China Stock Roundup: Sohu Loss Widens, SouFun Shares Slump - Analyst Blog

Stocks had a broadly positive week following a two day holiday for Chinese markets. Technology stocks led gains on the first two days, reversing a sectoral decline which had been occurring for several months. Railway companies gained following an announcement last week that infrastructure spending was being widened.

However, property shares such as E-House China Holdings Ltd. EJ suffered, driven downwards by a decline in home sales. SouFun Holdings Ltd. SFUN incurred maximum losses among property stocks. A better-than-expected increase in trade surplus has helped shares accrue gains as of today.

Last Week's Developments

Shares listed on the Hong Kong exchange notched up gains, avoiding a third consecutive week of losses. Higher revenue posted by gambling stocks helped them move higher. Chinese railway stocks also moved upwards, boosted by plans to increase infrastructure investment.

The Hang Seng increased 0.6% last Friday, gaining 0.2% over the week. The China Enterprises Index, comprised of the leading Chinese listings in Hong Kong, gained 0.2% and remained flat over the week. Markets on the mainland remained closed on Thursday and Friday

Markets and the Economy This Week

The majority of Chinese stocks moved upwards on Monday after the two day holiday. The gains were primarily a result of a rally in railway and technology stocks. Railway companies gained following China Railway Corp's announcement last Thursday that it was raising its investment budget. A decline in new home sales resulted in a slump in property developer stocks.

Overall gains for the market ensured that the Shanghai Composite Index gained 0.1%. The CSI 300 declined 0.1% but a gauge of technology shares within the index moved up 0.9%. This measure had been the worst performer among the 10 industry groups over the last three months. The Hang Seng China Enterprises Index declined 0.6%.

The Shanghai Composite Index gained less than 0.1% on Tuesday, aided by telecom and tech stocks. The index gained over four consecutive days, increasing 1.2% overall. The CSI 300 also gained less than 0.1%. The index's gauge of technology shares continued to chalk up gains, increasing 1.4%, the highest among the 10 industry groups.

However, property developers continued to suffer due to concerns that Chinese home sales were declining. E-House China Holdings Ltd. incurred the highest losses with ADRs declining 6.1%. New Oriental Education & Tech Grp EDU experienced the maximum losses among ADRs after Deutsche Bank AG reduced its rating from buy to hold. Hong Kong's markets were closed for the day. The Bloomberg China-US 55 Index lost 0.5% after Alibaba Group Holding Ltd. filed for an IPO, which could possibly become the largest ever in the U.S.

Markets declined on Wednesday, with the Shanghai Composite Index losing 0.9% to close at its lowest level for the month. A decline in the HSBC China services Purchasing Managers' Index led to losses for property developers and consumer discretionary stocks. Real estate website operator SouFun Holdings Ltd. dropped the most in three years, by 9.4%. The Bloomberg China-US 55 Index declined by 1%.

The CSI 300 and the Hang Seng China Enterprises Index both lost 0.9%, with the latter falling to its lowest level since March 21. A sub-index of consumer discretionary shares within the CSI 300 declined 1.7%. Concerns that slower growth will result in a decline in earnings has led to significant declines for the Hang Seng and the benchmark index. The Shanghai Composite Index has declined 5% while the Hang Seng has lost 11% this year.

An unexpected improvement in China's trade balance for the month of April sent stocks upwards today. The benchmark Shanghai Composite Index gained 0.3%, its largest increase in the week so far. The 0.9% year-over-year increase in exports, exceeded expectations while the 0.8% increase in imports fell below estimates.

This development delivered a significant boost to the economy which has suffered from concerns over a slowdown. The trade surplus now stands at $18.46 billion. The Hang Seng China Enterprises Index gained 0.8% but the CSI 300 declined 0.1%. A sub-index of energy stocks in the CSI 300 increased 1.1%, the highest among the index's industry groups.

Stocks in the News

Sohu.com Inc. SOHU reported loss of $1.33 per share in the first quarter of 2014, which compared unfavorably with earnings of 60 cents reported in the year-ago quarter.

The reported loss was, however, narrower than the Zacks Consensus Estimate of a loss of $1.45 per share. The loss can be attributed to a massive surge in operating expenses related to compensation and promotional activities. Shares of the company declined. Shares of the company declined 5.0% over last week.

Revenues jumped 18.8% year over year to $365.3 million and beat the Zacks Consensus Estimate of $363.0 million. The year-over-year increase was primarily driven by strong performance from online advertising, brand advertising and search & other segments, which more than offset the decline in revenues in the Online Games segment.

NQ Mobile Inc. NQ has reportedly collaborated with Sprint Corp. S to allow its customers access to NQ Music Radar technology on the HTC One M8 Harman Kardon edition smartphone.

Further, NQ Mobile's NQ live will be the default music experience for the new handset, which will be commercially available from this month to Sprint's customers. The new offering will provide enhanced wireless experience, and thus prove beneficial for new additions to Sprint's existing customer base.

The agreement entails integration of NQ Mobile's Music Live and Music Radar with Sprint's Music Plus on HTC One M8 Harman Kardon edition. The new enhancement will enable customised content and functionality in real time. In addition, customers will also have access to live interactive wallpaper and instant music discovery and recognition through this latest technology enhancement.

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
SFUN	-12.19%	-81.61%
YGE	-13.12%	-53.87%
QIHU	-8.56%	-1.53%
BIDU	-2.94%	+0.12%
CTRP	-2.82%	-11.25%
YY	-9.57%	+12.34%
DANG	-8.01%	+23.65%
SINA	-2.27%	-37.66%
YOKU	-7.50%	-19.88%
EJ	-8.26%	-11.41%

Next Week's Outlook:

Property shares incurred heavy losses over the week, primarily due to a slump in home sales. Private service sector numbers also indicated that areas of weakness continue to exist in the economy

However, the specter of IPOs luring away funds from older stocks has receded. At the same time, technology stocks have chalked up significant gains, aiding the broader markets. An unexpected improvement in trade numbers has provided strength to the markets, quelling fears of a broader slowdown. If next week's numbers on retail sales and industrial production also remain on the positive side, markets may continue to chalk up gains.

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