Friday, July 31, 2015
Thursday, July 30, 2015
Chinese banks have been investigating their exposure to the stock market from wealth management products and loans collateralized with stocks, the China Securities Journal reported on Thursday, citing unidentified bank officials.
The report did not identify any banks by name, but said that many banks had been ordered by their headquarters to conduct the checks.
One bank executive told the newspaper that the lender's headquarters had launched the investigation in late June.
Banks have been a major source of funding in the grey market of margin financing - a network that also includes trust companies, asset managers and loosely regulated grassroots finance firms.
While the business has generated profits for lenders, the stock market tumble since mid-June may have put their money at risk.
At a mid-sized commercial bank, for example, business related to the stock market totaled 151.8 billion yuan at the end of June. As of July 3, more than 500 of the lender's stock-related products had touched early warning lines, according to the newspaper.
Banks have also started collecting detailed information regarding loans collateralized with stocks, including the type of shares that are being used as collateral, the collateral ratio, and measures taken when prices of those stocks slump, the article said.
Bank and other loans backed by listed shares officially jumped around 260 percent in May to 58.4 billion yuan ($9.4 billion) from a year earlier, representing about 4.8 percent of total social financing for the period.
(Reporting by Samuel Shen and Pete Sweeney; Editing by Neil Fullick)
Wednesday, July 29, 2015
Tuesday, July 28, 2015
Monday, July 27, 2015
Chinese shares tumbled more than 8 percent on Monday amid renewed fears about the outlook for the world's No. 2 economy, reviving the specter of a full-blown market crash that prompted unprecedented government intervention earlier this month.
Major indexes suffered their largest one-day drop since 2007, shattering a period of relative calm in China's volatile stock markets since Beijing unleashed a barrage of support measures to arrest a slump that began in mid-June.
The CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen plunged 8.6 percent, to 3,818.73, while the Shanghai Composite Index .SSEC lost 8.5 percent, to 3,725.56 points.
While the falls followed lackluster data on profit at Chinese industrial firms on Monday and a disappointing private factory sector survey on Friday, there was little to explain the scale of the sell-off.
Some analysts said fears that China may hold off from further loosening of monetary policy had contributed to souring investor sentiment.
"The recent rebound had been swift and strong, so there's need for a technical correction," said Yang Hai, strategist at Kaiyuan Securities.
He said the trigger was "a sluggish U.S. market amid stronger expectations of a Fed rate rise in the fourth quarter. That, coupled with China's rising pork prices, fuels concerns that China would refrain from loosening monetary policies further."
In late June and early July, Chinese authorities cut interest rates, suspended initial public offerings, relaxed margin-lending and collateral rules and enlisted brokerages to buy stocks, backed by central bank cash, to support share prices.
The battery of stabilization measures followed a peak-to-trough slump of more than 30 percent in China's benchmark indexes, which had more than doubled over the preceding year.
Chinese share markets had recovered around 15 percent since then, before Monday's renewed sell-off.
Stocks fell across the board on Monday, with 2,247 companies falling, leaving only 77 gainers.
Index heavyweights, including China Unicom (600050.SS), Bank of Communications (601328.SS) and PetroChina (600028.SS), slumped by their daily downward limit of 10 percent.
More than 1,500 shares listed in Shanghai and Shenzhen dived by the daily limit.
SHANGHAI | BY SAMUEL SHEN AND PETE SWEENEY
Friday, July 24, 2015
Thursday, July 23, 2015
China has enlisted $800 billion worth of public and private money to prop up its wobbly stock markets, a Reuters analysis shows, but the impact of the unprecedented government-orchestrated rescue has so far been modest.
Public statements, media reports and market data reveal that Beijing unleashed 5 trillion yuan ($805.2 billion) in funds - equivalent to nearly 10 percent of China's GDP in 2014 and greater than the 4 trillion yuan it committed in response to the global financial crisis - to calm a savage share sell-off.
But while the 2008 stimulus package staved off recession, analysts wonder what benefit the stock rescue package can bring to offset the risk the government is buying stocks at valuations private investors are no longer willing to pay.
"I'm quite negative towards the rescue," said Yang Weixiao, analyst at Founder Securities in Beijing.
"The problem is, all these measures only change the supply-demand relationship, without changing the fundamentals. So there's no real support, and the calm could be only temporary. If the governments exits the bailout, prices could accelerate their journey back to fundamentals."
Indeed, there are already some signs the government may be backing off from aggressive share purchases.
A plan to raise 100 billion yuan by China Securities Finance Corp (CSFC), the state-backed institution that provides margin financing, has been delayed, four sources familiar with the matter told Reuters on Monday.
On Thursday the CSFC admitted that it had reduced stakes in some listed companies to bring it below a regulatory threshold, but said it had transferred the shares, not sold them.
Respected private finance magazine Caijing also reported that the CSRC was considering withdrawing money from a stabilization fund, roiling markets before CSRC denied the story.
It's hard to tell how much state money has actually flowed into the market, given the opacity of some of the investing institutions.
But Beijing's policy goal is not to prop up values by buying the stock market outright, but rather to entice private money back to the market, surfing a wave of incoming government money.
"Presumably the whole point is to say that you are going to spend this money, and then by saying it you don't actually have to spend it," said Andrew Batson, an economist at Gavekal Dragonomics in Beijing.
The combined measures, rolled out in a flurry of announcements earlier this month, included a 120 billion yuan stabilization fund created by a core group of brokerages and 1.3 trillion worth of bank loans to state-backed margin finance companies.
Potential inflows created by tweaking investment rules for pension funds amount to 600 billion yuan, while allowing insurers to invest up to 40 percent of their assets in stocks could generate an estimated 2.9 trillion yuan. ((For a table of support measures, click)).
There have also been share buybacks announced by key stakeholders, and funds invested by the state-owned asset manager Central Huijin, plus a double-barreled burst of monetary policy stimulus by the central bank in late June that explicitly targeted stock market stabilization.
But the response has been lukewarm.
While the market stabilized, with the Shanghai Composite Index .SSEC recovering about 20 percent by Thursday's close from a low point around 3,300 points struck on July 8, it is still below the semi-official recovery target of 4,500 points.
Beijing has thus produced the equivalent of around 1 index point gain for every $1 billion committed.
And market stability remains untested given the large numbers of companies still subject to trading halts. Reuters calculations show that around 20 percent of listed companies in Shanghai and Shenzhen are not trading at present, down from around 40 percent before but still extremely high.
An analysis by Everbright Securities of fund flow data showed that while government flows into mutual funds targeted for government intervention rose sharply in recent weeks, private inflows into new stock funds have collapsed.
The other major problem with Beijing's strategy, Batson at Gavekal Dragonomics pointed out, is that many Chinese firms are still trading at stratospheric valuations.
Even after the early-summer meltdown that saw markets shed around a third of their value in a little more than three weeks, the Shanghai Composite Index .SSEC is still up nearly 100 percent from 12 months ago, with an average price-to-earnings ratio of 17.64 - higher than the Dow Jones Industrial average P/E of 16.12.
The average P/E on the Shenzhen stock exchange .SZSA is 47.23, while the small-cap ChiNext growth board .CHINEXTC is a heady 98.07.
"If valuations are mean-reverting over time, which a lot of people think they are, that means that valuations could go down in the future," said Batson. "Which means that whatever buying the government does today could end up imposing a longer-term financial cost."
Though Chinese major stock market indexes rose on Thursday, and are now set to gain for the third consecutive week, futures markets are still pricing at a discount to current values, betting that the CSI300 index will fall back to around 4,000 points by next March.
(Additional reporting by Samuel Shen; Editing by Alex Richardson)