MarketsChina markets: Shenzhen has worst month in 6 years

31 Aug 2015 | Author: | No comments yet »

China Markets LiveThe Shanghai Composite Index lost as much as 3.8% on Monday before closing 0.8% lower, as investors took profit on concerns the government may not want to prop up the stock markets further. Emerging-market stocks headed for their steepest monthly loss in more than three years as Chinese shares declined and Federal Reserve officials signaled they’re prepared to raise interest rates. A report by The Financial Times over the weekend said Beijing will abandon large-scale share purchases, sparking concerns over more declines for A-shares and sending Dow futures tumbling by more than 200 points in the Asian session.

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. Writing for Barron’s magazine last weekend, I noted that Beijing had already asked the China Securities Financial Corporation not to intervene unless there was “systemic risk” on August 14 – except the government propped up the market last Thursday again.

A quick look at what stocks gained might lead one to be suspicious about who was behind the rally: the CSI 300, an index of big-cap stocks, rallied 5 per cent in afternoon trading to finish with a 0.7 per cent gain, a third straight win. 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. 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. 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.

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. When Beijing’s “national team” of state-owned financial institutions come into the market to shore up support, it’s typically large stocks that are bid up. Fed Vice Chairman Stanley Fischer told CNBC at the Jackson Hole symposium that it was too early to tell whether the case for a September interest rate hike is compelling. Senior financial regulatory officials insist that this was an anomaly, and that the government will refrain from further large-scale buying of equities. Only eight out of 144 stocks in this sector are not trading in the red by Monday’s close. 2:57pm: Haitong Securities and Citic Securities led the losers among mainland Chinese brokerages in Shanghai, with the former losing 6.08 per cent and the latter shedding 5.80 per cent as of 2:50 pm.

U.S. stocks saw a mixed close last week, with the S&P 500 and the Nasdaq eking out slim gains but the Dow Jones Industrial Average closed down 12 points. The MSCI Emerging Markets Index lost 0.4 percent to 816.73 at 1:29 p.m. in Hong Kong, extending this month’s retreat to 9.4 percent, bound for its worst month since May 2012. 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.

The market didn’t quite appreciate the silent treatment: China’s market experienced an intraday fall of 9 per cent a week ago — about the closest thing to free-fall as is allowed — and over two days saw its biggest loss in two decades. 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.

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 end result for August: the Shanghai market fell by 12.5 per cent, following a 14.3 per cent loss a month earlier — the steepest fall in six years.

CRRC, which was formed by a merger of state-owned CSR Corp. and China CNR Corp. in May, headed for a second day of declines after it reported net income on Friday that Barclays Pcl analyst Yang Song described as a disappointment. The government has arrested officials from China Securities Regulatory Commissions, employees from Citic Securities (600030.China) and a journalist from well-respected Caijing financial magazine for “illegal market activities.” And in China, the penalty is not just civil lawsuits; it means jail time! For BofA strategist David Cui, equity valuations and earnings growth aren’t appealing enough to support the market in the absence of government buying.

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. In remarks published on Saturday, Li said China would “enact more targeted and responsive macro-regulation to offset downward economic pressure, [and] more robust reform and innovation efforts to energize the market.” Meanwhile, parliament passed a plan to cap outstanding local government debt at $2.5 trillion this year in an effort to stem escalating borrowing.

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. Japan’s benchmark index ended below the 19,000 level, retreating from a one-week closing high hit on Friday, after weak July industrial production figures. 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.

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 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.

Released before the Tokyo market open, the report showed a monthly fall of 0.6 percent, missing expectations for a 0.1 percent rise and coming in well below June’s revised 1.1 percent gain. Suzuki Motor fell 0.5 percent, reversing a 4 percent rally earlier in the session, after announcing it would buy back the 19.9 percent stake it sold to Volkswagen. Australia New Zealand Banking and Commonwealth Bank of Australia closed down 2 percent each while Westpac and National Australia Bank both lost more than 1 percent. 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.

Spread-betting firm IG is anticipating a 2.2 percent annual gain, little changed from the previous quarter’s 2.3 percent rise. “The main uncertainty is whether the recent market turbulence and currency devaluation has influenced the RBA. Continued devaluation of the yuan could lead to much lower global inflation than currently forecast, and any mention of this in the statement would be significant,” commented Angus Nicholson, IG’s market analyst. The NASDAQ-style ChiNext Price Index slides 3.29 per cent, or 64.08 points to trade at 2,017.85. 1:05pm: The Hang Seng Index opened in the afternoon at 21,459.22, down 0.71 per cent or 153.17 points. 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. The ChiNext Index is 3.04 per cent down, 63.34 points, at 2,018.78. 10:34am: Citic Securities share price falls 4.52 per cent to HK$15.62 after the company confirmed in a filing to Shanghai Stock Exchange that a couple of its top executives are under investigation by the police. 10:30am: Mainland China internet giant Tencent is the most heavily traded stock with a turnover of HK$561.74 million.

Basic earnings per share were 0.11 yuan, compared to 0.09 for the same time last year. 9:22am: The People’s Bank of China set the yuan’s mid-price today at 6.3893 to the dollar, stronger by 93 basis points from the mid-price the previous day at 6.3986. “The trading volume of Northbound trades averaged 5.5 billion yuan a day, up 162 per cent week on week. 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. 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.

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. 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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