David Fuller and Eoin Treacy's Comment of the Day
Category - China

    New Rules in China Upset Western Tech Companies

    This article by Paul Mozur may be of interest to subscribers. Here is a section: 

    The groups, which include the U.S. Chamber of Commerce, called for “urgent discussion and dialogue” about what they said was a “growing trend” toward policies that cite cybersecurity in requiring companies to use only technology products and services that are developed and controlled by Chinese companies.

    The letter is the latest salvo in an intensifying tit-for-tat between China and the United States over online security and technology policy. While the United States has accused Chinese military personnel of hacking and stealing from American companies, China has pointed to recent disclosures of United States snooping in foreign countries as a reason to get rid of American technology as quickly as possible.

    Although it is unclear to what extent the new rules result from security concerns, and to what extent they are cover for building up the Chinese tech industry, the Chinese regulations go far beyond measures taken by most other countries, lending some credibility to industry claims that they are protectionist. Beijing also has long used the Internet to keep tabs on its citizens and ensure the Communist Party’s hold on power.

    Chinese companies must also follow the new regulations, though they will find it easier since for most, their core customers are in China.

     

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    China to Force Authors to Provide Real Names When Publishing Online

    This article by Amy Qin for the New York Times may be of interest to subscribers. Here is a section: 

    In new guidelines on online literature made public this month by the State Administration of Press, Publication, Radio, Film and Television, the government called for a system that would require all authors to register their real names with publishing platforms on the Internet.

    Under the guidelines, creators of online content will still be allowed to publish under pen names. But unlike before, when some writers registered accounts under fake names, websites will know exactly who is publishing what.

    Linking the identities of authors with their writings online, the guidelines say, will encourage them to “take better responsibility” for their works as well as strengthen their “professional moral education and training.” The aim is to promote “healthy” online literature and to root out problems like plagiarism and poor quality, the guidelines state.

    “It is very clear that the government is taking these measures with the intention of suppressing online creativity,” the writer known as Murong Xuecun, whose real name is Hao Qun, said in an interview.

     

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    2015 Asia Research Outlook Tread Carefully in the Year of the Ram

    Thanks to a subscriber for this report from Deutsche Bank which may be of interest. Here is a section: 

    Cost savers: Mid-stream industrial sectors that could benefit from lower commodity prices and highly leveraged sectors that could benefit from lower financing costs.

    Top-line growers: Increasing demand for better quality of life suggests a stronger appetite for healthcare, environmental protection, TMT, and child/senior-related consumption.

    Reform beneficiaries: Look for potential beneficiaries from SOE reform, “Go Global”, financial reform and land/Hukou reform, but watch for potential losers from fiscal/tax reform.

    MSCI inclusion: Select TMT and consumer discretionary names will benefit at the expense of the largest incumbents including financials, energy and telecom.

     

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    Citic Securities Sees No Change to $4.6 Billion Share Sale Plan

    This article from Bloomberg news may be of interest to subscribers. Here is a section: 

    Citic Securities Co., China’s biggest brokerage by market value, said it will push ahead with a plan to sell about $4.6 billion of stock even after curbs on margin lending triggered a record plunge in its shares.

    The broker’s plan to sell as many as 1.5 billion new H shares remains unchanged, a Hong Kong-based press officer said in an e-mailed response to questions today. Citic Securities said in December it would sell the shares, valued at $4.6 billion based on today’s price, to develop capital-intensive operations including margin financing and securities lending.

    Chinese brokerages’ shares plunged today after the securities regulator banned three of the biggest firms from adding new margin-finance accounts for three months. Citic, Haitong Securities Co. and Guotai Junan Securities Co. let customers delay repaying financing for longer than permissible, the China Securities Regulatory Commission said Jan. 16.

    The business and operations of Beijing-based Citic Securities remain unchanged, it said in today’s statement. Citic Securities shares fell by the 10 percent daily limit in Shanghai and dropped 16 percent, the most on record, at the close in Hong Kong.

    Haitong hasn’t changed its share sale plan, said a person with knowledge of the matter, who asked not to be identified discussing private information. It said in December it plans to raise about $3.9 billion from a sale of 1.92 billion new shares.

     

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    Jeff Gundlach Goes Contrarian And Predicts Interest Rates Fall In This Prescient Presentation

    Thanks to a subscriber for this link to Jeff Gundlach’s slides from his recent investor conference. Here is a section on China: 

    The good news? We won't see high-yield debt defaults for a few years because everyone has refinanced their debt.

    "There are lots of reasons to think rates should rise in five years, but not much in five days or five months."

     

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    Gold Heads for Longest Rally in Six Months as Euro Plummets

    This article by Joe Deaux and Laura Clarke for Bloomberg may be of interest to subscribers. Here is a section: 

    “The Swiss National Bank’s decision caught the market a little off footing, and gold gained as a safe-haven buy,” Frank McGhee, the head dealer at Alliance Financial LLC in Chicago, said in a telephone interview. “The Swiss are giving up on the euro at the end of a long and painful run.”

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    It is Amateur Hour in Chinese Market as Penny Stocks Surge

    This article from Bloomberg News may be of interest to subscribers. Here is a section: 

    Some individual investors, of course, try to be more selective than just focusing on the price. Shawn Gao, a 27-year- old bank manager in Chengdu, looks for shares that will benefit from government policy changes while using volume and momentum data to help guide his decisions. Even he admits, though, that he’s sensitive to the absolute price level, staying away from stocks priced above 20 yuan.

    What looks cheap to Chinese investors who focus on a stock’s price may actually be expensive. Equities in the CSI 300 index trading below 5 yuan are valued at an average 25 times estimated earnings for the next 12 months, versus 13 times for the overall index, according to data compiled by Bloomberg.

    The market impact of individuals who ignore corporate fundamentals is driving away some of the region’s institutional investors, who are concerned speculative price moves will hurt performance, said David Gaud, a Hong Kong-based money manager at Edmond de Rothschild Group, which oversees about $158 billion.

    “The market would need more institutionals and less leveraging on the retail side,” Gaud said. “This is not liquidity which is of good quality at the end of the day.”

     

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    Rate-cut, reform & re-rating in the Year of the Ram

    Thanks to a subscriber for this report from Deutsche Bank focusing on China. Here is a section: 

    Macro: Broad-based easing to bottom line ; watch CPI & RMB
    We forecast lower-than-consensus GDP in 1H15, while 2H15 may see a minor pick-up thanks to rates and RRR cuts in 1-3Q15. We think the policy regime bottom line, but refrain from suggest closely watching the developments in CPI (esp. pork prices) and RMB depreciation to gauge how far the policy easing could go. 

    Earnings: Non-financial earnings to recover at the expense of financials
    We see a decent recovery in non-financial earnings growth to 8% in 2015 (vs. 0% in 2014), thanks to profit margin expansion amid softening commodity prices and falling financial costs. However, financials earnings growth may slow to 3% in 2015 (vs. 8.5%), sending overall H-share earnings growth to 5.5% (vs. 4.4%). This trend may extend in 2016 and H-share earnings could grow at a similar 5.4%. We believe cost cutting has its limit for Chinese corporate, top-line is still needed for a more sustainable earnings recovery. 

    Liquidity: When G2 diverges the loosening PBoC vs. the tightening Fed
    H-share liquidity conditions may weaken due to 1) further global capital outflows alongside the tightening Fed and strengthening US dollar, and 2) the mounting northbound while lukewarm southbound flows in the Shanghai Connect. A-shares may continue to benefit from the loosening PBoC and outperform H-shares, but in the near term, we would watch out for prudential measures given recent rapid leverage build-up, esp. via alternative channels. 

    Valuations: 8-11x the fair range; market to enter
    Modeling MSCI China with a three-stage DDM, we estimate 8-11x 12-month forward P/E as the fair valuation range. We expect the index to re-rate from the current 9.4x 12-month forward P/E to 10x by end-2015, based on 3.5% RFR and 6.5% risk premium. Also, considering around 5% rollover in 12-month the rising P/E and EPS boosting the index by 12% to 74 by end-2015.

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    HKEx Jumps on Report as Li Backs Shenzhen Stock Link

    This article by Kana Nishizawa for Bloomberg may be of interest to subscribers. Here is a section: 

    Hong Kong Exchanges & Clearing Ltd. jumped the most in a month after a report that Chinese Premier Li Keqiang said a stock link with Shenzhen should be established.

    The new exchange program should follow the Hong Kong- Shanghai connect that began in November, Shenzhen Special Zone Daily reported on its tetimes.com website, citing Li during a visit to the city. Shares of Hong Kong Exchanges rose 2.5 percent to HK$177.30, the biggest advance since Dec. 8. The Shenzhen Composite Index extended gains to 1.5 percent, while the Hang Seng Index slid 0.6 percent.

    “A Shenzhen-Hong Kong stock link will have a positive effect on HKEx in terms of turnover and profitability,” said Sam Chi Yung, a strategist at Delta Asia Securities Ltd. in Hong Kong. “We still don’t know the timetable of the program, but at least we know that China intends to launch it.”
    Shenzhen Special Zone Daily is the official newspaper of the Communist Party committee in the southern Chinese city.

    The existing cross-border trading connect gives foreign money managers greater access to Shanghai-listed equities while allowing mainland investors a route to buy Hong Kong shares. The program usage has been slower than expected, with about 25 percent of the aggregate quota being used for Shanghai-listed shares, and less than 5 percent for Hong Kong stocks traded through the link.

    The design of the stock link is scalable and replicable, and can be expanded to cover other markets or asset classes, Lorraine Chan, spokeswoman at Hong Kong Exchanges, said in an e- mail today. The bourse operator has “excellent working relationships with the Shenzhen exchange,” and will inform the market if there are material developments, she said.

     

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    Chinese Stocks in Hong Kong Climb to 2011 High on Stimulus Bets

    This article by Kana Nishizawa for Bloomberg may be of interest to subscribers. Here is a section: 

    Chinese stocks traded in Hong Kong rose to their highest close in more than three years amid speculation the government will further ease monetary policy to support a slowing economy.

    Mainland developers and financial companies jumped, with China Vanke Co. increasing 11 percent and People’s Insurance Company (Group) of China Ltd. reaching a one-year high. CSR Corp. and China CNR Corp. soared at least 16 percent, extending their Dec. 31 surge after the train builders announced a merger agreement. Kaisa Group Holdings Ltd. remained suspended after the property developer defaulted on a $52 million loan.

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