Emerging Stocks Poised for Worst Month in 3 Years; Ruble Drops

31 Aug 2015 | Author: | No comments yet »

China Markets LiveEmerging-market stocks headed for their steepest monthly loss in more than three years, as Shanghai shares declined and Federal Reserve officials signaled they’re prepared to raise interest rates.

Hong Kong: Options traders have never been so pessimistic on China’s stock market, betting the government’s renewed effort to prop up share prices is doomed to fail. The cost of bearish contracts on the China 50 exchange-traded fund surged to the highest level versus bullish ones since they started trading in Shanghai six months ago. Investors are increasingly focused the broader question of how this episode might affect the wider economy as many suspect the equity bubble has yet to fully deflate. The so-called skew also climbed to a record for a similar ETF in the US, even as government buying drove China’s benchmark index to a 10% rally in the final two days of last week. During an economic symposium over the weekend, Fed Vice Chairman Stanley Fischer avoided sending a clear signal about whether the Fed will raise rates at its next meeting in September, clouding the policy outlook in the world’s biggest economy. “We’ll be waiting for the FOMC (Federal Open Market Committee) meeting” scheduled Sept. 16-17, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

We’ll bring you the key levels, trading statements, price action and other developments as they happen. 4:07pm: The Hang Seng Index closes at 21,674.82, 0.29 per cent or 62.43 points up.The H-shares index finished at 9,747.19, 0.04 per cent or 3.54 points down. While policymakers are trying to bolster the market before President Xi Jinping takes the stage in a World War II victory parade this week, bears argue that valuations are too high for the rally to last. Chinese investors have about 5 trillion yuan ($783 billion) of borrowed money riding on stocks, and many of them are looking for a chance to exit, according to Bank of America Corp. “More and more people are not convinced about A shares,” said Tony Chu, a Hong Kong-based money manager at RS Investment Management Co., which oversees about $20 billion. “Ultimately, the government needs to reduce intervention and let more de- leveraging happen.” Puts that pay out on a 10% drop in the fundcost 7 points more on Friday than calls betting on a 10% gain, according to implied volatility data on one-month contracts.

For the US-listed Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, the skew reached a record 38 points on 27 August and closed the week at 28 points. While the termination would increase latitude for Suzuki’s management, Suzuki will have to start over crafting a new international expansion plan, some money-managers said.

The MSCI Emerging Markets Index lost 0.3 percent to 817.63 at 9:13 a.m. in London, extending the retreat in August to 9.3 percent, its worst month since May 2012. This month, it lost 15.18 per cent, dropped 14.35 per cent in July and tumbled 11.78 per cent in June. 3:46pm: Shanghai Composite Index (yellow) dropped 12.46 per cent in August, the second worst monthly drop in three years next to July’s 14.34 per cent fall. Chinese stocks extended their monthly slide as traders weighed the level of state support. “Uncertainty over the Fed’s interest-rate increase will continue to create volatility in the financial markets,” Rakpong Chaisuparakul, an investment strategist at KGI Securities (Thailand) Pcl, said by phone in Bangkok. “China’s weak economic recovery will hurt the growth of other developing countries.” The MSCI emerging-markets index trades at 10.7 times projected 12-month earnings, compared with a multiple of 15.3 for the MSCI World Index, according to data compiled by Bloomberg. The CSI300 closed at 3,365.54, up 24.25 points or 0.73 per cent. 3:12pm: The Shenzhen Composite Index closed at 1,790.31, down 56.52 points or 3.06 per cent.

The ChiNext slid to 1,996.86, down 85.26 points or 4.09 per cent. 3:03pm: Information technology stocks led the losers in mainland, falling as much as 4.84 per cent. China’s intervention is part of a broader effort to ensure nothing detracts from the 3 September parade, an event the government will use to demonstrate its rising military and political might. CRRC, which was formed by a merger of state-owned CSR Corp. and China CNR Corp. in May, declined for a second day after reporting net income on Friday that Barclays Pcl analyst Yang Song described as a disappointment. Dual-listed Citic Securities shares dropped 5.01 per cent to trade at HK$15.54 in Hong Kong. “Third quarter data can be expected to reflect the strong market volatility seen in recent weeks but the fourth quarter could provide some pleasant surprises.

For BofA strategist David Cui, equity valuations and earnings growth aren’t appealing enough to support the market in the absence of government buying. Ongoing fundamental reform programmes should start to bear fruit, especially as government-owned companies, a large percentage of the economy and stock market indexes, start to get to grips with restructuring.

While the Fed’s Fischer was careful to announce that he wasn’t signaling an impending rate increase, his remarks suggested a move hasn’t been ruled out when the Federal Open Market Committee gathers in Washington Sept. 16-17. “As long as we are in the waiting game and uncertainty is prolonged, emerging-market currencies will be unable to rally on a sustained basis,” Societe Generale SA analysts Jason Daw and Frances Cheung wrote in a report dated Monday. It may take further cuts to borrowing costs and reserve requirements to convince funds to return, he said. “The market sentiment is still quite volatile,” Tang said. “People are worried that after the rebound there will be some selling pressure.” Bloomberg

Company results, particularly new economy players (internet, healthcare, media, logistics and education, etc.) should also prove reassuring as investment will significantly outpace GDP growth and profitability will be high. In addition, share prices are at particularly undemanding levels.” 2:45pm: Aerospace, international trading firms, insurers and transportation manufacturers are the only four sectors posting gains on mainland Chinese equity markets. Official data due on Monday will probably show that India’s economy grew 7.4 percent in the quarter ended June 30, versus 7.5 percent in the preceding three months, according to the median of 27 analyst estimates in a Bloomberg survey.

Four companies under central government-owned aerospace and defense giant Aviation Industry Corporation of China (AVIC) umbrella jumped between 5.29 to 7.41 per cent as of 2:36 pm. AVIC units suspended their shares in mid August amid an overhaul of the country’s SOEs in a bid to improve their efficiency. 2:43pm: Hong Kong’s Financial Dispute Resolution Centre (FDRC) today announced the re-appointment of Fred Kan as a director of the FDRC and the Chairman of its appointment committee for a term of two years, effective from September 1.

The appointment committee is responsible in choosing mediators and arbitrators to its list of who will handle the mediation or arbitration of disputes between banks, brokers and other financial firms with their clients. Losses were even more severe earlier in the week before the People’s Bank of China announced further monetary easing including a 25 basia points reduction in the policy rate, a 50 basis points cut in the bank reserve requirements (RRR) and the removal of the cap on long-term deposit rate. While there is doubt over whether recent rate cuts are sufficient to stabilize the economy, policymakers’ resolve to prevent a hard landing suggests they can and will pull more levers if needed.

We expect the companies to sell advertisements and collect commissions from the growing number of offline merchants and service providers keen to access the internet companies’ large consumer bases through O2O partnerships. Huatai Securities topped the estimated net buy turnover among Southbound trades for the week while Ali Pictures has now taken the lead and topped since SH-HK launched.” “China’s economic growth was very weak in early 2015, reflecting a combination of slowing money/credit growth, reform-driven fiscal tightening, and an appreciating CNY, among other factors. We retain our 2015 real GDP growth forecast of 6.8 per cent, but note that alternative indicators of activity suggest a sharper slowdown, and mark down our 2016/17/18 forecasts to 6.4 per cent, 6.1 per cent, and 5.8 per cent respectively from 6.7, 6.5, and 6.2 per cent previously.

The snap 3 per cent depreciation in the CNY is small in a macro context, but represents the sharpest weakening in two decades that were dominated by stability/appreciation vs USD, and has prompted an acceleration in capital outflows, heightening the risk of a larger move down the road. The ECB meeting should be low-key with no change in policy and only minor adjustments to staff projections.” “The official (CFLP) manufacturing PMI is due tomorrow at 9 am local time (consensus 49.7, prior 50.0).

We think the authorities care about the official index and the prospect of a slide to sub-50 contractionary territory will sustain hard-landing worries. The official Xinhua News Agency reported on Saturday that the NPC Standing Committee approved scrapping the 75 per cent loan-to-deposit ratio ceiling effective October 1. The Xinhua News also quoted Premier Li as saying that “the Chinese economy is operating within an appropriate range and China continues to lead the world in terms of growth” and that “in the context of complex changing situations abroad and deep-rooted problems at home, we pressed ahead with progress while ensuring stability with sustained efforts for structural reforms and targeted macro-regulation measures”. Net profits dipped 2 million yuan to 249 million yuan. 9:05am: No Shanghai listed A-share companies resume trading today while no companies applied for voluntary suspension of their shares.

CSI300 (green) which tracks the big caps listed in Shanghai and Shenzhen and the Nasdaq style ChiNext (blue) also experienced a bumpy ride during the month. The company has already issued the first tranche, a five year 3 billion yuan bond paying a 4.7 per cent coupon. 8:49am: A mainland China journalist has “confessed” to spreading rumours and causing market chaos and a CSRC official “confessed” to economic crimes including insider trading, Xinhua reported on Sunday. Wang Xiaolu, a journalist with Caijing magazine, was taken away by mainland authorities for investigation related to the market rout last week along with CSRC official Liu Shufan and several Citic Securities officials.

Citic Securities on Sunday said in a notice to the Shanghai stock exchanging confirming that it has “several senior executives and staff” involved in investigation by the police for “relevant problems” since August 25. Click to enlarge chart. 8:08am: Evergrande Real Estate (yellow), China’s third-biggest developer by assets and one of the most indebted among its peers, will release interim results today. Click chart to enlarge. 8:03am: Infrastructure and real estate firm Shanghai Industrial Holdings (yellow) will announce its first-half earnings today.

The company, which has vowed to overtake Russia’s Rusal to be the world’s largest aluminium producer, will meet the media at 11 am today to discuss its financial results and business prospects.

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