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China Stock Roundup: Alibaba Invests $1.25B in Ele.me, ReneSola Wins China Contract

Markets suffered over the week following fears that further stimulus measures from the government may not be forthcoming. The Shanghai Composite Index suffered its steepest fall in three weeks on Monday. The benchmark index increased on Tuesday after rare earth stocks rallied to outweigh losses caused a decline in energy stocks. The Shanghai Composite Index suffered its most grievous losses in two months on Wednesday. The benchmark index declined on Thursday as industrials and financials suffered loses, outweighing gains from energy stocks.

Alibaba Group Holding Limited BABA and its finance affiliate, Ant Financial, have jointly invested a total of $1.25 billion in Chinese online food delivery startup, Ele.me. ReneSola Limited SOL announced that it has signed an agreement to supply solar modules with an aggregate volume of 81.5 megawatts (“MW”) to two customers in China.

Last Week’s Developments

Last Friday, the Shanghai Composite Index lost 0.1%, cutting its weekly gain to 3.1%. Encouraging economic data and a considerable increase in new credit led investors to believe that the government would be unwilling to undertake further stimulus measures, leading to profit taking.

Industrial production increased by 6.8% in March, higher than the average of 5.4% recorded in January and February. Retail sales exceeded most expectations to increase by 10.5%. Growth in fixed asset investment also exceeded expectations, coming in at 10.7%. Credit growth touched its highest level in 20 months. 

Meanwhile, GDP increased by 6.7%, in line with most estimates even though this was the slowest rate in seven years. An index of materials stocks declined by 0.8%. The CSI 300 moved 0.1% lower. The Hang Seng slipped by 0.1%, breaking a seven day winning streak the best such series of gains in a year. The Hang Seng China Enterprises Index moved 0.3% lower.

Markets and the Economy This Week

The Shanghai Composite Index suffered its steepest fall in three weeks on Monday, losing 1.4%. Property and energy stocks led the decliners. A fall in oil prices and fears that rising home prices would lead to government intervention in the real estate market were the primary reasons for the day’s losses.

Failure on the part of major oil producing nations to come to an agreement in the Doha meeting on Sunday over freezing crude production resulted in a decline in oil prices. One of the key OPEC members, Saudi Arabia was not ready to freeze crude output without Iran’s participation.

Meanwhile data from leading real estate website SouFun Holdings Ltd. SFUN showed that average new home prices increased by 1.9% in March. This is significantly higher than February’s increased on 0.6%. Prices increased in 60 of the 100 cities tracked by the website during March.

Additionally, new home prices increased in 62 of the 70 cities which are studied by the government. The sub-index of tech stocks within the CSI 300 declined by 2.2%, emerging as the biggest decliner for the index. The Hang Seng lost 0.7%. The Hang Seng China Enterprises Index moved 1.4% lower.  

The benchmark index increased by 0.3% on Tuesday, after rare earth stocks rallied to outweigh losses caused a decline in energy stocks. Trading volumes on the Shanghai Composite Index was 27% lower than the average recorded over a 30 day period. This was the first time that the index had moved upward in three days.

According to market watchers, speculation that the government will implement measures to reduce excess capacity and increase buying to shore up state reserves was boosting stocks of rare earth producers. The Hang Seng increased by 1.3%. The Hang Seng China Enterprises Index gained 1.7%, touching its highest level since Jan 4.

The Shanghai Composite Index suffered its most grievous losses in two months on Wednesday. The index had lost nearly 4.5% before closing the session 2.3% lower.  Tech and industrial stocks were the biggest losers for the day. For every stock that gained, 13 moved lower.

A measure of 50 day volatility on the benchmark index had declined to its lowest level for the year on Tuesday. However, the gauge increased on Wednesday as turnover spiked.  The benchmark index also declined below the key level of 3,000 for the first time in nearly two weeks, widening its losses for the year to 16%.

The small cap heavy ChiNext index dropped 5.6%. The Hang Seng lost 0.9%. Meanwhile, the Hang Seng China Enterprises Index declined 1.2%. Market watchers were at a loss to explain why stocks had taken heavy losses though they said some profit taking may be occurring.

The benchmark index declined on Thursday, losing 0.7% as industrials and financials suffered loses, outweighing gains from energy stocks. A significant surge in crude prices which helped them end firmly above the $40 mark was the reason for the upward movement in energy stocks. The CSI 300 declined by 0.6%.

Stocks in the News

Alibaba Group Holding Limited and its finance affiliate, Ant Financial, have jointly invested a total of $1.25 billion in Chinese online food delivery startup, Ele.me.

Ele.me is a website that offers customer-to-customer meal ordering services. It is also part of China’s online-to-offline (O2O) trend, where consumers use their smartphones to avail of offline services.

In Dec 2015, a leading business weekly Caixin revealed that an investment of $1.25 billion (roughly INR8,323 crores) in Ele.me would give Alibaba a 27.7% stake in the startup, making it Ele.me’s largest shareholder.

ReneSola Limited announced that it has signed an agreement to supply solar modules with an aggregate volume of 81.5 megawatts (“MW”) to two customers in China. Delivery is slated to complete by the end of May 2016.

Per the agreement, ReneSola will supply 305W, 310W and 315W modules of a total capacity of 56.5 MW to TBEA Xinjiang Sunoasis for its utility-scale projects in Xinjiang and Jiangsu provinces, China.

The remaining 25 MW will comprise 265W Virtus II modules supplied by ReneSola for China Foma Group’s utility-scale project in the Gansu Province of China.

PetroChina Co. Ltd. PTR will likely start operating a new oil sand plant at MacKay River, according to The Wall Street Journal. The leading integrated oil company is expected to start the project with 35,000-barrels-a-day production capacity later this year although oil has been under the development’s break-even levels for a length of time. 

With this, PetroChina is going to produce first oil from its two Alberta oil sands developments worth as high as $3.9 billion. While the MacKay River project is one of the projects, the other is the Dover plant with a capacity of 250,000 barrel per day. It is to be noted that PetroChina is yet to build the Dover plant. 

The breakeven range of oil price for both the MacKay River and Dover projects is $60 to $70 per barrel. This is higher than the current oil price of $41.50 per barrel as the technology of producing oil from the projects is expensive.

JinkoSolar Holding Co., Ltd. JKS announced that it has received a contract to supply 49 megawatts (‘MW’) of solar modules to China Resources Power Investment Company Limited ("China Resources Power"). The modules will be utilized to set up three solar PV plants in China.

A subsidiary of state-owned China Resources (Holdings) Company Limited, China Resources Power is listed on the Hong Kong stock exchange. Its business operations span the areas of power generation from solar, wind and other energy sources.

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

ATHM

-0.3%

-15.5%

BABA

+1.7%

+17%

BIDU

-0.4%

+29.4%

CTRP

-1.2%

+34%

EDU

+11.4%

+55.9%

JD

-2.9%

+10.3%

JMEI

-1.4%

-35.9%

LFC

-2.8%

-34.8%

NTES

-5.4%

-0.9%

QIHU

-0.1%

+39.5%

Next Week’s Outlook:

Markets have taken considerable losses over the last few days after enjoying a period of significant gains last week. These gains were fueled by a slew of encouraging economic reports, ranging from industrial to retail sales. However, it seems that these developments have heightened panic among investors.

There are fears that the government will not take further steps to boost the markets or economy in light of these reports. This has led to some amount of profit taking and mainland stocks have lost their lure. Not a single significant economic report is scheduled for release last week. It is difficult to predict at this point whether this will help stocks return to their winning ways. However, any stimulus measures from the market will certainly boost stocks, even if they are sector specific in nature.  

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SOUFUN HLDG-ADR (SFUN): Free Stock Analysis Report
 
PETROCHINA ADR (PTR): Free Stock Analysis Report
 
RENESOLA LT-ADR (SOL): Free Stock Analysis Report
 
JINKOSOLAR HLDG (JKS): Free Stock Analysis Report
 
ALIBABA GROUP (BABA): Free Stock Analysis Report
 
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