Despite China reporting solid economic data on Monday, with beats across the board in everything from retail sales, fixed asset investment, industrial production and GDP printing at 6.9% and on track for its first annual increase since 2010…
… despite the biggest net liquidity injection by the PBOC since mid June after the central bank injected a net 130 billion yuan, and despite yet another rebound in the Yuan, overnight China’s Shanghai Composite slumped by 1.4%, the most since December as a result of a plunge in the small-cap ChiNext index, which tumbled by 5.1%, and is now down 16% in 2017 to levels not seen since January 2015 following a fresh round of broad deleveraging amid concerns about tougher regulations and more IPOs following a high-level conference over the weekend attended by President Xi Jinping in which China hinted at the formation of a “super-regulator”.
It’s the news every investor outside China wants to hear: markets are decoupling from the China plunge.
While the two China equity benchmarks are down more than 4 per cent each, other Asian markets are eyeing a rebound.
The trend is more forceful Down Under, where the ASX 200 is rallying 2.7 per cent. In Hong Kong, the Hang Seng is up 1.5 per cent. In Japan, the Topix has recovered from a 4.7 per cent loss in early trading, to rise 0.8 per cent. In Korea, the Kospi is up 0.7 per cent, digging out of a 1.3 per cent loss earlier.
The upward moves make sense. China’s own stock market has arguably little to do with economic growth: that’s why its market was able to more than double just as the economy slowed to a six-year low. The upward moves in Shanghai and Shenzhen were based on hopes for monetary easing and a wide rotation in investment circles from property to equity. The collapse of the market doesn’t necessarily tell us much about China’s demand for Japanese cars, Australian iron ore, Korean semiconductors or Hong Kong’s financial services.
In New York, S&P 500 futures are already pointing up 2 per cent. It may be rash for broad conclusions based on a few hours of trading, but here’s one anyway: the panic outside China has subsided, even if within China investors are still in sell mode.
The Shanghai Composite ended today with a 2.4 per cent gain, but the finishing figure doesn’t begin to tell the tale of what happened.
The benchmark stock index for China jumped 7.8 per cent higher at the start of trading following a series of weekend measures to prop up the market. The central bank provided liquidity, banks suspended IPOs and brokers pledged to stabilise the market.
But within minutes the gain was halved. By lunch it was just 2.2 per cent. In the afternoon the market turned red, falling to a 0.9 per cent loss.
The late rebound could indicate investors eventually saw a bargain and responded to Beijing’s efforts. But there are reasons to be suspicious of the gain and to believe confidence is still broken.
What drove the climb in the final hour was state-backed blue chips. These are the companies that will be targeted by China’s largest brokerages, who agreed at the weekend to commit $19bn to a market stabilisation fund.
A day after Hanergy Thin Film shares plunged 47 per cent and were suspended, the two listed units of real estate developer Goldin Group are suffering their biggest losses on record.
Goldin Financial has lost 43 per cent of its value today, a fourth straight loss for the $15.8bn company.
Shares of Goldin Properties, a $5.6bn unit that specialises in China’s high-end property, are down 46.5 per cent, the biggest downward move on record following a 12 per cent loss on Wednesday.
The two units are the worst performers on the Hang Seng Index today.
Their parent, Goldin Group Investment, is run by chairman Pan Sutong. The Hong Kong-headquartered group is an international conglomerate operating in Hong Kong, China, the US and Europe. It operates in consumer electronics, real estate development, polo, wine and financial services, according to its website.
The company hasn’t made any announcement and there’s been no obvious catalyst for the sell-off.
Hong Kong Exchanges and Clearing has dumped the US’s CME Group from its long-held position of the world’s largest exchanges operator by market capitalisation after the huge 65 appreciation in the Asian group’s share price in the last month.
The move, on the back of a sharp rise in Hong Kong equities following a landmark decision allowing mainland Chinese investors to buy them, gives HKEx a market capitalisation of more than $44bn, Philip Stafford writes.
That dwarves the $31bn valuation of Chicago-based CME, whose position was due in large part to its dominance in products related to movements by the Federal Reserve, such as Treasury and eurodollar futures. By contrast fellow US stock exchange operator IntercontinentalExchange has a valuation of on $25bn. The London Stock Exchange Group is worth $13bn.
Trading on the Hong Kong market has spiked in the past week following a move by the Chinese authorities to give mutual funds access via the Stock Connect. Turnover topped $37bn last Thursday, more than the day’s trading in London, Paris and Frankfurt combined. That increase in activity has raised expectations for the performance of HKEx itself.
The Hang Seng index is now up 12 per cent since the start of the month, and closed above 28,000 points for the first time since 2007 on Monday. At that time in 2007, China’s GDP growth had hit 14.2 per cent. Data set for release on Wednesday is due to show GDP growth of 7 per cent for the fourth quarter of last year. A rally that was initially focused on Chinese non-bank financials has shown signs of broadening out. On Monday, traditional lenders were back in fashion, with China Merchants up by a quarter, and Bank of China adding almost 9 per cent.
China can once again boast that it is home to the best performing index in Asia-Pacific.
The Shanghai Composite rose 2.3 per cent on Tuesday, reclaiming a three-and-a-half year high exactly one week after its biggest one-session tumble in half a decade.
A week ago China’s benchmark index fell 5.4 per cent in a single day, but the recovery since – four gains in the past five sessions – has pushed the index up to 3,021, a new closing high since April 2011.
Since Oct 27 the index has now rallied by 32 per cent; year-to-date it’s up nearly 43 per cent. It remains 1.6 per cent below the intra-day peak a week ago, however.
The Hong Kong stock market has gotten off to a somewhat rocky New Year’s start, with the Hang Seng Index rising only slightly Tuesday morning after significant drops Friday and Monday.
Market expert Leung Bing Yiu at Corporate Brokers sees continued gloom.
Q: How do you expect the Hang Seng Index to move in 2014?
A: My view on the index’s performance this year is pessimistic. I forecast the index will drop to 14,800 to 9,200 at the end of 2014 through the beginning of 2015, down about 36-61% from 23,306 logged at the end of 2013.
Q: So how do you see the bullish market sentiment around the rest of the globe, especially considering that the Dow Jones industrial average is trading at an all-time-high level?
A: The Dow’s upward movement is highly likely to shift to the opposite direction this year. When the market is bullish, an uptrend is normally said to continue for 55-60 months. As of December, it had been nearly 60 months since March 9, 2009, when the Dow hit a low of 6,547. That means the index could start falling at any time, and the market become bearish.
It is confirmed. Following official data released over the weekend that Chinese factories did robust business in November, a private survey from HSBC has indicated similar good news.
HSBC’s China manufacturing purchasing managers’ index gave a reading of 50.8 for November, against economists’ forecasts of 50.4. Any reading above 50 on this closely watched gauge of economic activity indicates expansion.
Encouragingly, the new business component of the index ticked up to 51.7 points, from 51.5 in October. This showed factories have a healthy level of new orders.
And this followed from a similar government PMI survey which gave a higher-than-forecast reading of 51.4 for November.
Taken together, the two surveys suggest China’s leaders have managed to engineer an economic recovery despite the nation transitioning to slower growth.
Hong Kong stocks are cheering the news. The benchmark Hang Seng index has risen 0.8 per cent.
The positivity stemming from China’s reform blueprint caused an initial pop in share prices on Monday morning, and the gains have not subsided. Stocks have risen further and the optimism has now extended to India.
Hong Kong’s Hang Seng index is now up 2.2 per cent at 23532, its highest level since early February.
Chinese companies listed in Hong Kong are leading the way, as reflected in the 4.3 per cent gain in the Hang Seng China Enterprises Index. Within that, the health care sector is up 6.6 per cent.
The top stocks in the Hang Seng are Chinese brokerages Citic Securities – the nation’s biggest investment bank – and Haitong Securities. Each are up more than 10 per cent.
The Shanghai Composite has extended its gains, too, rising 1.4 per cent.
And in Mumbai, which opened for trading 45 minutes ago, the Sensex has climbed 1.4 per cent. That places it on track for a back-to-back gain after seven straight losses following a record-peak earlier this month.