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China Stock Roundup: CHL Adds 9 Million 4G Users, Yingli to Provide 24 MW PV Modules to Honduras

After starting on a low note, markets experienced a largely positive week marked by some amount of volatility. Stocks took losses on Monday after China’s finance minister said radical reforms would not be undertaken despite a series of dismal economic reports released last week. An increase in the HSBC China Flash PMI led to gains for stocks on Tuesday.

Gains made by brokerages and defense stocks propelled the broader markets upward on Wednesday. Markets closed mixed on Thursday after speculation about further steps to boost the economy and gains in nuclear shares arrested losses caused by a selloff in brokerage stocks.

China Mobile Limited (CHL) reported substantial addition of 4G customers in August. Meanwhile, Yingli Green Energy Holding Co. Ltd. (YGE) announced that it will provide more than 24 megawatts (MW) of solar photovoltaic (PV.V) modules for the Pavana Solar Park in Honduras.

Last Week’s Developments

Stocks gained last Friday after Alibaba Group Holding Ltd.’s (BABA) U.S. IPO raised $21.8 billion. Investor sentiment was also boosted by speculation that the government would continue to take steps to support the flagging economy. The CSI 300 Index gained 0.7%, reducing its weekly loss to 0.5%.

Analysts opined that Alibaba’s IPO and steps taken by the country’s central bank to increase liquidity in the financial system were improving investor confidence. The CSI 300 Information Technology Index moved up for the third successive day.

The Shanghai Composite Index gained 0.6% while the Hang Seng China Enterprises Index lost 0.2%. The Hang Seng Index moved up 0.6%. Meanwhile, the MSCI China Index moved up 0.2%.

Since the middle of March, the benchmark index has gained 17%. Meanwhile the H-Share Index has lost 5.5% after touching a high on Sep 8. Analysts believe that the Alibaba IPO will have a short-term positive impact on stocks. Meanwhile, steps taken by the central bank had increased expectations of reduction in rates and additional economic reforms.

Markets and the Economy This Week

The Hang Seng China Enterprises Index declined 1.7% on Monday, falling to its lowest level in two months. Stocks took losses after Finance Minister Lou Jiwei said the Chinese government would not undertake radical steps in response to dismal economic data.

The statement follows reports released last week which showed that FDI has dropped to a four-year low. Also, home prices dropped in all cities in the country but for two. The Shanghai Composite Index also fell 1.7% while the MSCI China Index lost 1.6%. The CSI 300 moved down 1.9%.

The Shanghai Composite Index moved up 0.9% on Tuesday after the preliminary reading of the HSBC China Manufacturing PMI exceeded most estimates. Stocks were also buoyed by speculation that the government will take additional measures to boost the property sector. HSBC’s flash PMI increased from the final figure of 50.2 in August to 50.5.

An improvement in the manufacturing sector allays concerns about a slump in the economy following the series of dismal reports released last week. A sub index of industrial stocks within the CSI 300 gained 1.3%. The Hang Seng China Enterprises Index lost 0.3% while the Hang Seng lost 0.5%, dropping to its lowest level since Jul 22.

Stocks gained on Wednesday after brokerages gained following a surge in new trading accounts. Defense stocks also moved up following speculation that government spending on the sector would increase. This was triggered by a report from the Xinhua News Agency where President Xi Jinping urged the People’s Liberation Army to improve their combat readiness. The Shanghai Composite Index increased 1.5% to close at its highest level since Mar 2013.

The CSI 300 added 1.8% while the Hang Seng gained nearly 0.4%. The Hang Seng China Enterprises Index moved up 1.4%, rebounding from its lowest level in two months. A sub index of financial companies within the CSI 300 surged 2.2%, the highest increase since Aug 4.

All of the 10 largest gainers were brokerage companies. The gap between stocks listed in Hong Kong as well as Shanghai is reducing. This is particularly significant as the exchange link between these exchanges is slated to kick off next month.

The benchmark index ended nearly flat on Thursday, gaining less than 0.1% after adding 0.9% at one point during the trading day. Shares ended somewhat mixed after touching their highest levels in a year. Speculation about additional measures to rejuvenate the economy and investment in nuclear power pushed stocks upward. The CSI 300 declined 0.2%.

There was some profit taking in shares of brokerage companies ahead of the exchange link between Shanghai and Hong Kong that is due to commence next month. This is being viewed as a key step which will open up the financial sector of the economy. It will provide additional investment opportunities given the current slump in the property sector.

However, gains made by stocks related to nuclear power arrested the extent of losses. According to a report in the China Securities Journal, four nuclear power projects, which will generate more than 1000MW of nuclear power, will be set up in coastal areas. The Hang Seng China Enterprises Index lost 0.7% while the Hang Seng declined 0.6%.

Stocks in the News

China Mobile Limited has, of late, been enjoying strong customer growth. The world’s largest telecom carrier by subscriber base reported substantial addition of 4G customers in August.

The Hong Kong-based company added 9.13 million 4G customers in August, exceeding 6.5 million additions in July and 5.8 million in Jun 2014. At the end of the month, China Mobile’s total 4G customer base totalled 29.57 million. However, a major part of the customer gain has been on account of migration of existing customers to its super-fast LTE network.

On the other hand, 3G subscriber addition has dwindled somewhat as the operator added 1.3 million new 3G customers in August, down from 2.4 million gained in July, taking the total customer base to 796 million.

Yingli Green Energy Holding Co. Ltd. has announced that it will provide more than 24 megawatts (MW) of solar photovoltaic (PV.V) modules for the Pavana Solar Park in Honduras. The company will offer around 80,000 large-format YGE 72 Cell Series modules between Oct and Nov 2014. The interconnection will likely occur during the first quarter of 2015.

Choluteca, Honduras-based Pavana Solar Park is the largest solar power plant to break ground and the first utility-scale solar project in the country. The project’s estimated annual power generation capacity is around 40,000 Kilowatt-hour (KwH), tantamount to the yearly power utilization of roughly 61,000 Honduran people.

The owner of the Pavana Solar Park is a Honduran energy company called Energia Basica S.A. A U.S.-based solar integrator, Sybac Solar, will act as the engineering, procurement and construction service provider.

21Vianet Group, Inc. (VNET) and IBM Corp. (IBM) launched IBM Cloud Managed Services (CMS) in China on Tuesday. The service is designed to allow local enterprises and MNCs located in China to use IBM’s cloud-based solutions.

21Vianet has been chosen as the launch partner for the service. CMS will allow Chinese companies to utilise capabilities and solutions based on IBM’s IT Infrastructure Library, service-level agreements, managed infrastructure and management. Shares of 21Vianet jumped 10.5% following the announcement.

Senior vice president of 21Vianet Ning Qi commented: “This new partnership enhances 21Vianet's position in the market and enables us to support an increasing number of companies to leverage the power of the cloud.”

Baidu, Inc. (BIDU) has entered into a partnership with Seagate Technology Public Limited Company (STX) to develop online storage at low cost, as well as archiving and data analysis capabilities. Baidu is a key purchaser of products from Seagate such as hard drives and other storage products.

The agreement between the two companies outlines how they will prioritise each other as far as the supply and procurement of hardware is concerned. Further, the two companies will undertake joint research on three new technologies - shingled magnetic recording, cold storage and big data analysis.

China’s top search engine company has also said that Baidu PC Faster has been downloaded more than 70 million times across the world.

In a separate development, Baidu has launched Baifa Youxi, an investment fund styled on the lines of Kickstarter. The aim of the fund is to enable the average investor to engage in funding large movie projects. This is an online fund being launched in collaboration with Citic Bank, Central Picture Corp. and DeHeng a Hong Kong law firm. It will allow investments as low as $1.63 and returns will be based on box-office returns.

China Unicom (Hong Kong) Ltd. (CHU) added 1.3 million 3G and 4G subscribers in August. This is a significant decline compared to additions exceeding 2.5 million and 3 million in July and June respectively. This was the worst monthly performance in more than three years for the company when considering 3G and 4G user additions. The company provides 4G services using the TD-LTE standard. The carrier was granted licenses for such services in Dec 2013 by the government and is now creating its own FDD-LTE 4G network.

The company’s user additions were also lower than China Mobile, the market leader and its smaller competitor China Telecom. These carries made 10.5 million and 1.8 million 3G and 4G subscribers during the same month.

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

BABA

-8.6%

NA

SFUN

+3.8%

-28.7%

TSL

-9%

-4.6%

BIDU

-0.2%

+42.2%

JRJC

+21%

+78.3%

JD

-6.3%

+30.1%

QIHU

-6.3%

-26.3%

NQ

+2.1%

-65%

YOKU

-6.9%

-34.9%

VNET

-11.7%

-33.2%

Next Week’s Outlook:

Stocks began the week on a low note but recovered to end the week on a largely positive note. Comments from the finance minister that broader measures would not be taken to boost the economy disappointed investors to a large extent. However, an improvement in the manufacturing sector and additional steps to aid the economy has boosted markets. This includes proposed investment in defense and nuclear power.

Next week features key economic reports including final numbers of the HSBC Manufacturing PMI. Additionally, official manufacturing and services PMI data are also slated for release. If these reports are on the positive side, investors would receive the much needed reassurance about the state of the economy. Positive economic data would also go a long way in curbing the level of volatility which markets have experienced this week.

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