ADR premium to BRICs narrows on Europe concerns

Chinese companies traded in the US fell to the lowest valuations versus the biggest emerging markets in a year as Europe’s debt crisis deepened and growth in the world’s second-largest economy slowed.

The Bloomberg China-US Equity Index of the most-traded Chinese shares in the US dropped 0.4 per cent to 92.62 as of 2:01 pm in New York, poised for a 6.3 per cent decline this week. Suntech Power Holdings Co. and Yingli Green Energy Holding Co tumbled more than 20 per cent this week after the US imposed tariffs on Chinese-made solar cells. Youku Inc, the largest local online video operator, sank to the lowest since January after reporting worse-than-estimated earnings.

China’s home prices fell in a record number of cities last month and car dealers reported inventory levels that signal deeper price cuts. Moody’s Investors Service lowered debt ratings at 16 Spanish banks yesterday while Greece’s credit was reduced one level by Fitch Ratings. Companies in the China-US gauge traded at the smallest premium to the average member of the MSCI BRIC Index of Brazil, Russia, India and China since March 2011, according to data compiled by Bloomberg.

“While there are legitimate economic concerns about China, the elephant in the room is the European sovereign situation,” Lewis Kaufman, a Santa Fe, New Mexico-based money manager at Thornburg Investment Management, who helps manage $79 billion, said in a phone interview. “It’s a difficult environment for risk markets, which means emerging markets including China.”

Almost $4 trillion has been wiped from global equity markets in May amid mounting concern that Greece will have to leave the euro currency union after elections next month.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., slid 0.2 per cent to $33.13, poised for a 6.2 per cent decline this week. The ETF dropped yesterday to the lowest level since October.

The Shanghai Composite Index of mainland stocks slumped 1.4 percent yesterday, extending its drop this week to 2.1 percent. The Standard & Poor’s 500 Index of U.S. shares fell 0.4 per cent, headed for a weekly decline of 4 per cent, the biggest since November.

Of the 40 companies in the China-US index that have reported earnings since the beginning of the quarter, 15 missed analyst forecast, including Yanzhou Coal Mining Co and China Telecom Corp