Markets dipped moved lower toward the end of the week, weighed down by fears over the lack of liquidity in the system and a weak yuan. The benchmark index increased on Monday, boosted by gains in resource shares. The Shanghai Composite Index moved higher on Tuesday with gains coming during the last moments of the trading day.

The benchmark index declined on Wednesday, losing the most in a week. The Shanghai Composite Index moved 0.3% lower on Thursday following disappointing data on industrial profits and concerns over a weak yuan and tight liquidity levels.

Sohu.com Inc.’s (SOHU Quick QuoteSOHU - Free Report) shares fell nearly 7% on Oct 24 after the company’s third-quarter 2016 earnings results. Changyou.com reported adjusted third-quarter 2016 earnings of 73 cents per share, beating the Zacks Consensus Estimate of 48 cents.

Last Week’s Developments

Last Friday, the Shanghai Composite increased 0.2% after indications that the economy was stabilizing negated concerns about a weak yuan. Markets in Hong Kong were closed because of a typhoon. The benchmark index rose for the second successive week, gaining 0.9%. The yuan slumped to its lowest level in six years following the central bank’s decision to cut its daily reference rate by the largest extent since August.

Investors received a series of encouraging reports last week. Credit growth increased last month while third quarter GDP and retail sales were in line with expectations. The CSI 300 increased 0.3% and gained 0.7% over last week. Shares of infrastructure companies gained substantially after the government outlined rules for the management of funds utilized for PPP projects. These gains outweighed losses incurred due to a weak yuan and reverses in real estate stocks.

Markets and the Economy This Week

The benchmark index increased 1.2% on Monday, boosted by gains in resource shares. Companies from this sector were buoyed by indications that measures attempts by the government to cut overcapacity in steel and coal were meeting with success. Stocks of coal mining and steel producing companies increased substantially. This was a result of indications that these commodities might experience price gains following government attempts to cut capacity in these areas.  

An index of coal stocks gained in excess of 5% following reports that power supply companies were failing in their attempts to source coal. Stocks in Hong Kong moved higher, powered by gains on the mainland. However, gains were curbed by fears surrounding a weak yuan and chances of a Fed rate hike in December. The Hang Seng increased 1% while the Hang Seng China Enterprises Index added 1.7%.

The Shanghai Composite Index added 0.1% on Tuesday with gains coming during the last moments of the trading day. The benchmark index touched its highest point in nine months following expectations that the government will increase infrastructure spending. Additionally, speculation arose that attempts to reduce property prices will free up funds for investments in equities.

Steelmakers and coal mining companies witnessed substantial gains for the second successive day following the government’s success in cutting overcapacity in these sectors. The CSI ended the day nearly flat. The Hang Seng lost 0.2%. The Hang Seng China Enterprises Index also moved 0.2% lower.

The benchmark index declined 0.5% on Wednesday, losing the most in a week. Losses were a result of nagging concerns regarding stringent liquidity levels which have driven up treasury yields. Additionally, a decline in resources shares, the result of a correction following consecutive days of gains, outweighed gains made by consumer and healthcare stocks. An index of healthcare stocks gained following expectations of higher earnings after a new plan to expand the sector was released by the government. The CSI 300 lost 0.4%.

Stocks in Hong Kong suffered their most grievous losses in two weeks after investor sentiment was dampened by weakness on the mainland and on Wall Street. The Hang Seng lost 1% while the Hang Seng China Enterprises Index declined by 1.4%. Investors remained wary ahead of the U.S. presidential election, the likelihood of a Fed rate hike in December and concerns about the health of China’s economy.

The Shanghai Composite Index moved 0.3% lower on Thursday following disappointing data on industrial profits and concerns over a weak yuan and tight liquidity levels. The CSI 300 declined by 0.4%. Industrial profits increased by only 7.7% in September, significantly lower than the 19.5% pace recorded in August. Meanwhile, the yuan fell to a new six-year low. 

Additionally, signs emerged that the government was attempting to reduce the amount of corporate leverage in the system. The Hang Seng moved 1.2% lower while the Hang Seng China Enterprises Index lost 1.5%. An index of energy shares listed in Hong Kong declined in excess of 2%.

Stocks in the News

Sohu.com Inc.’s shares fell nearly 7% on Oct 24 after the company’s third-quarter 2016 earnings results. The company posted non GAAP loss of $1.68 as against earnings of $1.27 per share in the prior-year quarter. Sohu has a Zacks Rank #3 (Hold).

Even revenues in the quarter were down 21.4% to $410.6 million, primarily due to lower revenues from advertising and online gaming. Total online advertising revenues (inclusive of revenues from brand advertising, search and search related businesses) fell 13% to $262 million.

Brand advertising revenues in the reported quarter fell 27% to $111 million, owing to sluggishness in the video ads business. The company’s revenues from Sohu Media Portal decreased 6% year over year to $48 million while that from Sohu Video fell 54% to $25 million.

For the fourth quarter of 2016, Sohu expects revenues in a range of $370 million–$400 million. Management estimates brand advertising revenues in a range of $95 million to $105 million, representing 25% to 33% year-over-year decline. The company expects non-GAAP loss per share to be between $2.20 and $2.45. (Read: Sohu.com (SOHU Quick QuoteSOHU - Free Report) Shares Fall on Q3 Loss, Revenues Decline)

Changyou.com reported adjusted third-quarter 2016 earnings of 73 cents per share, beating the Zacks Consensus Estimate of 48 cents. This was also higher than adjusted earnings of 62 cents per share reported in the second quarter of 2016. However, this was lower than the $1.55 reported in the same period last year. Changyou.com has a Zacks Rank #3.

The online game developer and operator reported revenues of $136 million. This was 5% higher than the figure posted in the second quarter of 2016. However, revenues registered a year-over-year decline of 28%. Online game revenues came in at $99 million, 1% lower than the second quarter of 2016. Additionally, this represents a year-over-year decline of 35%.

Online advertising revenues declined 36% from the same period last year to $12 million. However, they experienced a 1% increase from last quarter’s figure. Revenues from Internet value-added services (IVAS) declined 15% on a yearly basis and declined 5% from last quarter’s figure to come in at $4 million.

New Oriental Education and Technology Group Inc. (EDU Quick QuoteEDU - Free Report) reported first-quarter fiscal 2016 earnings of 89 cents per share, lower than the Zacks Consensus Estimate of 99 cents. However, this was substantially higher than adjusted earnings of 27 cents per share reported in the fourth quarter of 2015. This was also higher than adjusted earnings of 82 cents per share reported in the same period last year.

Revenues increased 17.7% year over year to $534 million. Educational programs and services reported net revenues of $494.3 million, an improvement of 17% compared to the same period last year. The number of student enrollments for New Oriental’s K-12 after-school tutoring courses increased by 31.2% compared to the same period last year. The stock has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Noah Holdings Limited (NOAH Quick QuoteNOAH - Free Report) revealed that it will be receiving a strategic investment of RMB348 million (US$51.7 million) from Sequoia Capital China. The venture capital company will be making this investment in Gopher Asset Management Co., Ltd, the asset management subsidiary of Zacks Rank #3 (Hold) rated Noah Holdings.

Sequoia Capital China, which is an existing shareholder of Noah, will be acquiring an undisclosed stake in an entity which will be holding all the equity interests of Gopher. The stake has been reported to be lower than 10%. Gopher holds all the wealth and asset management assets which amounted to RMB101.2 billion (US$15 billion) as of June 30, 2016.

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:

Fears surrounding the impact of a weak yuan and tight liquidity levels outweighed the optimism gained from the surge in resources shares. However, these gains were a result of the government meeting with success in its attempts to cut overcapacity. At the same time, fresh worries about the economy surfaced following weak data on industrial reports.

Notwithstanding recent optimism about the economy, fresh doubts seem to have emerged. This is why economic releases scheduled for next week, including data on housing as well as business and consumer sentiment is likely to have a major role in determining the direction of stocks in the days ahead.

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