May 15, 2010 (Chinavestor) – Enthusiasm for the European bailout waned quickly and that had global equity markets selling-off by mid-week. Major U.S. indexes all notched positive weeks, but the bulk of the those gains were seen on Monday and stocks spent Thursday and Friday paring those gains. Rising inflation in China pressured stocks, officially pushing the Shanghai Composite Index (SHA:000001) into bear market territory. China's inflation problem raises the specter of an interest rate hike by the Peoples Bank of China, which has thus far chosen to use softer means of cooling economic growth rather than blunt tools.
The Shanghai Composite (SHA:000001) is down 23% from its August high while the Shenzhen Composite Index is off 20% in that time. Only health-care and consumer staples issues have avoided this year's declines in China, while other sectors seem to be moving contrary to a spate of economic data that indicates China's economy is still firing on all cylinders.
Looking at individual names, Xinhua Sports & Entertainment (Nasdaq: XSEL) led the losers, shedding 24 cents, or 34%, to close the week at 40 cents. A 44% drop in quarterly sales and a steeper loss sent investors fleeing XSEL. The company hasn't been profitable in more than a year and another loss was not what investors wanted to hear.
Sinovac Biotech (Nasdaq: SVA) was also hammered on news of a quarterly loss. The biotech firm finished the week down 12.3%, but shed almost 19% on Friday as investors weren't pleased by news of lagging vaccine sales. Dour earnings reports also had investors fleeing American Oriental Bioengineering (NYSE: AOB), Mindray Medical (NYSE: MR), China Integrated Energy (NYSE: CBEH) and VisionChina Media (Nasdaq: VISN).
Real estate continues to be ground zero for the bears when it comes to Chinese stocks. That combined with an unenthusiastic response to the company's earnings report had Xinyuan Real Estate (NYSE: XIN) down almost 10% on the week. Large-cap agriculture names have been laggards for a while now and the selling pressure has been intensifying, hitting AgFeed Industries (Nasdaq: FEED) to the tune of an almost 5% loss this week. China Nepstar Chain Drugstore (NYSE: NPD) was down 4.3% on the week, but lost almost 3.3% on Friday. Curious trade given that the company reports earnings on Tuesday May 18th.
There was some positive news for select Chinese names. Baidu added almost 16% after its 10-for-1 stock split, indicating that investors quickly warmed to the more accessible stock price. Priceline.com (Nasdaq: PCLN) got hammered after its quarterly update, but Ctrip.com (Nasdaq: CTRP), China's answer to Priceline, had investors cheering its earnings report and the shares gained more than 15%. Home Inns & Hotel Management (Nasdaq: HMIN) said first-quarter revenue rose almost 37% and its second-quarter outlook will soundly beat the first-quarter results if that guidance is met. That news had the shares up 16%.
China Green Agriculture (NYSE: CGA) and China Digital TV (NYSE: STV) also got nice boosts from solid earnings reports, gaining 15.8% and 16.5%, respectively. Spreadtrum Communications (Nasdaq: SPRD) gained more than 14%, though the news flow was sparse. The company reports earnings on Monday and volume was more than double the daily average on Friday, indicating institutional traders may be positioning to sell Spreadtrum off on Monday.
The same scenario may apply to China TechFaith Wireless Communication Technology (Nasdaq: CNTF) and Global Sources (Nasdaq: GSOL) The handset designer and media company both jumped more than 15% ahead of their earnings reports on Wednesday May 19th.