Oct. 31, 2009 (Chinavestor) The least we can say it was a volatile week for American and Chinese stocks alike. Taking a closer look at actual performance, this was a rather difficult week for China stock investors. Only a handful of China plays ended the week higher, such as JA Solar (NASDQ:JASO) and NetEase.com (NASDAQ:NTES), reminding investors of the fact that American market sentiment still rules China ADRs. Large cap China stocks continued to show weakness like China Mobile (NYSE:CHL) and China Unicom (NYSE:CHU) from the telecom sector, or China Life Insurance (NYSE:LFC) and Huaneng Power (NYSE:HNP). The largest NASDAQ listed China play, Baidu.com (NASDAQ:BIDU), suffered a heavy blow just as did Sohu.com (NASDAQ:SOHU). Focus Media Holdings (NASDAQ:FMCN) or Sohu.com (NASDAQ:SOHU).
The primary reason for such a disastrous performance over the week was lack of confidence that the rally is sustainable. The DJIA had a remarkable third quarter run that ended on a high tone in September, raising expectations ahead of the earnings season. And while corporate earnings beat expectations, the reality is that earnings declined 23% year-over-year (YoY). Considering that the DJIA moved over 100 points four times out of five trading session for the week, investors have no clear indication where the markets are going to move.
The secondary reason for a weak performance for China stocks was poor earnings. The telecom sector got hammered after all three carriers reported negligible 3G subscriber growth while costs upgrading the networks jumped. China Mobile (NYSE:CHL) reported the subscriber strongest growth and managed to eke out a negligible net income growth, but the lack of visibility into where the company is going to be in 6 months from now is hurting the stock. China Unicom (NYSE:CHU) is under pressure from both China Mobile (NYSE:CHL) and China Telecom (NYSE:CHA). China Unicom has the iPhone but reported the weakest 3G growth of all while capital expenditures, e.g. costs associated with network development, skyrocketed. No wonder, China Mobile (NYSE:CHL) and China Telecom (NYSE:CHU) are the most oversold China stocks today - highlighted in blue on the chart below.
But when it comes to stocks that disappointed the most, the list starts with Baidu.com (NASDAQ:BIDU). While BIDU didn't fall the most is percentage term - that title belongs to China GrenTech, Sohu.com (NASDAQ:SOHU), and Focus Media Holdings (NASDAQ:FMCN) - but when it comes to stock trading characteristics, Baidu.com (NASDAQ:BIDU) disappointed the most. China's search engine giant reported good Q3 earnings but lowered Q4 revenue outlook, resulting in a disastrous $74 drop from Monday close to Tuesday open. Considering that BIDU advanced 189.4% YTD, a drastic reaction to a lowered revenue guidance is understandable. (NASDAQ:GRRF),
Sohu.com (NASDAQ:SOHU) did very similar to BIDU, expect is got hammered even more. Sohu.com reported in line Q3 but lowered Q4 revenue guidance and got punished for it. Shares of SOHU fell 21.1% for the week, surpassing that of BIDU, but it was less dramatic measured from Monday to Friday - something the oversold indicator does - because Sohu's dramatic loss occurred from last Friday to Monday.
Biggest losers of the week- measured by stock specific relative performance
Closely watched Focus Media Holdings (NASDAQ:FMCN) lost -16.0% for the week giving up most of the gains for the month. Investors are still trying to capture the true value of FMCN after the failed attemptSina Corp. (NASDAQ:SINA). to sell its core business to
NYSE listed China Life Insurance (NYSE:LFC), the largest Chinese life insurer in China, declined 5.1% and is on the list of relative biggest losers of the week. The company reported better then expected net growth, helping China Life (NYSELFC) to weather the storm on Monday. However most of its investment income growth is attributed to the outstanding performance of its investment portfolio, something that is just as volatile and unpredictable as the Shanghai Composite itself. But given that premiums income growth remains steady, China Life Insurance (NYSE:LFC) looks like a sound bet for value investors.
Huaneng Power (NYSE:HNP) swung to a Q3 profit, reported earlier the month, but it was no match for the negative market sentiment. When price of oil and coal heads north, profitability of China's largest independent power producer is in danger. Given that it is highly unusual for large cap stocks like Huaneng Power (NYSE:HNP) to lose 10% a week, HNP is the third on the most disappointing stock list.
Crip.com (NASDAQ:CTRP) is going to report Q3 on November 11 so current weakness is not fundamentally driven. Yet, a 12% decline from Monday to Friday is unusual for the quality play, securing the fourth spot on the most disappointing China stock list of the week. We have been liking Ctrip.com (NASDAQ:CTRP) fro the longest time and had it on the "Growth" portfolio for over a year, but we issued a "SELL" alert to clients when CTRP reached $60. This was based on valuation and that the stock advanced over 100% since we introduced and kept her in the portfolio.
Talking about stock recommendation. We had JA Solar (NYSE:JASO) on the "Weekly Stock BUY List", a list of stocks Chinavestor Advanced Members receive each Friday at 3:30. Assuming they did buy JA Solar Holdings (NASDQ:JASO), this oversold Chinese solar play, a 1.6% return for the week offered some solace.
NetEase.com (NASDAQ:NTES), the most profitable Chinese online game operator and developer, advanced 3.26% for the week. NetEase.com has been long oversold following the failed attempt to acquire the licence to operate the WoW from The9 Ltd. (NASDAQ:NCTY). Nevertheless the company is back on its feet and has just launched the first "Sanguo" expansion. Expect NetEase.com (NASDAQ:NTES) to outperform based its strong game pipeline.
Looking forward, earnings and the economic calendar will remain in focus. We are going to have September unemployment numbers reported later the week along with the number of cars sold. While unemployment might touch the psychologically sensitive 10%, if car sales remain robust despite the end of the clunkers program, investors might gain confidence about consumer spending.
Looking at the economic calendar in Asia, Toyota and Nissan are going to report after Honda reported improved outlook. Another potentially important impact may come from Australia where the central bank is expected to raise rates again after the surprise move earlier the month. That increase was the first by any major central bank this year, a sign that the global economy is back on track and prompted a world wide rally.