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Equities decline on policy change woes

 

Property shares led declines yesterday as the Shanghai municipal government tightened tax and mortgage rules.[China Daily]
China’s stocks fell on the first trading day of the year as Shanghai tightened tax and mortgage rules, bolstering prospects the government will step up measures to curb property speculation.
The Shanghai Composite Index fell 33.38, or 1.02 percent, to close at 3243.76, snapping a four-day rally. The gauge surged 80 percent last year after government spending and bank lending helped revive growth in the world’s third-largest economy.
The CSI 300 Index dropped 1.13 percent to 3535.23.
“There’s uncertainty over the government’s policy on the property industry,” said Zhao Zifeng, who helps oversee about $10.2 billion at China International Fund Management Co in Shanghai.
“For the broader market, the situation is bright as listed companies are expected to achieve growth for a second straight year amid the economic recovery.”
Poly Real Estate fell 2.2 percent to 21.9 yuan ($3.21). China Vanke Co, the nation’s biggest listed property developer, lost 1.9 percent to 10.6 yuan. Gemdale Corp, the fourth largest, retreated 2.7 percent to 13.51 yuan.
Home buyers must prove they are first-time purchasers before they can benefit from a reduced tax on property transactions, the Shanghai municipal government said in a statement on its website on Dec 31.
Separately, Guangzhou’s government announced tougher penalties for developers hoarding land, the South China Morning Post said yesterday.
“These policy changes will likely raise the transaction and funding costs of most speculative transactions,” Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong, said in a note. “Other major cities such as Beijing, Guangzhou, Shenzhen and Hangzhou will likely follow suit.”
SAIC Motor Corp led gains by automakers after the nation’s manufacturing expanded by the most in five years in December. SAIC gained 3.2 percent to 26.96 yuan.
Chongqing Chang’an Automobile Co, the Chinese partner of Ford Motor Co and Mazda Motor Corp, climbed 3.4 percent to 14.5 yuan.
A purchasing managers’ index rose to a seasonally adjusted 56.1, HSBC Holdings Plc and Markit Economics said yesterday. The measure is based on a survey of more than 400 manufacturing companies.
The PMI number was the highest since April 2004, the first month of the HSBC survey. The official PMI, which was released on Jan 1 and has a different methodology, showed the biggest expansion in 20 months.
“We remain optimistic in 2010,” said Sun Chao, an analyst at CITIC Securities Co in Shanghai. “We continue to see improvement in the economic front and that will be reflected in corporate earnings.”
Hang Seng dips
Hong Kong shares closed down 0.23 percent yesterday, its first trading day for 2010, as mainland banks fell on worries over fund-raising plans and policy changes.
The benchmark Hang Seng Index ended down 49.22 points at 21823.28. The China Enterprises Index of top locally listed mainland stocks fell 0.34 percent to 12750.55.
The mainland’s top lender Industrial and Commercial Bank of China fell 1.09 percent to HK$6.37 (82 cents). China Construction Bank lost 1.2 percent to HK$6.59.

Deutsche Bank: Stock rally likely to fade this year

A rally by China’s stocks may fade from the second quarter as inflation triggers “significant policy tightening” by the government and the US economy weakens, Deutsche Bank AG said.
The MSCI China Index may still end the year 15 percent higher, Ma Jun, Deutsche Bank’s Hong Kong-based China economist, said in a note to clients. The index tracking mostly mainland companies traded in Hong Kong jumped 59 percent last year after losing 52 percent in 2008.
“We see upside potential to the indices in the first few months, as the macro environment should remain favorable,” Ma said. “CPI and asset inflation will likely pose major macro challenges and the resulting policy responses will cause market risks,” he wrote, referring to the consumer price index.
Deutsche Bank joins Morgan Stanley in predicting an end to China’s rally in 2010 as inflation accelerates and the government withdraws some stimulus. Morgan Stanley analysts led by Jerry Lou said on Dec 15 they expect a “boom and bust” by the nation’s equities this year as gains in the first half stall.
A record 9.2 trillion yuan ($1.3 trillion) of loans in the first 11 months of this year has added to the risk of asset bubbles and resurgent inflation. The nation’s consumer prices climbed 0.6 percent in November from a year earlier, snapping a nine-month run of deflation.
‘Bubble’ concern
Accelerating inflation may inflate a “full-blown” bubble in China’s stock and property markets this year, BofA Merrill Lynch Research’s China strategist David Cui said on Dec 28. Investors may divert savings into equities and housing as the pace of inflation outstrips interest on bank accounts, Cui said.
Premier Wen Jiabao pledged on Dec 27 to tackle “excessive” property-price gains in some cities after prices across 70 cities rose at the fastest pace in 16 months in November.
The government said yesterday it would restrict credit for purchases of second homes to curb speculative housing investments, as well as crack down on property hoarding by developers.
Deutsche Bank’s Ma said deceleration of year-on-year growth and a second dip in the US will also “negatively affect” Chinese stocks from the second quarter.
Nobel Prize-winning economist Paul Krugman said this week he sees about a one-third chance the US economy will slide into a recession during the second half of the year as fiscal and monetary stimulus fade.
Ma recommended investors buy insurers, as well as consumer and agriculture companies on rising prices, and avoid refining and power companies.
His top stock picks include Ping An Insurance (Group) Co, China’s second-biggest insurer, New World Department Store China, which operates upscale department stores in China, and Texwinca Holdings Ltd, a producer of knitted fabric.
Deutsche Bank expects China’s economic growth to accelerate to 9 percent in 2010 from 8.4 percent last year, Ma said.

Equities slide as govt applies brakes

 

Chinese stocks fell on expectations of government moves to limit lending and curb surging property prices. [China Daily]
China’s stocks fell the most in two weeks, led by banks and automakers, on concern government steps to curb lending growth and property speculation will slow expansion in the world’s third-largest economy.
SAIC Motor Co, the country’s biggest carmaker, plunged 4.4 percent on prospects auto sales will slow this year after the government withdrew some stimulus. Industrial and Commercial Bank of China Ltd (ICBC), the nation’s largest listed lender, and China CITIC Bank Corp dropped more than 2 percent as an increase in rates on three-month bills for the first time in 19 weeks signaled tighter liquidity.
“Growth will probably slow this year as tight credit will dampen the demand side,” said Zhang Ling, who helps oversee about $7.21 billion at ICBC Credit Suisse Asset Management Co in Beijing. “That will dash investors’ hope of another year of fast growth.”
The Shanghai Composite Index slid 61 points, or 1.9 percent, to 3,192.77 at the close, the biggest decline since Dec 22. The gauge has lost 2.6 percent in the first four days of trading this year, after rallying 80 percent in 2009. The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, retreated 2 percent to 3,471.46.
ICBC lost 2.4 percent to 5.21 yuan ($76 cents). CITIC Bank slid 3.4 percent to 7.67 yuan. China Minsheng Banking Corp, the nation’s first privately owned bank, slipped 2.7 percent to 7.70 yuan.
The People’s Bank of China offered 60 billion yuan of bills at a yield of 1.3684 percent. Policymakers will seek “moderate” loan growth to support the economy while managing inflation expectations, the bank said yesterday in a report on its annual work meeting.
‘Tightening liquidity’
“It’s definitely a signal that the central bank is tightening liquidity,” said Jiang Chao, a fixed-income analyst in Shanghai at Guotai Junan Securities Co, the nation’s largest brokerage by revenue. “The rising yield is used to prevent excessive growth in bank lending.”
China may have about 7.5 trillion yuan of new bank lending this year, the China Securities Journal reported, citing an unidentified person. Banks extended a record 9.21 trillion yuan of new loans in the first 11 months of 2009.
SAIC slid 4.4 percent to 24.12 yuan. The stock jumped 388 percent last year as tax cuts helped sales surge. The automaker has forecast a rise of less than 15 percent in industry-wide sales this year, compared with a 42 percent gain in the first 11 months of last year, as the government increased taxes.
FAW Car Co, which makes passenger cars in China with Volkswagen AG, retreated 4.1 percent to 22.94 yuan, the biggest drop since Nov 27. Chongqing Changan Automobile Co, the Chinese partner of Ford Motor Co and Mazda Motor Corp, slid 4.9 percent to 13.50 yuan.
Slowing car sales
“I don’t think last year’s explosive growth will be sustained this year,” said Zhang at ICBC Credit Suisse Asset Management. “Car sales will slow down.”
The crackdown on property prices also poses risks for the economy after the government tightened tax and mortgage rules for second-home purchases.
China needs to sustain an “unprecedented” building boom in the first half of this year because export growth is limited and consumer spending is not yet sufficient to be the main driver in the economy, said Mark Williams, an economist at the Capital Economics Ltd in London.
Premier Wen Jiabao said on Dec 27 that last year’s doubling in new loans had caused property prices to rise “too quickly”.
Liu Mingkang, the top banking regulator, wrote in an opinion piece in Bloomberg News this week that “structural bubbles threaten to emerge” in the world’s fastest-growing economy.

Index futures get regulatory approval

The government on Friday gave the green light for stock index futures, margin trading and short selling in a milestone move that ends the one-way trade in the capital market.
An official with the China Securities Regulatory Commission (CSRC) said on Friday that the State Council has approved stock index futures, short selling and margin trading “in principle”. The regulator said it would take three months to complete preparations for index futures.
The new tools would protect investors against losses and also help them to profit from any declines. Until now, Chinese investors could only profit from gains in equities.
Analysts said the announcements are unlikely to cause any sharp volatility in the A-share market next week as the rumors have already been factored in.
“The market is unlikely to see huge fluctuations next week as the introduction of new financial tools has been discussed for years,” said Zhang Qi, an analyst with Haitong Securities.
Index futures are essentially agreements to buy or sell an index at a preset value on an agreed date. Investors can also borrow money to buy securities or borrow securities to sell under the business of margin trading and short selling.
Zhang said the move would be positive for blue-chips and heavyweight stocks as the contract would be initially based on China’s CSI 300 Index that tracks the 300 biggest shares traded in Shanghai and Shenzhen.
“Index futures are expected to bolster the market value of blue-chips,” he said.
Large listed securities firms such as CITIC Securities and Haitong Securities will also directly benefit from the new business and could see a surge in their revenues, Zhang said.

Analysts expect the new tools to improve liquidity by attracting more capital into the equity market as the government plans to cut back bank lending to 7.5 trillion yuan ($1.1 trillion) in 2010 from last year’s 9.21 trillion yuan.
China’s securities regulator has been considering the introduction of index futures since 2006 when Shanghai set up the China Financial Futures Exchange to prepare for the running of the new mechanism. The plan had been held up till now along with the proposals for margin trading and short selling.
In 2007, CSRC chairman Shang Fulin said that the infrastructure and regulations needed for index futures and margin trading are in place.
Institutional investors are expected to be the mainstay of the new business as the threshold is high for retail investors who are more vulnerable to potential risks, said analysts.

Hong Kong stocks end 1.63% higher, tracking U.S. gains

The benchmark Hang Seng Index of Hong Kong closed 1.63 percent higher at 21.829.72 on Friday, tracking overnight gains on the Wall Street following better-than-expected quarterly results announced by tech chip Cisco.
The Hang Seng Index gained 0.35 percent over the past week. Analysts said resistance was turning strong as the blue chip index moved near the 22,000 mark, adding that the index also managed to hold above the support level of 21,000 recently.
Turnover totaled 64.43 billion HK dollars (8.26 billion U.S. dollars), compared with Thursday’s 60.77 billion HK dollars (7.79 billion U.S. dollars).
Forty-one of the 42 constituents of the Hang Seng Index turned out gainers. The finance sub-index, one of the four major stock categories, advanced 1.72 percent. The properties category added 1. 92 percent and the commerce and industry, 1.58 percent.
The utilities sub-index gained 0.37 percent.
Banking giant and market heavyweight HSBC rose 1.6 HK dollars, or 1.88 percent, at 86.85 HK dollars, alone contributing a rise of57 points to the Hang Seng Index.
China Mobile, the leading mobile carrier on the Chinese mainland and a market heavyweight, rose 0.75 HK dollars, or 1.03 percent, to close at 73.9 HK dollars. Smaller rival China Unicom surged 3.26 percent at 10.76 HK dollars.
The Industrial and Agricultural Bank of China, the largest commercial lender on the Chinese mainland, rose 1.73 percent. China Construction Bank and the Bank of China gained 1.04 percent and 1.55 percent, respectively.
China Life rose 2.04 percent and Ping An advanced 1.35 percent.
PetroChina, the business conglomerate of the oil industry, advanced 1.65 percent, and Sinopec, whose business scope covers mainly refining, advanced 1.34 percent. CNOOC, the offshore oil producer, surged 3.37 percent at 12.26 HK dollars.
Computer maker Lenovo, with improving results announced earlier, finished unchanged at 4.44 HK dollars after moving to as high as 4. 6 HK dollars during the day.
Cheung Kong, the flagship of Hong Kong’s richest man Li Ka- shing, was up 1.67 percent at 97.35 HK dollars. Sun Hung Kai Properties, the leading residential housing developer in Hong Kong, gained 2.47 percent to close at 116.3 HK dollars.
HKEx, the sole exchange operator, closed up 1.67 percent at 140HK dollars. (7.8 HK dollars = 1 U.S. dollar)

Hong Kong stocks end 0.12% up

Hong Kong stocks closed up 27.3 points, or 0.12 percent, at 22, 296.75 on Friday.
The benchmark Hang Seng Index slightly rose 13.3 points, or 0. 06 percent, to open at 22, 282.75. Local shares traded between 22,443.22 and 22, 206.16 before closing.
Turnover fell to 71.93 billion HK dollars from Thursday’s 79.17billion HK dollars.
The China Enterprises Index went down 38.11 points, or 0.29 percent, to close at 13, 035.09 points.
Three of the four major stock categories rose. The commerce and industry sub-index moved up 0.37 percent, the properties, up 0.33 percent, the utilities, 0.21. The finance sub-index edged down 0. 1 percent.
Blue-chips ended up. Banking giant HSBC Holdings edged up 0.4 percent to 91.75 HK dollars. Heavyweight China Mobile, by far the largest mobile carrier in the Chinese mainland, rose 1.3 percent to 74.45 HK dollars. The HKEx, the sole exchange operator in Hong Kong, inched up 0.2 percent to 150.8 HK dollars.
Local properties closed higher. Cheung Kong, the flagship of Hong Kong’s richest man Li Ka-shing, edged up 0.29 percent to 102.1 HK dollars. Henderson Land jumped 2 percent to 59.25 HK dollars. SHK Properties gained 1 percent to 117.4 HK dollars.
Mainland-based commercial lenders lost. Bank of China gained 0.23 percent to 4.28 HK dollars. CCB fell 1.21 percent to 6.53 HK dollars. ICBC lost 0.16 percent to 6.36 HK dollars.
Chinese insurance companies finished lower. China Life moved down 0.39 percent to 38.35 HK dollars. Ping An slid 0.29 percent to 69.9 HK dollars.
As for energy shares, PetroChina rose 0.8 percent to 10.08 HK dollars, off-shore oil producer CNOOC edged 0.31 percent down to 13.04 HK dollars. Sinopec Corp fell 0.45 percent to 6.68 HK dollars.
Coal stocks retreated on excessive capacity talks from an industry association. Yanzhou and Hidili slid 5 percent and 4 percent to 18.76 HK dollars and 9.86 HK dollars. Shenhua fell 2 percent to 39.65 HK dollars. (7.8 HK dollars = 1 U.S. dollar)

China’s stocks surge at Monday opening

Chinese shares jumped at the opening on Monday after the country’s securities regulator said late Friday that the State Council had approved stock index futures and trial run of margin trading, a fresh move to boost the country’s stock market.
The benchmark Shanghai Composite Index rallied 3.30 percent at 3,301.61 points at the opening. The Shenzhen Component Index opened 2.20 percent higher at 13,559.28 points.

Chinese shares close mixed on Monday

Chinese equities closed mixed on Monday with the key Shanghai index edging up 0.52 percent, led by shipping companies and brokerage firms boosted by improved exports figures and the government’s approval of stock index futures.
The benchmark Shanghai Composite Index gained 3.3 percent at the opening and then went lower to close at 3,212.75 points, up only 0.52 percent, or 16.75 points.
The Shenzhen Component Index declined 0.8 percent, or 106.35 points, to close at 13,161.09 points.
Combined turnover totaled 280.69 billion yuan (41.1 billion U.S. dollars), up from 204.86 billion yuan the previous trading day.
Gainers outnumbered losers by 464 to 402 in Shanghai and 489 to328 in Shenzhen.
The index rose after an unexpected announcement that the government had approved the long-awaited launch of stock index futures and a trial run of margin trading, which triggered profit taking and led to the downward movement, said Yu Junwei, analyst with the Shanghai Shiji Investment Consultant Company.
The China Securities Regulatory Commission announced Friday that the State Council, the Cabinet, had approved “in principle” the launch of index futures and given it the green light to pilot the margin trading.
Brokerage companies advanced on new business boosted by the news. CITIC Securities went up 3.6 percent to 33.42 yuan. Northeast Securities climbed 1.35 percent to 38.19 yuan.
Shipping companies also rose, boosted by December exports statistics, which increased for the first time in 14 months compared with the corresponding period the previous year.
China COSCO Holdings Company Ltd. rose 3.45 percent to 14.09 yuan. The COSCO Shipping Co. gained 3.25 percent to 10.81 yuan.
Shares of real estate developers, however, dropped after the government said Sunday it would strengthen property project loan risk management and market supervision.
China Vanke Co., the country’s largest property developer by market value, shed 1.6 percent to 10.18 yuan. Poly Real Estate Group Co., the country’s second largest developer, lost 2.28 percent to 21 yuan.
Shares of Tibet-based enterprises gained, boosted by the decision of a meeting presided over by President Hu Jintao Friday that the government would ramp up support measures for the development of the region in the areas of the economy, human resources and technology.
Tibet Galaxy Science &Technology Development Co., Ltd. rose by the daily 10-percent limit to 10.96 yuan. Tibet Tourism Co. also grew by the 10-percent daily limit to 11.97 yuan. Shares of Tibet Mineral Development surged 8.66 percent to 24.98 yuan.

Index futures may ease fluctuations in Shanghai Composite

China’s approval of short sales and stock index futures paves the way for foreign investors to bet on a convergence in valuations between Shanghai and Hong Kong.
The China Securities Regulatory Commission cleared the overhaul of trading laws on Jan 8 that will also permit buying equities with brokerage loans. The rules apply to mainland residents and the 94 international institutions authorized for mainland trading by the government.
Allowing investors to profit from share declines will make trading more efficient in the mainland and may eventually reduce the valuation gap with Hong Kong, where an index of mainland-based companies is priced at a 38 percent discount, according to ING Groep NV.
“It’ll make it easier for market players to conduct the arbitrage,” said Philip Schwartz, who manages $1.3 billion of international equities at ING Investment Management in New York.
Amsterdam-based ING, the largest Dutch financial services company, was approved to invest in mainland local-currency stocks and bonds under the qualified foreign institutional investor, or QFII, program in 2003. Schwartz said he doesn’t short sell a stock or do arbitrage.
“I would do the trade immediately if I could,” said Michael Cheah, who manages $2 billion at SunAmerica Asset Management in Jersey City, New Jersey. “The real test will be when we have a sell-off, will they suspend shorting?”
The Shanghai Composite climbed 0.5 percent to 3212.75 yesterday, after rising as much as 3.5 percent, its biggest gain in three months.
Index futures may help ease fluctuations in the world’s third-largest equity market by value after the Shanghai Composite doubled in 2007, then slumped 65 percent in 2008 before rebounding 80 percent last year.
The mainland stock market will become “more rational” with the introduction of stock index futures, margin trading and short selling, Deutsche Bank AG said in a report.
The first stock index contracts, based on China’s CSI 300, may begin trading after the annual session of China’s National People’s Congress in March, an official with knowledge of the matter said.

Shanghai challenges HK on IPOs

 

Chinese companies are expected to raise $55.7 billion on the Shanghai Stock Exchange in 2010. [Agencies]
Shanghai’s burgeoning initial public offering (IPO) market is shaking Hong Kong’s status as the world’s fundraising king and will challenge the latter’s role as China’s international financial center as the country moves toward a convertible currency, market observers said.
“It is certain that Shanghai will surpass Hong Kong in 2010 as the world’s largest IPO center,” said Terence Ho, strategic growth markets leader of accounting firm Ernst &Young.
Chinese companies are expected to raise $55.7 billion on the Shanghai Stock Exchange in 2010 while in Hong Kong the figure is expected to be $47.7 billion. Last year, Hong Kong raised approximately $30 billion in new listings with Shanghai’s $27.3 billion closely behind, according to Bloomberg data.
Analysts said it would be a matter of time for Shanghai to eat into Hong Kong’s share in the IPO market as China is moving toward a convertible currency.
“The yuan’s internationalization could be a threat to Hong Kong as foreign capital could then flow freely into the mainland’s A-share market,” Ho said. “Global fund managers will also increase the percentage of their investment on the mainland.”
China is on the way to reforming and improving its capital market by introducing new financial tools including stock index futures, margin trading and short selling. Shanghai is also preparing itself for an international board that will allow foreign companies to raise capital in the mainland.
Foreign companies HSBC and global exchange group NYSE Euronext are keen to become the first batch of overseas companies to list on the A-share market.
However, Ho pointed out that Hong Kong in the short term will maintain its advantage of high international exposure and market liquidity.
“In the short term, Shanghai is unlikely catch up with Hong Kong in terms of international exposure and liquidity,” he said. “Currently, the two places have different roles. Hong Kong caters to millions of international investors while Shanghai mainly targets domestic investors.”
Ho noted that although the yuan’s internationalization may jeopardize Hong Kong’s role as China’s gateway to the global financial market, it may create new opportunities for Hong Kong as more capital will be pumped into Hong Kong from mainland investors.
To maintain its status as world-leading IPO market, Hong Kong needs to work on attracting more mainland companies and keep the existing ones, analysts said.