China Petroleum (NYSE: SNP) has already announced that its profits were down 71% in the first half. Now PetroChina (NYSE: PTR) is getting ready to report a drop in its profits.
The culprit is China's energy policy, which is hurting investors in the Chinese oil industry. According to the AP, "While other global oil giants are reporting record profits, Chinese government price controls prevent PetroChina and other domestic refiners from passing on higher costs for crude oil to consumers." It is an excellent reason for investors to avoid these stocks.
The central government control of oil profits is a fine example of why China should not have taken many of its large companies private. China needs to keep gas and diesel prices down to control inflation and offer cheap fuel to maintain transportation costs of exports at low levels.
With oil trading around $120 a barrel, the oil refiners in China could actually swing to losses in the second half. China is driving investors out of its most important corporations. PetroChina already trades near a 52-week low. That is likely to get worse.
Douglas A. McIntyre is an editor at 247wallst.com.
MOST NOTEWORTHY: Texas Industries, TransGlobe Energy and Level 3 Communications were today's noteworthy downgrades:
Stephens downgraded shares of Texas Industries (NYSE: TXI) to Equal Weight from Overweight as it believes higher energy costs will affect the company's ability to achieve its guidance. The firm lowered its target to $68 from $83.
Jefferies assumed coverage and downgraded shares of TransGlobe Energy (NYSE:TGA) to Hold from Buy as it sees limited upside until the company completes its seismic activity and can better quantify its exploratory reserve potential. The firm lowered its target to $5.25 from $6.50.
Citigroup downgraded Level 3 (NASDAQ: LVLT) to Sell from Hold as it believes the pullback in telecom valuations increases downside risk for the stock. Citigroup lowered their target price to $2.50 from $3.
Markets in Asia were troubled by rising oil and concerns that the global economy is getting into more trouble as each week passes.
The Shanghai Composite fell 6.5% to 2,749.
In Hong Kong, the Hang Seng fell 2.2% to 22,807. China Life (NYSE: LFC) dropped 3.1% to 28.3 yuan. China Petroluem (NYSE: SNP) fell 3% to 8.07.
In Tokyo, the Nikkei dropped 2.2% to 14,130. Mazda fell 5.5% to 568 yen. Toyota (NYSE: TM) dropped 3.2% to 5490 on concerns that its truck sales were falling in the US.
A number of markets in Asia were down 2% or more lead by the Shanghai Composite which is off 45% since the beginning of the year, according toMarketWatch.
In Japan, the Nikkei dropped 2.1% to 13,888.6. Sony (NYSE:SNE) was down 2.8% to 5,130 yen. Toyota (NYSE:TM) was off 2.7% to 5,400.
The Hang Seng fell 1.7% to 22,925.31. China Life (NYSE:LFC) fell 2.4% to 28.40 yuan. China Petroluem (NYSE:SNP) dropped 2.7% to 7.39.
As China increased the amount of money that banks need to keep in reserves as a way to reduce lending and curb inflation, the Shanghai Composite fell 7.7% to 3,073. The Hang Seng was down 4.2% to 23,382.
A number of stocks were off over 10%. Some of the shares in China's largest companies suffered significant losses. China Life (NYSE: LFC) was down 5.2% to 29.15 yuan. China Netcom (NYSE: CN) was off 8.9% to 20.95. China Petroleum (NYSE: SNP) was down 7.8% to 7.61.
China Petroleum & Chemical (NYSE: SNP), an energy and chemical company based in the People's Republic of China, closed at $98.35. WTI Crude Futures are down 0.33% to $123.82 according to Bloomberg. SNP overall option implied volatility of 46 is below its 26-week average of 57 according to Track Data, suggesting decreasing price risk.
China Life Insurance (NYSE: LFC) offers products and services, including individual life insurance, accident insurance and health insurance in China. LFC closed at $62.37. LFC overall option implied volatility of 42 is below its 26-week average of 50, suggesting decreasing price risk.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
China Petroleum & Chemical (NYSE: SNP), an energy and chemical company based in the People's Republic of China, closed at $99.67 Tuesday.
SNP issued a profit warning on April 19 for 1Q08 indicting that net profits will decline more than 50% on a yoy basis. WTI Crude Futures are down 0.26% to $117.76 according to Bloomberg.
SNP overall option implied volatility of 53 is near its 26-week average of 55 according to Track Data, suggesting non-directional price risk.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
The Nikkei index rose more than it has at any time in the last five years. It moved up 4.3% to 13,626. Sony (NYSE: SNE) rose 4% to 4820. Toppan Printing rose 10.1% to 1111. Toshiba rose 7.1% to 782.
ThinkEquity upgraded Syniverse Holdings Inc (NYSE: SVR) to Buy from Accumulate citing growth from further price reductions and adoption of new technologies that will drive transaction volumes.
Allegheny Technologies Incorporated (NYSE: ATI) was raised to Buy from Neutral at Goldman.The firm upgraded Allegheny based on valuation, low stainless steel inventories, and nickel price stabilization.
OTHER UPGRADES:
Napster Inc (NASDAQ: NAPS) was upgraded to Outperform from Peer Perform at Bear Stearns.
Markets in China plunged overnight. Hong Kong's Hang Seng dropped 5.5% to 23,819. The Shanghai Composite dropped 5.1% to 4,914. Some shares fell much more. China Life (NYSE: LFC) sold off 9.5% and China Petroleum (NYSE: SNP) dropped 9.1%.
Markets in China are nearing a flat-out correction. in the last month, the Hang Seng has dropped about 13% putting it down much more than the S&P 500. The Shanghai Composite is now off about 3% for the period, but that is after moving up over 80% during the previous year.
Much of the wealth of China's middle class is built on the rising value of the stock market and real estate markets there. Any slowdown in the country's GDP which has been rising over 10% a year will probably take the stock market down further. This could lead to a recession in consumer spending in China.
The fall in the stock market also shows how closely China's economy is tied to the US. As chances for a recession grow here it is clear that imports from the world's most populated country could take a big tumble.
The US is not the only country which needs to worry about negative GDP growth.
Douglas A. McIntyre is an editor at 247wallst.com.
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China Petroleum & Chemical
China Petroleum & Chemical
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