NEW YORK (
are leading losses among Chinese solar stocks on a profit-taking day for solar investors.
There's been a triumvirate of macroeconomic concerns out of China of late. First was the declaration of currency war against China with implications for Chinese companies exporting products. It was followed by last week's decision from the Obama administration to pursue the petition made by the United Steelworkers Union alleging unfair trade support for China's clean energy sector. (There was a selloff in the solar sector on Friday that has been attributed to a combination of both factors by solar analysts.)
Finally, this morning's announcement from China's central bank that it will raise interest rates sparked a market selloff. The Chinese central bank move may have less specific implications for solar stocks than the currency or trade war, but its general impact on the markets on Tuesday could be the primary culprit for a losing day in solar.
JA Solar shares were down by more than 9% early on Tuesday afternoon. JA Solar's average daily trading volume was eclipsed by 1 p.m.
LDK Solar shares were down by more than 14%, and trading was on pace for twice the average daily volume in LDK trading.
ReneSola shares were down by more than 10% and had already reached double their average trading volume by the early afternoon on Tuesday.
A bullish call on Tuesday by Deutsche Bank focused on Chinese solar stocks could do nothing to stop the profit-taking in solar. Deutsche initiated on
at a buy, citing low valuation, but Suntech shares were down by more than 7% and also reached twice their average daily trading volume by the early afternoon on Tuesday. Raymond James also upgraded Suntech Power on Tuesday.
Deutsche also reiterated a buy on Tuesday big loser ReneSola, as well as Trina Solar.
It's easy to make the case that for a sector as volatile as solar, profit-taking after this year's rally -- which reached a crescendo after last week's Solar Power International conference in Los Angeles -- is not a surprising event, and it might not be long-lasting either. The solar sector has traded away from a general market selloff several times in recent months.
It's also a matter of pullbacks after recent gains that leave some stocks still well ahead of where they were just a month ago. LDK Solar, for example, even with a 14% loss on Tuesday, is still at a higher share price than it had been at any point in the last year, including last January, its previous one year high mark.
In terms of the overall action in Chinese solar stocks, the group seemed to reach a collective plateau last Thursday, and start heading south from there, so this isn't a one-day event.
The downward trend since a short-term peak last Thursday was also the case for the Chinese stock considered the best long-term play also,
With bullishness still the mode in solar, Jefferies analyst Jesse Pichel was arguing by last Friday that the selloff in solar was a reason to buy. The Jefferies analyst cited the currency concerns, and to a lesser extent the trade war, as culprits for the selloff, but said the events were overblown.
Among the biggest bullish signs last week was an announcement from
about another capacity expansion, a notable event as First Solar has been described in the past by some solar analysts as overly conservative on capital spending.
First Solar also recently put out a press release about additional orders in Europe, without specifying clients. It was the type of press release more often associated with aggressive Chinese solar companies.
The selloff really isn't a surprise given the run-up this year in Chinese solar stocks, and in particular JA Solar (up 43%), LDK Solar (up 60%) and ReneSola (up 150%), a few examples of the outperformers among Chinese solar.
Deutsche isn't the only securities firm adding to the bullishness even after a healthy solar sector rally. While Suntech, Deutsche's new buy, has been a sector dog, last week Macquarie Securities intiated on ReneSola at a buy, even given its strong run all year long.
Also, solar investors have been burned before heading into a new year and a new round of subsidy cuts from European nations that provide much of the support for the solar sector healthy supply demand balance. Solar stocks reached a collective high in January 2009 before selling off.
Last Wednesday, solar stocks reached their highest point since that January peak in solar. With the market turning very bearish on Tuesday, it's hard to make the case that the selloff in solar on Tuesday was part of a longer-term pattern in solar profit-taking or to draw a straight line back to last January.
-- Written by Eric Rosenbaum from New York.
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