Solar investors react badly to Chinese manufacturing numbers

Weaker than expected manufacturing data and growing concerns about the health of China’s economy forced down the stock prices of Chinese solar companies this week. Shares of U.S.-Based First Solar Inc. also dropped after it was downgraded to "sell" by Maxim Group LLC.

Manufacturing in China has contracted for the sixth consecutive month, according to HSBC Holdings Plc and Markit Economics, despite the China Purchasing Managers Index reaching a two-month high of 49.1. The gauge of nationwide manufacturing activity rose from lows 48.3 in March, HSBC Holdings Plc said Monday.

But for the solar industry, as it becomes more reliant on the Chinese market, being able to produce strong growth figures in the country is vital to its overall state. "Investors and analysts are trying to determine who are going to be the survivors in the industry in the long term," said Michael Obuchowski, chief investment officer at First Empire Asset Management. "The manufacturing numbers out of China are apparently panicking people and downgrades don’t help either."

Suntech Power Holdings (STP) and JinkoSolar Holding Co. (JKS) were two of the larger companies operating from China that took a major hit to their stock prices. Suntech is down from 52-week highs of $9.50 and is trading at US$2.52, which is also about half its value from February. Five Star Equities is describing the stock as medium bullish, however, which does indicate the potential for growth in the near future. JinkoSolar, meanwhile, is trading at less than 20 percent of its 52-week high at $5.46, which is again about half what it was in February.

Other stocks have followed the trend. First Solar has fallen to levels below its IPO price of $20, shedding a further 2.5 percent to just over $18. The stock was also trading on below-average volume of 3.2 million.

According to recent figures, First Solar’s market capitalization stood at $1.7 billion, coupled with a falling share price it has prompted rumors that it may be removed from the benchmark S&P 500 Index.

SolarWorld hangover

The fiscal impact of the SolarWorld trade dispute is also weighing heavily on the market when combined with the current figures. As Chinese solar companies cannibalize each other and their U.S counterparts with low prices, the value of stocks also falls.

These new figures fit nicely into a narrative of continued concern about the ability of the Chinese economy to maintain its growth. Although stocks markets in Asia were uniformly down after the news, the trade dispute and faltering government subsidies add further concern for the solar industry.

The MAC Global Solar Energy Index (SUNIDX), the benchmark for tracking the global stock performance of the solar energy industry, is reflecting the concern. The index has shrunk to around one quarter of its value in the past year. This includes a sharp drop at the beginning of the week after the release of the recent manufacturing data.

But there are still strong signs that China will fight back this year, as Beijing sets various measures in place to sure up economic growth. The government will cut the bank reserve requirement ratio and increase money supply in an attempt to make M2 year-on-year growth rise to 14 percent. Beijing has also announced other plans to boost investment overall by the end of the year, which could have positive implications for solar.