China Stock Roundup: China Telecom Partners With Akamai, Qihoo to Repurchase $200M ADRs - Analyst Blog

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Markets on the China mainland had a holiday shortened yet eventful week. With markets closed for National Day holidays til Wednesday, the focus shifted to Hong Kong. The fortunes of the Hang Seng were guided to a great extent by negotiations following pro-democracy protests.

The H-Share Index gained on Monday after protestors agreed to lift some barricades following the commencement of discussions with city officials. These gains continued on Tuesday following a second round of discussions.

Mainland markets opened on a high note on Wednesday. The Shanghai Composite touched its highest level in 19 months following the easing of restrictions related to the real estate sector. The benchmark index continued to move upward today following encouraging comments from Premier Li Keqiang. China Telecom Corp. Ltd.'s (CHA) entered into a strategic partnership with Akamai Technologies, Inc. (AKAM). Qihoo 360 Technology Co. Ltd.'s (QIHU) Board of Directors approved a maximum share repurchase of $200 million of the company's ADRs.

Last Week's Developments

Last Friday, the Hang Seng Index gained 0.6%, its sharpest increase in two weeks. At one point, the benchmark index had lost 1.6%. However, the Hang Seng closed with gains after the government agreed to hold discussions with pro-democracy protestors. Gains made by China's real estate companies also led stocks into positive territory following the relaxation of restrictions on property.

Hong Kong's benchmark index lost 2.6% last week, its sharpest decline since March. The Hang Seng China Enterprises Index moved up 0.4%. Markets on the mainland were closed from Oct 1 to 7 for National Day holidays, after the Shanghai Composite Index had posted its most impressive quarterly performance since 2009.

Markets and the Economy This Week

Stocks listed in Hong Kong gained on Monday after pro-democracy protestors removed some barricades following the beginning of discussions with the government. Gains were led by gambling and property stocks. The Hang Seng moved up 1.1%, marking its highest increase in a month. The Hang Seng China Enterprises Index increased 0.6%.

Analysts were of the view that markets were optimistic about the political situation in Hong Kong. They believed that the situation had stabilized and investors believed that the crisis would come to an end shortly. Investors were now focusing on the upcoming link between the Hong Kong and Shanghai exchanges.

The Hang Seng increased for a third successive day on Tuesday, gaining 0.5% to close at its highest level since Sep 26. The gains were a result of a second round of discussions between pro-democracy protesters and government officials. Lenovo was the biggest gainer. The Hang Seng China Enterprises Index increased by 0.6%.

Pro-democracy leaders had a second round of discussions with officials, leading to a reduction in tension on the streets of Hong Kong. The demonstrations began following the Chinese government's decision that the candidates for election to the position of Chief Executive of the city would have to be cleared by a committee.  

Analysts were of the view that the market was continuing to recover after last week's losses. The political situation had improved, they opined, but the market may not improve further til uncertainty prevailed.

The Shanghai Composite Index increased 0.8% on Wednesday to its highest level in 19 months. Gains were led by property developers following the relaxation of restrictions on real estate. Policy makers eased such restrictions for the first time since the global financial crisis. Markets on the mainland opened on a high following a week of National Day holidays. These holidays followed a 15% gain for the benchmark over the last quarter.

The CSI gained 1.1% while the Hang Seng China Enterprises Index lost 0.7%. The Hang Seng also declined 0.7%. The H-Share Index declined after gaining for three successive sessions. A sub-index of healthcare stocks within the CSI 300 gained 4.1%. This was the highest gain among the index's 10 industry groups.  Meanwhile, the HSBC services PMI declined marginally in September.

The benchmark index gained 0.3% to end close to a 20-month high today. These gains were a result of encouraging comments from Premier Li Keqiang. Premier Li said the government would undertake targeted steps to deal with costs of financing and other problems in order to boost economic growth. He also said that though there was “downward economic pressure,” the country's economy was in “reasonable range.”

Following the announcement, the Hang Seng China Enterprises Index increased 0.9%, the sharpest increase in two weeks. The CSI gained 0.1%. A sub-index of healthcare stocks within the CSI 300 lost 0.8%, the most among the 10 industry groups. The government also revealed details of plans to enable citizens to invest in foreign stocks and properties. Further, Chinese companies will be able to sell yuan-denominated shares in foreign countries.

Stocks in the News

China Telecom Corp. Ltd.'s has entered into a strategic partnership with Akamai Technologies, Inc. Per the agreement, China Telecom's cloud unit CT Cloud will offer an integrated solution which will incorporate Akamai's complete media delivery suite.

The solution will also combine CT Cloud's services with Akamai's Web performance and cloud security services. It will cater to Chinese companies seeking to increase their worldwide Internet presence. The partnership will also allow the two companies to cooperate closely in the spheres of technology and network access.

JA Solar Holdings Co., Ltd. (JASO) has selected Tigo Energy to optimize its JA smart module line of products launched recently. The new product will integrate technology from Tigo into the junction box. This will increase in conversion efficiency, better safety, improvement in panel-level monitoring. This will also result in usage of strings which are 30% longer.

Chief Operating Officer of JA Solar, Yong Liu, said: “Our smart modules are an exciting product that demonstrates our commitment to leading the industry through innovation. Tigo's solution helps us meet our customers' high expectations for functionality and reliability. Tigo is a valuable technology and marketing partner for us."

Qihoo 360 Technology Co. Ltd.'s Board of Directors approved a maximum share repurchase of $200 million of the company's ADRs. These share repurchases are expected to be conducted either through open market purchases or via privately-negotiated transactions.

The share repurchase transactions will be financed by Qihoo's current cash reserves and cash flow. As of Jun 30, 2014, the company had around $787 million of cash and cash equivalents. Qihoo has also raised around $1 billion during Aug 2014 via a convertible bond offering.

Phoenix New Media Limited (FENG) will purchase an 8.75% stake in Particle Inc. for $6 million. The deal is expected to be completed by the fourth quarter of 2014.  Particle is the owner of the mobile app Yidian Zixun. Also known as Yidian, the app is a prominent Chinese customisable news feed app. It caters to at least 1 million active users on a daily basis.

CEO of Phoenix New Media, Shuang Liu said: "We are very excited to make a strategic investment into Particle." He added: “Our cooperation with Particle will allow us to leverage Yidian, one of the leading personalized news feed apps in China, in combination with our flagship product, ifeng News.”

WuXi PharmaTech (Cayman) Inc. (WX) has purchased contract research firm XenoBiotic Laboratories, Inc. With 27 years of successful operations, XenoBiotic Laboratories offers drug metabolism, bioanalytical and pharmacokinetic services. It caters to animal health, pharma and agrochemical companies.

The acquisition was completed on Sep 30, 2014 and financial details of the deal have not been disclosed. WuXi's Laboratory Testing Division (LTD) will gain significantly from this purchase. The division will be bolstered when it comes to studies of radio-labelled compounds and will help WuXi acquire new customers in the animal health and agricultural domains.

The purchase of XenoBiotic also enhances LTD's North American presence and offers wider flexibility regarding service and support options. It also offers LTD the prospect of expanding operations in the region.

Perfect World Co., Ltd. (PWRD) has signed a Memorandum of Understanding (MoU) with Columbia University's Mailman School of Public Health. The MoU signed in New York followed extensive discussions between the company and Columbia University. These discussions centred on how interactive digital entertainment could be applied to medical rehabilitation. Further, its role in social development was also discussed.

Earlier this year, Xiao Hong, CEO of Perfect World, had opined that the gaming business would converge with sectors like healthcare, finance, communications and education. The agreement between Columbia University and the company is in keeping with this trend. Hong believes that a large number of sectors could begin to utilise digital interactive entertainment and spark new thinking across domains.

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

+2.2%

NA

SFUN

+8.4%

-25.3%

TSL

-2.6%

-18.3%

JD

+4.9%

+26.3%

BIDU

+2.2%

+38%

VNET

+26.7%

-17.8%

YGE

-4.2%

-31.9%

JASO

+0.2%

-12.8%

QIHU

+1.6%

-29.3%

NQ

+3.9%

-58.2%

Next Week's Outlook:

Markets have had a short but eventful week, following an extended break due to holidays. The benchmark index has continued to gain from reforms. Wednesday's increases were largely a result of easing of property sector norms. Today's comments from the Chinese Premier reemphasise the country's policy of sector specific reforms to boost economic growth. Markets responded positively to these comments as well.

Next week features certain key economic reports, such as data on trade and inflation. It is clear that markets are gaining from expectations of further reforms. These announcements are also overshadowing negatives, such as a marginal drop in services sector numbers which occurred this week. Any further sector specific measures are likely to receive a similar response and will help markets move higher in the days ahead.

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JA SOLAR HOLDGS (JASO): Free Stock Analysis Report
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AKAMAI TECH (AKAM): Free Stock Analysis Report

WUXI PHARMATECH (WX): Free Stock Analysis Report

QIHOO 360 TECH (QIHU): Free Stock Analysis Report

PHOENIX NEW MED (FENG): Free Stock Analysis Report

CHINA TELCM-ADR (CHA): Free Stock Analysis Report

PERFECT WORLD (PWRD): Free Stock Analysis Report

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