six day stretch of gains. However, financial stocks took losses after regulators began a country wide examination of the health of the banking sector, according to reports. These events negated the impact of gains from materials and natural resources stocks.

The CSI 300 also declined, by 0.4%. Stocks in Hong Kong moved higher, with casinos based in Macau leading gains. The Hang Seng increased by only 0.1% after gaining as much as 0.7% at one point. However, the Bull Run seemed to be in no hurry of petering out. The Hang Seng China Enterprises Index advanced 0.2%.

The Shanghai Composite moved 0.5% lower on Thursday due to a significant correction and grievous losses incurred by small cap stocks which outweighed gains made by financial stocks. The CSI 300 declined 0.3%. Stocks had gained earlier in the day following investor enthusiasm over purchases of stocks in a major Chinese life insurance company. 

In contrast, the Hang Seng increased by nearly 0.9% following speculation that the commencement data for the trading link with the Shenzhen may soon be revealed. As a result, brokerage stocks gained significantly. However, investors from the mainland were unmoved by these speculations and the Shenzhen Composite Index losing 1.3% with small cap stocks losing heavily.

Stocks in the News

JD.com reported loss of 3 cents a share in the second quarter of 2016, better than the Zacks Consensus Estimate of a loss of 7 cents per share. Revenues of $9,816 million also exceeded the Zacks Consensus Estimate of $9,810 million. Additionally, revenues were 42% higher than the figure posted in the year-ago period.

Revenues from services and others, registered a 67% year-over-year increase. Gross merchandise value (GMV) rose 47% to $24.1 billion from core GMV registered in the same period last year. Annual active customer accounts increased to 188.1 million for the 12 months ended on June 30, 2016, 65% higher than the year ago figure.

SINA Corp. reported second-quarter 2016 adjusted earnings of 6 cents per share, which was way better than the Zacks Consensus Estimate of a loss of 1 cent and loss of 19 cents reported in the year-ago quarter. Net revenues of $244 million also topped the consensus mark of $230.4 million while growing 14.2% year over year.

Following the strong results, shares were up nearly 4.9% in the after-hours trading session on Aug 8. SINA also upgraded its revenue outlook for the year. The company expects 2016 revenues to be in the range of $950 million to $1 billion as against the earlier projected range of $850 million to $950 million.

Daqo New Energy Corp. (DQ Quick QuoteDQ - Free Report) reported second-quarter 2016 adjusted earnings of $2.04 per share, which exceeded the Zacks Consensus Estimate of $1.26 per share. Net revenues of $71 million also topped the consensus mark of $63 million while growing 23.1% year over year.

Production volume of polysilicon came in at 3,570 MT, increasing from the 3,405 MT produced in the last quarter. External sales volume of polysilicon came in at 2,931 MT rising from the 2,905 MT in the first quarter. Average total production cost of polysilicon was $9.43/kg for the quarter, falling from the $9.43/kg during the first quarter of 2016.

Sohu.com Inc. (SOHU Quick QuoteSOHU - Free Report) reported adjusted loss of $1.64 a share in the second quarter of 2016, which compared unfavorably with the prior-year quarter loss of 70 cents per share. Even revenues in the quarter were down 15% to $420 million primarily due to lower revenues from online gaming.

For the third quarter of 2016, Sohu expects revenues in a range of $400 million–$430 million.

Management estimates brand advertising revenues in a range of $110 million to $120 million, representing 21% to 27% year-over-year decline. The company expects to generate about $47 million to $50 million revenues from Sohu Media Portal and $32-$36 million from Sohu Video.

Yingli Green Energy Holding Co. Ltd.  or Yingli Solar, expects to “maintain a positive momentum into the second quarter,” as revealed in its preliminary financial results. The company is scheduled to report second-quarter results on Aug 23, before the opening bell.

In its preliminary financial results, Yingli Solar revealed that its shipments in the second quarter will surpass expectations. Photovoltaic (“PV”) module shipments are now expected in the range of 630 megawatts (“MW”) to 660 MW, higher than its earlier forecast of 580–620 MW. The figure also indicates an increase from total PV module shipment of 508.1 MW in the first quarter.

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:

Stocks have just ended an encouraging run of gains and markets are currently in correction mode. Investors have received a boost from positive economic signals from the U.S. which indicate that the world’s largest economy is in better health. However, investors remain concerned about the state of China’s economy.

This is why the series of economic reports scheduled for release over the next few days is crucial. Data to be released on Friday itself will provide valuable insight on new loans, FDI, fixed asset investment, retail sales and industrial production. If most of these reports are positive in nature, markets could return to their winning ways over next week.

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