Shanghai Stocks Begin the Week on a Down Note

31 Aug 2015 | Author: | No comments yet »

China Markets LiveWelcome to the SCMP’s live markets blog. Asian markets struggled to shake off a global selloff Monday, with Shanghai leading the region lower as investors assessed Beijing’s latest debt-related reforms.

Chinese shares took a dive, weighing on regional benchmarks, following reports that Beijing has scrapped large-scale share purchases as a method of propping up markets.Chinese shares ended the week almost eight per cent lower after volatile trading that started on Monday with shock losses and spread fear to global markets.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.

Japan’s benchmark Nikkei 225 closed up three per cent at 19,136 points, but the Hang Seng index in Hong Kong reversed earlier gains to close down one per cent. 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 U.S., even as government buying drove China’s benchmark index to a 10 per cent rally in the final two days of last week. We’ll bring you the key levels, trading statements, price action and other developments as they happen. 12:32pm: China Properties Investment Holdings, the top loser today, has requested for a suspension in the trading of its shares at 11:13 am after dropping 81.87 per cent to last trade at 24 HK cents. Chinese lawmakers placed a 16 trillion yuan ($2.5 trillion) cap on local government debt, the latest move to address a slowing economy increasingly burdened by heavy borrowing. Chinese authorities are estimated to have spent about $200bn trying to support the crumbling equities market, but with questionable and short-lived results.

While policy makers 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 Standing Committee of China’s National People’s Congress imposed a 600 billion yuan limit on the direct debt local governments are allowed to amass this year, the official Xinhua News Agency said late Saturday. “Given the runaway spending in local government, it’s viewed as a positive” for markets, said Michael W.

In recent weeks, the withdrawal of some government support prompted a sharp sell-off, and the two primary benchmarks had both fallen below the levels of early July at which the government initially stepped in to shore up confidence. Some took profit as they think the rally is not sustainable.” Angus Nicholson, an IG Markets analyst, said investors remained concerned about China and when the Federal Reserve will raise US interest rates. The China Enterprises Index (H-share index), which tracks Hong Kong listed Chinese companies, closed at 9,593.42, down by 1.61 per cent or 157.31 points. “Investments by rated Chinese internet companies in online-to-offline (O2O) platforms these past two years will gain traction and boost their revenues in the next 12-24 months, and challenges, while apparent, are also manageable. 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.

Last week, volatility in mainland Chinese shares spilled over into global markets, sending investors into the perceived safety of assets such as government bonds and the Japanese yen. For the U.S.-listed Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, the skew reached a record 38 points on Aug. 27 and closed the week at 28 points. Global benchmarks roared back after the People’s Bank of China cut benchmark interest rates last Tuesday — but “if the Thursday/Friday Shanghai rally proves to be a flash in the pan, we have no doubt so too will the recent rebound in global stocks”, said Ray Attrill, National Australia Bank global co-head of FX strategy, “in which case we’ll have greater confidence in our current view that the Fed will not be moving next month”. China’s intervention is part of a broader effort to ensure nothing detracts from the Sept. 3 parade, an event the government will use to demonstrate its rising military and political might. Global concerns over China’s growth and uncertainty over the Fed, along with a still-disappointing outlook for commodity prices, is likely to weigh on further gains, said Angus Nicholson, a market analyst at IG in Melbourne.

Investors were also digesting new data showing that Japanese inflation fell back to zero in July, raising speculation that the central bank would launch a fresh round of stimulus. Marking the end of a week of corporate results, the supermarket Woolworths reported a 12.5 per cent drop in full-year profit – its first fall in almost two decades.

Shares on Wall Street rose overnight and oil prices jumped sharply after revised figures showed the US economy expanded far more than originally thought in the three months to June. In Japan, data showed Japanese industrial production falling 0.6% in July from the previous month, the Ministry of Economy, Trade and Industry said Monday, as the nation’s economy continues to follow a zigzag path amid global uncertainty.

In Australia, a morning drop of 1.7 per cent took declines for the S&P/ASX 200 to 9.2 per cent for the month, the worst performance since October 2008. A number of Fed policymakers highlighted the intensifying debate over whether the US inflation outlook is strong enough to justify a rate increase as soon as September given the market turmoil in and outlook for China.

It hit a four-year low last week of 1207.37, amid worries that a weaker Chinese yuan will put South Korea at a disadvantage against China in the global exports market. The CSI 300 Index is 2.8 per cent down, 93.81 points, at 3,248.48. 10:36am: The Shenzhen Composite Index is off 2.27 per cent, 41.89 points, at 1,804.93. It made a first-half gross profit margin of 21.7 per cent, slightly higher than 21.4 per cent in the year-earlier period. “During the Fed’s symposium at Jackson Hole over the weekend, Fed vice-chairman Stanley Fischer, European Central Bank vice-president Vitor Constancio and Bank of England (BOE) Governor Mark Carney played down China’s devaluation and slowing growth, and saw inflation rising.

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 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”.

Bottom line: The authorities are committed to economic reforms, which will go towards restoring the investor confidence in the economy and the markets.” 9:06am: Packaging manufacturer Brilliant Circle has reported a 7.8 per cent fall in first half year-on-year revenues to 723 million yuan. 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. 8:13am: Going into the last day of trading in August, the onshore yuan (CNY) is on track to have one of its largest monthly depreciations in the month of August as it closed at 6.3865 to the dollar on Friday, down 2.85 per cent from 6.2097 on July 31. 8:10am: China Construction Bank, China’s second largest bank by assets, 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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