China Manufacturing Contracts for Second Month (Chart) "Negligible rate of deterioration"

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HSBC China Manufacturing PMI

China Manufacturing PMI The HSBC China Manufacturing Purchasing Manangers' Index, compiled by Markit, increased (+0.6) in August to 49.9 from 49.3 in July. An index reading below 50 indicates an overall decrease in manufacturing. This is the first increase in the past 4 months. The Key Points of the report are:
● Marginal output growth recorded
● First fall in new business since July 2010
● Input price inflation accelerates, but remains muted nonetheless

Commenting on the China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co Head of Asian Economic Research at HSBC said: “The August final manufacturing PMI reading edged up marginally from the flash reading, almost close to the break-even level. Both output and employment rebounded to above the 50 line for the first time in three months. These data confirm our view that China will only see growth moderation in the coming months, rather than a hard landing.”

Trend The short-term trend 3-month moving average) is downwards for 8 consecutive months. The intermediate-term trend (6-month moving average) continues downward for the 7th consecutive month. The long-term trend (12-month moving average) is now decreasing slightly.

Cycle History Since the beginning of the series in March 2010, the peak has been in March 2010 at 55.7. The recent peak was 54.5 in January 2011. The low has been 49.3 in July 2011.

China Manufacturing PMI (Chart) Below is a chart of the China Manufacturing PMI since April 2010 through the latest month reported. Manufacturing began contracting, below an Index reading of 50, in July 2011 and now in August 2011. The PMI is a percentage - not a total. More about the PMI below the chart. A reading above 50 indicates Chinese manufacturing is expanding.

Commentary The China Manufacturing PMI at 49.9 (+0.6) indicates a slowing of the contraction of manufacturing. A reading below 50 indicates contraction. The HSBC report noted, "by rising from 49.3 to 49.9 in August, the index was at a level indicative of a negligible rate of deterioration". Contributing factors to the contraction were ongoing Chinese government intervention and measures, overall decrease in new business, a reduction in new export business, and continuing inventory destocking. China has implemented fiscal and monetary measures to slow down the economy to contain prices. To what extent the slowing of Chinese manufacturing output growth is attributable to global economic demand is the concern.

About the PMI The HSBC China Report on Manufacturing is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 manufacturing companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on regional and industry contribution to Chinese Industrial Production. Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the ‘Report’ shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the ‘diffusion’ index. This index is the sum of the positive responses plus a half of those responding ‘the same’.

● The Purchasing Managers’ Index (PMI) is a composite index based on five of the individual indexes with the following weights: New Orders - 0.3, Output - 0.25, Employment - 0.2, Suppliers’ Delivery Times - 0.15, Stock of Items Purchased - 0.1, with the Delivery Times index inverted so that it moves in a comparable direction.

● Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change. An index reading above 50 indicates an overall increase in that variable, below 50 an overall decrease.

About HSBC Headquartered in London, HSBC is one of the largest banking and financial services organisations in the world. Its international network comprises some 8,000 offices in 87 countries and territories in Europe; Hong Kong; Rest of Asia-Pacific; the Middle East; North America and Latin America. With assets of US$2,418 billion at 30 June 2010, HSBC is one of the world’s largest banking and financial services organisations. HSBC is marketed worldwide as ‘the world’s local bank’.

About Markit Markit is a leading, global financial information services company with over 1,900 employees. The company provides independent data, valuations and trade processing across all asset classes in order to enhance transparency, reduce risk and improve operational efficiency. Its client base includes the most significant institutional participants in the financial market place. For more information please see www.markit.com

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Baidu Rallies +10% for Week! (Chart) *Reaches major upwards test* BIDU

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Baidu (BIDU) reported record-crushing Q2 2011 financial results on July 25, 2011

BAIDU OVERVIEW

Baidu Inc. Baidu closed the week at $139.70 on Friday, August 26, 2011. BIDU was up +10.02% for the week, is down -11.06% for August, was up +12.09% for July, and is up an incredible +44.72% for 2011. BIDU is -15.00% below the all-time closing high reached on Tuesday, July 26, 2011 of $164.36. FWIW Department: Baidu is up +814.27% from the market cyclical bottom of March 9, 2009, when BIDU traded for a mere $15.28. Baidu is at a major test if to continue upwards. Baidu reached the 100-day average, continues above the 200-day average, and continues below the 20 and 50-day averages. State-sponsored China Central Television had launched a series of criticisms and attacks on Baidu which created investor uncertainty over political risk. This uncertainty appears to have subsided for now (see more commentary below).

S&P 500  By comparison, the overall market, the S&P 500, closed at 1176.80 for the week, and was up +4.74% for the week, is down -8.94% for August, was down -2.15% for July, and is down -6.43% for 2011. SPX is up +73.95% since the March 9, 2009 market cyclical low. SPX closed at a multi-year closing high of 1363.61 on Friday, April 29, 2011, the highest close since the June 9, 2008 close of 1404.05, and is now -13.70% below that peak. BIDU is vastly outperforming the overall market long-term since the March 9, 2009 market bottom and also in 2011. A review of the S&P 500 is here, S&P 500 Rallies for First Time in Five Weeks! (Chart) *Up +5% for week, down -9% for month*.

Baidu Fundamentals Baidu reported Q2 2011 financial results on July 25 and are reviewed here, Baidu Reports Record-Crushing Earnings! (Financial Charts) *Astonishing acceleration: EPS +52% QoQ & +95% YoY*. These financial results are reviewed and analyzed on this blog at the Baidu Financial Performance page. A review and analysis of the Q2 2011 earnings call has been posted at the Baidu Earnings Conference Call page.

Baidu News A summary of recent news and announcements are below in this post; others are posted on this blog.

Economic and Market News Information about the USA and world economies plus the USA financial system are posted at Boom Doom Economy, Financial Controls, Baidu Planet, and Neo Solomon. Additional current commentary on both the overall stock market and economy is posted at Matrix Markets.

BAIDU DAILY CHART (click chart to enlarge)

Baidu Daily Chart Below is the BIDU daily chart since April 1, 2011 to illustrate recent price interactions.

Noteworthy Closing Prices

Current Close: $139.70

2011 and All-Time High: July 26 $164.36

2011 Low: January 3 $99.73

YE December 31, 2010: $96.53

Baidu Chart Review

Intermediate Term Trend descending 25d avg greater than ascending 50d avg since 7-15-11, BIDU below both, tenuously bullish

Long Term Trend BIDU greater than 10 month ema = 129.16, since April 2009, bullish

Key Resistance at resistance, 100d avg 139, 20 day avg 140, 50d avg 142 

Key Support 200d avg 127, 2-23-11 low 116

Moving Averages at 100d avg, continues below 20d, 50d avgs, continues above 200d avg

Uptrend Line well above, above since 1-13-10, not shown

Downtrend Line just above, line from 7-26-11 all-time closing high $164.36 to 8-12-11 peak close $150.15

RSI 14 Day = 56.55 is reasonable, nearly vertical ascent

RSI 28 Day = 45.04 is reasonable, ascending

MACD (12,26,9) = -0.60, ascending, multi-year low was 8-8-11 (-3.19), multi-year high was 7-5-11 (+2.91) 

Volume average 9.9M latest day, 50 day average = 9.9M

Price Earnings Ratio = higher 63.50, has been high 90s to low 100s since 2009

Market Capitalization = higher $48.75 billion


BAIDU SUMMARY

Conclusion Baidu is at a major test if to continue upwards. BIDU closed at the level 100-day average and just above is the descending 20-day average. Above that is the ascending 50-day average. BIDU is about trading moving averages with stock moves on news and sometimes the general direction of the equity market. BIDU successfully tested the 200-day average in June and August. The controversy, and apparent political risk, in China appears to have subsided for now. China Central Television (CCTV), which is Beijing state-sponsored media, launched a series of criticisms of Baidu, including a lax advertising platform approval process which allows fraudulent websites, criticism of the bid ranking advertising system, and not policing message boards against slanderous remarks. CCTV has criticized Baidu before, along with other large Chinese Internet companies. Not coincidentally, CCTV has launched its own search engine recently. In addition, Baidu and other Internet companies are increasingly influential and gaining an increasing share of advertising revenue, including from CCTV. Fear of Baidu being subjected to politically motivated anti-monopoly sanctions and other Internet restrictions resulted in a sell off of BIDU the week ended August 19. Baidu earlier had earlier given up all the gains from the record-crushing Q2 2011 earnings reported on July 25. The bar has been set high for Baidu in the world's largest Internet market and investors are expecting Baidu to report more record financial results in future quarters. The latest Q2 2011 financial results are reviewed and analyzed on this blog at the Baidu Financial Performance page. A review and analysis of the Q2 2011 earnings call has been posted at the Baidu Earnings Conference Call page. The intermediate-term trend continues tenuously bullish and the long-term trend is now bullish.

Disclosure We sold our long BIDU position the week ending July 29 due to overall market uncertainties. We are still bullish on BIDU in 2011, but the political risk due to the recent negative government rhetoric from state-sponsored China Central Television (CCTV) needs to mitigate with some time.

Baidu News A summary of recent news and announcements; others are posted on this blog.

● State-sponsored China Central Television launched a series of criticisms and attacks on Baidu which has created investor uncertainty over political risk. Any potential negative impact will need to be resolved over time to reduce investor uncertainty. This is a reminder of the political risk associated with Chinese companies.
● Baidu was #1 in China online advertising for Q2 2011 with a 28.7% market share, per Analysys.
● Alexa ranks Baidu.com in July as the #1 most accessed Internet site outside of the United States and #6 worldwide (Google is #1 in both categories).
● Reuters reported July 19 that there are now 485 million Internet users in China, yet the Internet penetration rate remains low at 36% and the increase of the rate is slowing.
● Baidu launched a beta version of its own Internet browser, Baidu Browser?, in July 2011, including a reported 30,000 cloud-based apps.

● Baidu announced a management and organization restructure on July 8. The press release is posted here [Baidu Announces Management and Organization Restructure "Spur development, create efficiencies, enhance synergies"].

● Baidu and Microsoft announced July 4 that Bing will power Baidu's English language search in China. Additional partnerships with Microsoft Bing are possible as Baidu pushes for expansion outside of China.

● Here Comes Baidu TV? Following Apple TV and Google TV, Baidu announced July 6 the formation of a strategic partnership with Wasu Digital TV. Baidu services will be pre-installed on the Wasu platforms.

● Baidu wants to be listed on the new Shanghai Stock Exchange international board, as an "A-list" company,  when it is launched. No date has been given by the Chinese government for this new stock exchange, which will allow foreign firms to trade Chinese companies in yuan-denominated shares.

● Baidu, as with its USA counterpart Google, has been acquiring other companies, including a 29% interest in Leftbrain (June 23), a Chinese online ratings site operator, and a majority interest in Qunar (June 24), a Chinese online travel reservations and resources service.

● There has been controversy regarding Baidu allowing illegal MP3 music downloads via Baidu MP3, a music search service that allows users to search, stream, and download (copyrighted) music free of charge. Catherine Leung of Baidu stated on May 7, 2011, "Copyrighted music will be the direction of Baidu's music business in the future, and our music-search service will also be based on legal content." The International Intellectual Property Alliance (IIPA), which represents the United States' copyright industry groups, testified at a USA Congressional hearing on Wednesday, May 4, 2011, that Baidu had "serious infringement problems".

● Baidu had a 75.8% search market share in China for the quarter ended March 2011 per Analysys International. Google is second with a 19.2% share. Google has redirected its China traffic to Hong Kong since a censorship conflict with the Chinese government in 2010.
● FWIW Department: Unidentified Chinese residents, as plaintiffs, have sued Baidu and the Chinese government for $16 million in a Manhattan, New York federal court for censoring Internet information. (Zhang vs. Baidu.com Inc., Southern District of New York, Manhattan) China requires websites to self-censor pornography, gambling, and content critical of the ruling Communist Party. No USA court has jurisdiction in these matters and the lawsuit is symbolic, even if a default judgment was obtained. China blocks Google's YouTube, Twitter, and Facebook, among many other websites.

About Baidu

Baidu, Inc. is the leading Chinese language Internet search provider. As a technology-based media company, Baidu aims to provide the best way for people to find information. In addition to serving Internet search users, Baidu provides an effective platform for businesses to reach potential customers. Baidu's ADSs, each of which represents one Class A ordinary share, currently trade on the NASDAQ Global Select Market under the symbol "BIDU".

The Baidu Story

Many people have asked about the meaning of our name. "Baidu" was inspired by a poem written more than 800 years ago during the Song Dynasty. The poem compares the search for a retreating beauty amid chaotic glamour with the search for one's dream while confronted by life's many obstacles. "…hundreds and thousands of times, for her I searched in chaos, suddenly, I turned by chance, to where the lights were waning, and there she stood." Baidu, whose literal meaning is hundreds of times, represents persistent search for the ideal.

Baidu chose a poetic Chinese name because it wants the world to remember its heritage. As a native speaker of the Chinese language and a talented engineer, Baidu focuses on what it knows best - Chinese language search. Applying avant-garde technology to the world's most ancient and complex language is as challenging as it is exciting. At least people here at Baidu think so. As having diligently disclosed in the Prospectus of our recent Initial Public Offering, we believe there are at least 38 ways of saying "I" in Chinese. It is important that we master all the ways of addressing oneself in Chinese because our users depend on us to address every one of their daily queries. And trust us, pin pointing queries in the Chinese language is an art rather than a science.

Our mission is to provide the best way for people to find information. To do this we listen carefully to our users' needs and wants. Have we collected all the Chinese web pages they want to see? Are the pages current and up to date? Are the search results closely related to their queries? Did we return those search results instantly? To improve user experience, we constantly make improvements to our products and services. For example, we introduced "phonetic" or "pin-yin" search which allows our users to type in Chinese keywords using English alphabets. This feature is designed to skip the switching from English inputting to Chinese inputting and for when the user is not sure of the written form of a keyword. Our users definitely notice the many little things that we do differently to ensure a simple and reliable search experience every time. 

In addition to serving individual users, we also serve as a media platform for online marketing customers. We not only provide our customers easy access to one of the largest online audiences in China but also targeted groups with defined interests as indicated by queries. Unlike traditional online advertising services which charge by flat fee, our marketing products and services are performance based. Our Pay for Performance model has taken the market by storm because it is cost effective and measurable.

We know that a lot of interesting things are going on in the Internet space, but we don't want to lose focus. China's Internet search industry is only a newly discovered territory. We see vast untapped grounds in our home base and we believe there are still plenty of prizes to be claimed by the best players.

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