Chinese stocks

China Economic Scan Weekly Stockmarket Review – 1 May 2009

Chinese stocks finished the week up with the Hang Seng rising 1.7%, the Shanghai Composite up 1.2%, the Shenzhen Component up 2%, and Taiwan’s TAIEX up 1.9% following a 6.7% rally in Taiwanese stocks on Thursday. The past week was full of earnings announcements with mixed results across the board. Zhongwang raised $1.26 billion, and Goldman Sachs increased their forecast for Chinese stocks.

Goldman Sachs increased its estimates for Chinese stock indexes this year, pinning the CSI 300 Index to rise to 2,600 (from a current 2,544.86), and the Hang Seng China Enterprises Index at 10,300 (from a current 8,770.97). “China’s aggressive domestic policy stimulus appears to be working to offset the weakness in the external sector,” the note by strategists led by Hong Kong-based Timothy Moe said.

The Hang Seng China index (tracks Hong Kong stocks) is up 14% so far this year, and the CSI 300 (tracks Chinese mainland stocks) is up 40%, while the MSCI World Index is down 4%. Chinese stock markets were closed on Friday for Labour day.

China Zhongwang Holdings raised HK$9.8 billion ($1.26 billion) as it priced the world’s largest initial public offering (IPO) in 9 months toward the low end of an offering range of HK$6.80-to-HK$8.80. The nation’s largest maker of extruded aluminum products by capacity sold 1.4 billion new shares at HK$7 apiece. The sale of a 25.9% stake in the IPO valued Zhongwang at HK$37.8 billion, or about 10.7 times this year’s earnings as estimated by investment banks involved in the sale.

The week featured a swath of companies reporting their 2009 Q1 earnings. Bank of China said net income fell 14% to 18.57 billion yuan ($2.72 billion) Q1 2009, beating analyst forecasts of 17.8 billion yuan. BoC offered 511 billion yuan of new loans in Q1 2009, taking total advances to 3.81 trillion yuan as of March 31, up 15.5%.

China Construction Bank's Q1 net profit fell 18.2% YoY to 26.3 billion yuan ($3.85 billion). Interest income was 50.87 billion yuan, down 6.55%, and its non-performing loans (NPL) totaled 81.9 billion yuan, down 1.95 billion yuan and its NPL ratio was 1.9%, down 0.3 percentage points from the end of 2008.

Bank of Communications Q1 2009 earnings up 1% to 7.94 billion yuan, or 0.16 yuan per share; and also beat analyst estimates of 6.5 billion yuan and increased loans by 21%. Banking shares gained during the week after the China Insurance Regulatory Commission allowed banks to take stakes in the country's insurance companies.

Baidu reported Q1 net income up 24% YoY, of 181.1 million yuan ($26.5 million). Excluding stock-based compensation, earnings rose to 86 cents per ADR vs consensus estimate of 76 cents. Revenue climbed 41% to $118.6 million, above the company's Feb forecast of $114 million to $117 million. Deutsche Bank initiated coverage of the company last month with a buy rating.

Cosco Pacific Ltd, container-terminal operator, posted a 34% drop in Q1 09 profit to $43.4 million, or 1.93 cents a share, on sales of $75.4 million. Cosco's container traffic fell 8% (it handled 9.57 million twenty-foot equivalent boxes) as recessions in the U.S. and EU reduced demand for shipments of Asian-made toys, furniture and other goods.

China Merchants Bank Co. Q1 09 profit fell 33% to 4.21 billion yuan ($617 million), or 0.28 yuan a share; and below analyst estimates of 4.64 billion yuan. Net interest income fell 23% to 9.2 billion yuan in the first 3 months after the net interest margin, a measure of lending profitability, narrowed to 2.47%. Net fee and commission income dropped 14% to 1.67 billion yuan.

Citic Securities, China's biggest brokerage firm by market value, said its net profit for Q1 09 fell 40% to 1.5 billion yuan ($219.8 million) on revenue of 3.46 billion yuan, down 40% as commission fee income nearly halved to 2.87 billion yuan. Commission fees: securities underwriting income fell 81% to 117.8 million yuan and securities brokerage income fell 19% to 2.09 billion yuan. Investment income dropped 86% to 285.5 million yuan from 2.08 billion yuan a year earlier.

In another key development, China Mobile agreed to buy a 12% stake in Taiwan's Far EasTone for $529 million; one of the biggest investments by a Chinese firm in Taiwan. The transaction follows talks between China and Taiwan that agreed on encouraging investment. The price per share being paid is T$40, a 14% premium to Wednesday's closing price of T$35.20.

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China Economic Scan Weekly Economic Review – 1 May 2009

In the past week SASAC revealed SOE profits dropped 42%, and the government announced it would spend an additional 70 billion yuan of its 4 trillion yuan stimulus package. Internationally, China and Taiwan finished talks productively and positively, and China signed a free trade deal with Peru after a year of negotiations.

The Chinese government announced it is preparing to spend an additional 70 billion yuan ($10.3 billion), mostly on infrastructure projects. The spending will be the 3rd installment of the 4 trillion yuan ($586 billion) package, which was announced in November. The central government has so far spent 230 billion yuan ($33.8 billion) of the package: 100 billion yuan ($14.6 billion) in Q4 08 and 130 billion yuan ($19 billion) in Q1 09.

The 138 SOEs directly controlled by the central government, reported profits of 119.49 billion yuan in the first quarter, down 41.8% year on year, on sales revenue of 2.36 trillion yuan, down 9.1% year on year, according to the State-owned Assets Supervision and Administration Commission (SASAC).

The profit for March was 62.29 billion yuan, up 85.7% from February, on sales of 935.54 billion yuan, up 26.8% versus Feb. In 2008, SOEs recorded the first annual decline since 2002, falling more than 30% year on year to 665.29 billion yuan.

Internationally, talks last Sunday between the Association for Relations Across the Taiwan Straits (ARATS) and the Straits Exchange Foundation (SEF) resulted in an initiative that will see Chinese mainland companies being allowed to invest
in Taiwan for the first time in 60 years. Another initiative involves setting up a regulatory framework for financial services firms to operate in both markets. Including gradually setting up a clearing system for the Taiwan dollar and the yuan.

"This will drive new investment in the domestic market and bring strong interest from foreigners as well," Standard Chartered economist Tony Phoo was quoted as saying. A few days following this development, China Mobile said it would buy a 12% stake in Taiwan's Far EasTone for $529 million; one of the biggest investments by a Chinese firm in Taiwan.

Chinese Vice President Xi Jinping and his Peruvian counterpart Luis Giampietri Rojas witnessed the signing of a free trade agreement (FTA) between China and Peru, after a year in the making. "The pact covers a wide range of fields and features a high-degree of openness," said Zhu Hong, deputy director general of the International Department of China's Ministry of Commerce. The FTA includes opening service sectors and offering favourable treatment of each other’s investors. Trade between the 2 countries reached $7.5 billion in 2008.

Macao's trade deficit for the first quarter of 2009 dropped by 3.2% year-on-year to 6.18 billion patacas (US$782 million). The figures showed that Macao's total exports of goods fell by 49.2% year-on-year to 2.03 billion patacas (US$257 million dollars), with the value of domestic exports and re-exports declining by 63.5% and 24% respectively, while total imports of goods slid by 20.9% to 8.21 billion patacas (1.04 billion dollars) during the first quarter.

The value of Textile and garment exports by Macao declined by 64% year-on-year to account for 42.1% of the total exports of goods and the value of Non-textile exports also dropped by 27.6%.

On the environmental front China allocated 23 billion yuan (3.37billion U.S. dollars) for energy saving, anti-pollution, ecological and environmental protection projects since Q4 2008. Han Yongwen, secretary-general of the NDRC, said investment in these sectors totaled 10% of the 230 billion yuan government spending to date.

Of the 23 billion yuan spending, 13 billion went to improving urban water treatment facilities, 4 billion yuan to pollution prevention projects on the Huaihe and other big rivers, 3.5 billion yuan to forest planting projects and the other 2.5 billion yuan to key energy saving projects across the country.

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noirua said:

China property giant Evergrande suspends share trading again

China's property firms have struggled in the wake of Beijing's drive to curb excessive debt in the real estate sector, as well as rampant consumer speculation. Among those embroiled in the crisis is Evergrande, one of the country's largest developers, which has been involved in restructuring...

economictimes.indiatimes.com

The International Monetary Fund warned in late January that the property funding crisis could have spillover effects on the broader economy and global markets.

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