Markets moved lower over the week after authorities tightened regulations in order to reduce the level of risk in the financial system. The benchmark index declined on Monday with blue chip stocks incurring maximum losses after expectations of new monetary stimulus measures declined. The Shanghai Composite sank to its lowest level since the first half of November on Tuesday.

The benchmark index rebounded on Wednesday, after concerns over a liquidity crisis in China’s banking system abated. The Shanghai Composite Index ended nearly flat on Thursday after gains made by state owned companies were mostly negated by tough liquidity conditions following the recent bond scandal.

Noah Holdings Limited (NOAH Quick QuoteNOAH - Free Report) said that it has approved the repurchase of $20 million of outstanding American Depositary Shares (ADSs). Renren Inc. reported adjusted third-quarter 2016 loss of 7 cents per share

Last Week’s Developments

Last Friday, the Shanghai Composite Index increased 0.2% even as it suffered a weekly decline. The CSI 300 advanced by 0.2%. The benchmark index suffered its most grievous weekly decline in around eight months, losing 3.4%. The CSI 300 lost 4.2% over last week. The tough stance of authorities against insurers, and a yuan and bond market sell off following a rate hike from the Fed led to these losses.  The Hang Seng declined 0.2% while the Hang Seng China Enterprises Index slipped 0.1%.

Meanwhile, 10-year treasury futures increased 1.33%, rebounding from Thursday’s selloff caused by the Fed’s rate hike. Sector performance for the day remained mixed. Banks and materials stocks continued to decline following the growing strength of the dollar. On the other hand, healthcare and infrastructure stocks managed to recoup some of their losses. The tech heavy ChiNext gained 1.2% as startup stocks rallied strongly.

Markets and the Economy This Week

The benchmark index declined 0.2% on Monday with blue chip stocks incurring maximum losses after expectations of new monetary stimulus measures declined. A statement from the government’s economic planners said that the government will work to control asset bubbles and would adopt a “prudent and neutral” monetary policy in order to do so.

Nearly all market sectors declined, with property stocks suffering the most. This was primarily due to the country’s top leadership emphasizing the need to control risk in the sector next year. Consumer and transportation stocks managed to defy the overall sentiment and gained over the day. The Hang Seng declined by 0.9% while the Hang Seng China Enterprises Index slumped by 1%.

The Shanghai Composite lost 0.5% on Tuesday, sinking to its lowest level since the first half of November. Following Monday’s comments from top officials, the central bank stated that it would adopt more stringent regulations in order to better supervise shadow banking practices and off balance sheet wealth management products.

Nearly all market sectors took losses, with properties and real estate stocks suffering the most. Only infrastructure shares ended the day with gains. Stocks in Hong Kong fell to their lowest level in five months. The Hang Seng declined 0.5% while the Hang Seng China Enterprises Index lost 1%.

The benchmark index rebounded on Wednesday, gaining 1.1%, after concerns over a liquidity crisis in China’s banking system abated. The fallout of a bond related scandal seemed to be contained while authorities promised to undertake further reforms of state owned companies. The CSI 300 advanced 0.9%, also ending a two session long stretch of losses.

Nearly all market sectors gained with transportation and infrastructure stocks leading the pack. Meanwhile, banks and real estate stocks attained some modicum of stability. The Hang Seng lost out on a portion of early gains but still ended 0.4% higher. The Hang Seng China Enterprises Index increased by 0.5%.

The Shanghai Composite Index declined by 0.1% on Thursday after gains made by state owned companies were mostly negated by tough liquidity conditions following the recent bond scandal. The CSI 300 also lost 0.1% after gaining nearly 1% earlier in the session. The central bank and insurance regulator issued fresh regulations in order to reduce level of risk in the financial system.

Shares of PetroChina Co. Ltd. almost touched their highest intraday level in year on hopes of reforms. The Hang Seng lost 0.8% while the Hang Seng China Enterprises Index declined by 1.4%.  

Stocks in the News

Alibaba Group Holding Limited (BABA Quick QuoteBABA - Free Report) has once again featured on the “notorious markets” list of the U.S. government. The E-commerce major last featured on this list four years ago. Its return to this list follows allegations of fake goods sales. According to U.S. authorities, Alibaba’s online portal Taobao has been selling “high levels” of counterfeit items

The company has been quick to deny these allegations. Instead, Zacks Rank #3
(Hold) rated Alibaba insists that it has introduced policies to ensure that its online marketplace has improved compared to the past. Expressing disappointment over the decision, the company’s Group President Michael Evans said that the U.S.’s “current political climate” was probably the real reason why Alibaba’s features on the list once again.

President elect Donald Trump had hurled accusations repeatedly at Chinese companies during his campaign. Trump alleged that they were guilty of intellectual property theft. Earlier in May, the International Anti Counterfeiting Coalition (IACC) suspended Alibaba over piracy concerns. The stock has gained 9.8% year to date, underperforming the Zacks Internet - Commerce industry which has gained 8.3%.

Trina Solar Limited (TSL Quick QuoteTSL - Free Report) said that it has a created a new efficiency record for a specific type of mono crystalline silicon solar cell. According the PV module major, its State Key Laboratory of PV Science and Technology has set a fresh global conversion efficiency record of 22.61% for a high efficiency p-type mono crystalline silicon solar cell. 

In 2014, Zacks Rank #3 rated Trina Solar set a global conversion efficiency record of 21.4% for a large area PERC monocrystalline cell, superseding this in 2015 with a new record of 22.13%. In July 2016, Trina Solar revealed that it was now capable of commercially producing PERC solar cells with an average efficiency of 21.12%. The stock has lost 14% year to date, underperforming the Zacks categorized Solar industry which has declined 56.3%.

Noah Holdings Limited said that it has approved the repurchase of $20 million of outstanding American Depositary Shares (ADSs). This plan was finalized as part of a previously announced $50 million share repurchase program. The earlier plan was unveiled on Jun 29, 2016. The stock has lost 20.5% year to date, underperforming the Zacks categorized Financial – Investment Management industry which has gained 6.8%.

Expressing confidence in the company’s outlook, Group President Kenny Lam said that Noah Holding’s share price was significantly lower than its inherent value. Lam said that the company sports a low amount of leverage, strong record of earnings growth and steady cash flows. This is why a repurchase program provides a good occasion to boost shareholder value over the long term. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Renren Inc. reported adjusted third-quarter 2016 loss of 7 cents per share. This was a significant improvement over loss of 24 cents per share reported in the same period last year. This was also better than adjusted loss of 14 cents reported in the second quarter of 2016.

Zacks Rank #3 rated Renren reported revenues of $18 million, up 28.6% from the second quarter of 2016. More significantly, revenues registered a year-over-year increase of more than 100%.

Revenues from advertising and Internet Value-Added Services (IVAS) came in at $9.6 million, registering a 31 % year-over-year increase. Revenues from advertising came in at $0.1 million, significantly lower than the year ago figure of $1.5 million. Revenues from IVAS amounted to $9.5 million, surging 65.3% year-over-year. The stock has lost 55.2% year to date, underperforming the Zacks categorized Internet - Delivery Services industry which has lost 9.2%.

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.

Next Week’s Outlook:

Markets have suffered this week following concerns over stringent regulatory action from authorities. The aftermath of a bond scandal and attempts to control shadow banking practices have led to grievous losses from stocks. Ultimately, markets recovered following promises of deeper reforms of state owned enterprises.

Next week is largely bereft of economic events to influence the markets. In their absence, further reform announcements from authorities are likely to provide markets with direction in the days ahead.

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