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China Stock Roundup: Alibaba Partners With SoftBank, Vipshop, China Lodging Beat

Markets declined over the week, weighed down by worries over China’s economy and an imminent Fed rate hike. The benchmark index gained on Monday after China’s Securities Regulatory Commission negated reports that it was clamping down on mergers and acquisitions and fundraising activities in certain sectors. The benchmark index declined on Tuesday following concerns that the government may curtail monetary stimulus.

The benchmark index declined again on Wednesday, but ended above the 2,800 mark. The benchmark index ended nearly flat on Thursday and trading volumes contracted as fears about the economy gathered strength. The benchmark index moved up on Friday, but declined over the last week.

Alibaba Group Holding Ltd. BABA has partnered with SoftBank Corp. to launch cloud computing solutions in Japan. Vipshop Holdings Ltd. VIPS reported adjusted first-quarter 2016 earnings of 14 cents per share, beating the Zacks Consensus Estimate of 15 cents.

Last Week’s Developments

Last Friday, the Shanghai Composite Index declined 0.3% on falling metal prices and a weaker yuan. Fears arose that the government would refrain from providing fresh stimulus despite sluggish economic growth. The CSI 300 declined 0.5%. The Hang Seng moved 1.3% while the Hang Seng China Enterprises Index declined 1%.

The benchmark index lost 3% over last week, with energy and material stocks leading the losses. The Hang Seng China Enterprises Index declined 10% from the high it achieved in April, entering correction territory.

Economic data released after the day’s came in below analyst estimates. New lending declined from 1.37 trillion yuan in March to 555.6 billion yuan in April. Aggregate financing came in at 751 billion yuan.  

Markets and the Economy This Week

The benchmark index gained 0.8% on Monday after China’s Securities Regulatory Commission negated reports that it was clamping down on mergers and acquisitions and fundraising activities in certain sectors. This statement outweighed the detrimental impact of poor economic data released after trading on Friday. The CSI 300 gained 0.7%. All sectors closed in the green, with technology leading gains for the day.

Meanwhile, the Shenzhen Composite increased 1.7% while the Hang Seng moved higher, snapping a three week decline. These gains were a result of rising speculation that date of commencement of the trading link between the Shenzhen and Hong Kong exchanges would be announced during the week. The Hang Seng China Enterprises Index gained 0.1%.

The Shanghai Composite Index lost 0.3% on Tuesday following concerns that the government may reduce monetary stimulus even as it increases the pace of financial and structural reforms. Investor sentiment was dampened by such indications because the economy continues to remain sluggish. The CSI 300 also lost 0.3%.

President Xi Jinping said that the government would implement supply side reforms and increase the size of the middle income group. Since this statement comes on the heels of disappointing economic data for April, it gave rise to fears that the government would not implement further monetary stimulus despite disappointing economic data for April.

However, stocks in Hong Kong gained the most in a month, following Xi’s assertions that the size of state owned companies would be reduce. The Hang Sen China Enterprises Index gained 1.4%. The Hang Seng increased 1.2%.  

The benchmark index declined 1.3% on Wednesday, curbing losses in the last half hour of trading to end above the 2,800 mark. This level has not been crossed in the last two months. Stocks declined to a two month low following indications of an economic slowdown and the increasing possibility of a Fed rate hike.

The CSI 300 declined 0.6%. Sub-indexes of tech and material stocks declined by at least 1.9%. The ChiNext dropped 2.9% while the Hang Seng moved 1.5% lower. The Hang Seng China Enterprises Index lost 1.5% to close at its lowest point since Mar 1.

The Shanghai Composite lost lower than 0.1% on Thursday and trading volumes contracted as fears about the economy gathered strength. Concerns about the Fed rate hike continued to dampen investors’ sentiment. The CSI 300 declined 0.2%. The Hang Seng China Enterprises Index declined by 0.7%.

The benchmark index moved up 0.7% on Friday, but declined 0.1% for the week. This was its fifth consecutive week of losses. Investors remained concerned about the state of the economy and the imminent Fed rate hike. The CSI 300 gained 0.5%, posting a 0.1% increase for the week. In contrast, the Hang Seng China Enterprises Index gained 0.7%.

Stocks in the News

Alibaba is expanding its cloud presence beyond its stronghold, China and is going about it quite aggressively.

In its latest step toward international expansion, Alibaba has partnered with SoftBank Corp. to launch cloud computing solutions in Japan. SoftBank is the Japan-based telecom subsidiary of SoftBank Group Corp.

The two companies have formed a joint-venture cloud services company called SB Cloud Corporation, targeting the competitive cloud computing market in Japan.

Per this partnership, SB Cloud will open a data center in Japan and offer Alibaba's cloud security services, data storage and processing solutions, and enterprise middleware offerings to various companies ranging from startups to multinationals.

In return, Alibaba will be able to access SoftBank's existing Japanese business customer base that consists of several global organizations.

Vipshop Holdings Limited reported adjusted first-quarter 2016 earnings of 14 cents per share, beating the Zacks Consensus Estimate of 15 cents. This was also lower than adjusted earnings of 16 cents per share reported in the fourth quarter of 2015. However, this was higher than the 11 cents reported in the same period last year.

The online retailer reported revenues of $1887 million, higher than the Zacks Consensus Estimate of $1,868 million. This was also 12.1% lower than the figure posted in the fourth quarter of 2015. However, revenues registered a year-over-year increase of 35.9%.

During the first quarter of 2016, the number of active customers experienced a year-over-year increase of 52% to touch 19.7 million. Total orders for the first quarter increased 53% from the year-ago period to touch 38.5 million.  

China Lodging Group, Limited HTHT reported adjusted first-quarter 2016 earnings of 16 cents per share, higher than the Zacks Consensus Estimate of 8 cents. This is a significant improvement from the loss of 2 cents reported in the year-ago period. However, it is marginally higher than earnings of 17 cents reported in the fourth quarter of 2015.

China Lodging Group reported revenues of $236 million, increasing by 14% from the same period last year. Additionally, revenues were also slightly higher than the $233 million reported in fourth quarter 2015.

During this period, average daily rate for hotels in operation increased from RMB 168 in the year-ago quarter to RMB 172. Occupancy rate declined from 81.6% in the year-ago period to 80.4%.

Renren Inc. RENN reported adjusted fourth-quarter 2015 loss of 16 cents per share. This is significantly lower than earnings of 10 cents reported in the year-ago period. However, this is an improvement of loss of 22 cents reported in the third quarter of 2015.

Renren Inc. reported revenues of $13.6 million, 24% higher than the figure reported in the same period last year. Revenues from, advertising and IVAS increased 24.8% from the $8.2 million reported in fourth quarter 2015.

For the fiscal year ended Dec 31, 2015, Renren Inc. reported revenues of $41.1 million, which represents a decline of 11.9% from the year ago period. During this period, gross profit slumped 63.4% to $4.4 million.

Qihoo 360 Technology Co. Ltd. privatization deal has run into trouble with China’s State Administration of Foreign Exchange (SAFE), according to a report from Bloomberg.

As per sources, SAFE disapproves the transfer of entire acquisition funds overseas in a “single batch” and expects the movement to be in several “smaller batches.” However, the consortium led by Qihoo’s CEO Zhou Hongyi is still discussing it with SAFE.

In June last year, Qihoo received a buyout proposal worth $9.3 billion from a consortium of buyers headed by Qihoo’s CEO Hongyi. Hongyi alone owns around 16% of the company. In December, Qihoo accepted the offer without any alterations.

Bloomberg observed that amid a deluge of go private deals, the Chinese government is trying to control “domestic backdoor listings” so as to prevent depreciation of the yuan.

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

VIPS

-12.9%

-35.7%

JD

+3.7%

-22.9%

BABA

-0.5%

-2%

CTRP

-1.8%

-23.6%

NQ

-4%

-4.3%

JMEI

-12%

-46.4%

SFUN

-6.5%

-20.5%

BIDU

+4.9%

-18.5%

MOMO

+6.7

-5.7%

QIHU

+4.2%

+9%

Next Week’s Outlook:

Markets have been weighed down this week by two disparate concerns. On one hand, fears about the lack of further economic stimulus have dampened investor sentiment. Investors have also been dissuaded by the rising possibility of a rate hike in June.

The lack of major economic releases in the week ahead means that the markets will look toward government announcements to provide stocks with direction. Any indication of further sector specific steps may help boost the bourses in the days ahead.   

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CHINA LODGING (HTHT): Free Stock Analysis Report
 
RENREN INC-ADR (RENN): Free Stock Analysis Report
 
VIPSHOP HOLDNGS (VIPS): Free Stock Analysis Report
 
ALIBABA GROUP (BABA): Free Stock Analysis Report
 
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