This will teach you not to bet against China’s biggest search engine. Baidu (BIDU.NASDAQ) beat both analyst estimates as well as its own forecast for revenue growth in the fourth quarter of 2013. The company posted a 50% increase in revenue, hitting US$1.57 billion. In October, when the company projected between US$1.5 billion and US$1.54 billion, analysts said that was too high. Baidu showed them. But what’s more surprising than the revenue growth is the company’s ability to monetize its mobile functions. About 20% of its revenue at the end of 2013 came from mobile, double from the previous quarter. Baidu CFO Jennifer Li told The Wall Street Journal that the company would do more this year to promote mobile purchases. Ricky Lai, an equities analyst at Guotai Junan Securities said the company was indeed set to speed up its mobile monetization. “We expect more and more revenue contribution from the mobile platform this year,” he said on Thursday from Hong Kong. Baidu said it would target revenue of between US$1.53 billion and US$1.57 billion in the first quarter of this year, shooting above analysts’ consensus – as if they hadn’t learned their lesson from last quarter. Lai says he expects Baidu to hit the high end of the company’s revenue guidelines.
Making sense of a wild week in China real estate
China real estate had an eventful week and – depending on who you were in the market – it was promising, disconcerting or downright infuriating. First, price growth for new residential real estate in the 70 Chinese cities monitored by the National Bureau of Statistics slowed for the first time in 14 months in January. Prices grew by 9.6% year-on-year, down from 9.9% last month. Prices in six cities are actually falling month-on-month, up from two in December. Then, reports trickled in of discounts of up to 40% for some developments in central China. Last, word spread that Industrial Bank (601166.SHA) was suspending property financing until mid-March, sparking concern that major banks would tighten lending to developers. So what does it all mean, and for whom? The government is likely pleased with the gradual cooling of prices but officials don’t want them to fall too far, lest panic of a crash spread. Anyone who got a cut-price home in Hangzhou this week was no doubt delighted; those that bought last week reportedly stormed sales offices demanding the discount. Barclays Research confirmed the discounts but said they were lower than reported and that it was unlikely substantial price cuts would be seen nationwide. Of course, investors didn’t like talk of tightening in property lending. That did in fact happen but it’s significance was overblown, prompting the state-run Xinhua News Agency to come out and say everything was okay. A note from China Galaxy International this week said the sector remains stable and that “it’s highly improbable that there would be such aggressive constraints such as a suspension of lending placed on the sector at this stage.”
Depreciating RMB: You brought this on yourself
The most unhappy investors of the week were those betting on the eternal appreciation of the yuan. There are several way to invest in yuan appreciation, some legal, some not so. But both camps have undoubtably watched with a grimace as the currency slumps by about 1.2% against the dollar since the beginning of the year, most of which occurred in the past two weeks. Hundreds of billions of dollars have been poured into derivative products at private banks that bet on yuan appreciation. These savvy investors are hurting this week. Another way to invest in the yuan is by bring cash onto the mainland and convert it into yuan. Traders can do this by simply inflating invoices. What’s ironic about the the recent decline of the yuan is that a dangerous amount of speculative inflows probably led to an intentional but temporary devaluation orchestrated by none other than the central bank. State-owned banks bought huge amounts of dollars last week. Then the People’s Bank of China pushed down the daily fixing spot that the yuan is traded by several times. This is a tactic to stop the inflows but it won’t last too long. “Once the dust settles – which could well be a few months from now – the RMB will resume its upward course against the dollar,” according to a report from GavKal Dragonomics. When appreciation resumes, the pace could be a bit slower than before.
Huisheng International (1340.HKG) begins trading today in Hong Kong. The high demand for this small mainland meat company, consolidated in the Cayman Islands, delivered a surprise and demonstrated an appetite for Chinese meat. The big mainland pork play will be WH Group, formerly Shuanghui International, when it lists later this year. Late next week, mainland auction house Poly Culture (3636.HKG) will trade publicly. The firm is 90 times oversubscribed. Chinese firms must hope this kind of hunger for H shares will last.