Baidu Inc (ADR) (NASDAQ:BIDU) shares were up strongly in Thursday’s pre-market after a new law governing the stock market was passed in China, the firm’s home market. On Wednesday evening on US time, China’s government said that those with more than 5 percent of a firm would no longer be allowed to sell their holding.
At time of writing shares in Baidu are up by 4.48 percent in pre-market trading. China’s stock markets performed well on Thursday with the SSE Composite Index (SHA:000001) finishing up 5.7 percent for the day and the Hang Seng Index (INDEXHANGSENG:HSI) up 3.7 percent for the full day’s trading. Baidu trades on the Nasdaq, but still gained on the news from China.
Baidu shares gain on China news
This morning’s respite will be welcomed by those that have been battered by a sustained fall in China’s markets over the last month. Baidu shares have lost more than 7 percent in the last five days and more than 9 percent over the last month of trading.
Those invested in the firm, and other Chinese stocks, may begin to question their connection with the market in their home country. With the spikes and shocks of the last number of weeks, it’s clear that a firm based in China is open to much more market risk than one based in the US.
The stock market in China is not the only reason that Baidu shares have been pressured in the last month, however. In a recent statement about a coming bond offering, Vey-Sern Ling of BNP Paribas noted that the firm’s ad growth was slowing very quickly.
That might come as a shock to investors when the firm releases its earnings for the three months through June on July 27. Ling said that “We remain positive on Baidu’s medium-term growth and margin outlook, stemming from our optimism that the current heavy investments in O2O will eventually bear fruit.”
Henry Guo of Summit Research defended the firm’s growth and said that growth was not as slow as some on Wall Street seemed to think. “We believe the concern overstates current monetization rates for Baidu mobile search, and overlooks mobile search’s additional monetization opportunities versus PC search,” he wrote.
China slows trading
China introduced a raft of measures on Wednesday evening and Thursday morning in order to stem the flight of cash from its stock market. The measures appear to have worked in the short term, but their extreme nature means that they will not be able to survive for very long beside a free market.
Those measures included the ban on selling by large investors, easing of margin requirements for certain big buyers, and directing banks to offer loans to firms that wanted to buy back their own shares.
The ban on selling is the jewel in the crown of the country’s stock market controls. Those with more than 5 percent of a firm, or those that sit on its board or work in the executive suite, will not be allowed to sell their shares.
Wei Yao, an economist at Société Générale, said “The Chinese government is having a ‘whatever it takes’ moment with the stock market.”