David Fuller and Eoin Treacy's Comment of the Day
Category - China
Performance Filter for Hong Kong listed shares
China Unleashes More Steps to Stem $3.2 Trillion Stock Rout
This article from Bloomberg News may be of interest to subscribers. Here is a section:
The outstanding balance of margin loans on the Shanghai Stock Exchange dropped for a ninth day on Thursday, sliding to 1.29 trillion yuan in the longest stretch of declines since the city’s bourse began compiling the data. A fivefold surge in borrowing had helped propel the benchmark stock index to a 150 percent advance in the 12 months through June 12.
The authorities are determined to shore up the $6.9 trillion stock market even if it means reversing reforms, according to Partners Capital International Ltd. The Communist Party’s Central Committee pledged in 2013 to make markets “decisive” in allocating resources and to limit the government’s role to maintaining stability.
“They have the whatever-it-takes mentality,” said Ronald Wan, chief executive officer of Partners Capital International in Hong Kong. “Early on Monday, the market may show a knee-jerk reaction to the measures but I am not sure how sustainable it will be. Whether it’s a rally or a decline, it’s policy driven, not market-oriented.”
And
There won’t be any new IPOs in the near future and the number and value of share sales will be significantly reduced once they resume, the CSRC said in a statement on its website Sunday.
The 21 brokers pledged not to reduce any proprietary investments in the equity market as long as the Shanghai Composite Index stays below 4,500, the association said. The measure closed at 3,686.92 on Friday. Listed brokers will actively buy back outstanding shares, while encouraging their parent companies to increase holdings, according to the statement.
The plan by trading firms to boost shares may have only “a fleeting effect” given daily turnover is nearing 2 trillion yuan, said Hao Hong, China equity strategist at Bocom International Holdings Co. in Hong Kong.
“This 120 billion yuan won’t last for an hour in this market,” Hong said by phone from Beijing Saturday. “It might benefit blue-chip stocks, as investors may see them as value, but the bursting of the bubble in small-cap/tech stocks is likely to continue.”
China Turns to Market-Boosting Playbook That BofA Calls Obsolete
This article from Bloomberg News may be of interest to subscribers. Here is a section:
“The margin call, forced sale, margin call vicious cycle can quickly develop a momentum of its own,” Cui, the head of China equity strategy at Bank of America in Singapore, said in an e-mail on Monday.
Doubts about policy makers’ ability to prop up the world’s second-largest stock market are spreading after a weekend interest-rate cut and speculation that regulators will halt IPOs failed to prevent the Shanghai Composite from tumbling into a bear market. The gauge would need to fall a further 13 percent to match its average downturn since 1990.
“Any support the government can provide would be short lived,” Chad Padowitz, the Melbourne-based chief investment officer at Wingate Asset Management Ltd., said by phone. “The only real support they can provide over time is providing a reasonably balanced, growing economy. That’s the best thing they can do. Anything they do short term, decreasing interest rates to support the market or things like that, are somewhat foolish.”
Gloves Off as China Banks, Alibaba Invade Others Turf
This article from Bloomberg News may be of interest to subscribers. Here is a section:
The battle will play out entirely online: The banks aren’t planning any warehousing of inventory, leaving that to the merchants. MYbank and Tencent Holdings Ltd.’s online WeBank, which launched in December, plan no physical branches.
WeBank started its consumer lending in May, where borrowers without collateral can get as much as 200,000 yuan at an annualized rate of 18 percent.
MYbank is to begin operating on Thursday as part of Alibaba’s finance arm, Zhejiang Ant Small & Micro Financial Services Group Co. It’s one of a wave of new private banks being licensed by the government to target small loans and aims to use facial-recognition software to let users set up accounts.
Alibaba already has expanded into e-finance, with its Alipay payments system and Yu’E Bao money-market fund.
“The potential of web-based services, be it financial or retail, is huge in China, so it’s not too late to join the game,” said Wang Weidong, an analyst at Internet consultancy iResearch in Beijing.
The State Of U.S. Listed China Based Companies Going Private
This article from Benzinga may be of interest to subscribers. Here is a section:
We believe part of the motivation for management teams to welcome going private deals is the belief by many investors that the China "A" share stock market may see a sharp correction within the next several months.
The Chinese "A" share stock market contains exchanges such as the Shanghai Stock Exchange and the Shenzhen Stock Exchange, where shares of China mainland-based companies are listed. "A" shares are generally only available for purchase by China mainland citizens.~
Thus, ChinaHyrbid management teams and private equity firms may be scurrying to take advantage of the huge valuation gap between ChinaHyrbids and "A" share companies – before the "A" share market corrects – by going private and then eventually re-IPOing in China at much higher valuation multiples.
For example, the Chinex Price Index (SHE: 399006), which is the index that includes small cap growth companies in the China A share market, has an average P/E of 115 as of June 18, 2015. However, the non-binding go private price of QIHU of $77.00 is only 22 times of the analyst estimated EPS in 2015.
Email of the day on divergence in performance between Hong Kong and mainland China:
The rally in A-shares has been impressive, while the H-shares have been lagging behind in a big way. What is your view on this? I also attach a chart showing relative performance. I have lightened my position in the HSCEI but wonder if I should be looking to increase it again.
Mainland Chinese stocks fail to make the MSCI's emerging market index, but that won't be the case for long
This article by David Scott for Business Insider may be of interest to subscribers. Here is a section:
The answer is no, not yet, but it could happen before the next MSCI annual market classification review scheduled for June 2016.
On a posting on its website the MSCI noted that it “expects to include China A-shares in its global benchmarks after a few important remaining issues related to market accessibility have been resolved”.
Here’s Remy Briand, MSCI managing director and global head of research, on the decision announced this morning.
“Substantial progress has been made toward the opening of the Chinese equity market to institutional investors. In our 2015 consultation, we learned that major investors around the world are eager for further liberalization of the China A-shares market, especially with regard to the quota allocation process, capital mobility restrictions and beneficial ownership of investments. Because MSCI’s client base is so large and diverse, we have a strong interest in ensuring that remaining issues are addressed in an orderly and transparent way.”
Bond Market Storm Finally Hits Junk Debt as Buyers Flee ETFs
This article by Lisa Abramowicz for Bloomberg may be of interest to subscribers. Here is a section:
While ETFs are a small slice of the junk-bond market, they’re usually a telling gauge of sentiment, and the outflows are significant compared with the $6.7 billion of total deposits into these funds so far in 2015, Bloomberg data show.
Government yields in Europe and the U.S. are rising in the face of improving economic data and signs inflation is picking up (or, in Europe’s case, that there’s any inflation at all.) Yields on 10-year Treasuries have surged past 2.4 percent, reaching the highest level since Oct. 6, from 1.8 percent in April.
And now the $2.2 trillion world junk-bond market is losing steam, at a time of growing questions about how long stocks can keep rallying. The debt tends to be a leading indicator, and its deterioration bodes poorly for stock investors, Tchir said.
While the selloff is short-lived enough that it may just prove a blip in a market propped up by central-bank stimulus, it may also portend broader pain ahead.
China Water
Thanks to a subscriber for this report from Deutsche Bank which may be of interest. Here is a section:
The newly-announced Water Pollution Control Plan and the unprecedented government focus on environmental protection reaffirm our positive view on the water industry. Large-cap SOE stocks have been traded strongly, we now see more upside for smaller SOE players. They have a higher growth rate, more potential to surprise and beat market expectations, and a more attractive valuation. We initiate coverage on SIIC Environment (SIIC) and China Everbright Water (CEW) with Buy and designate them as our sector top picks.
Pollution control plan unveiled; over RMB1.9tr investment needed by 2020
The Water Pollution Control Plan released in April will lead to over RMB1.9tr of total investment in the water industry by 2020, as estimated by the Ministry of Environmental Protection. More detailed implementation plans and the 13th five-year plans will be announced by central and local governments in 2H15-
2016, unveiling tightening discharge rules, paving the way for water tariff hikes, and promoting the involvement of specialist operators.
Strong growth upholds premium valuation, leading SOEs to gain market share
New project wins should remain strong over the next few years, supporting premium valuations for the sector. Leading SOEs can gain market share in the currently scattered municipal water industry, leveraging on their better relationship with local governments and access to cheap financing. Management with a commercially-driven mindset, good employee incentive plans, and a wider footprint also help. BEWG, as the role model for the new SOE, has proven to be successful. We believe SIIC and CEW can emulate BEWG’s strong growth and emerge as leading SOE players in the sector.