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Tag: stock market

  • Miss Sixty parent plans IPO

    Miss Sixty parent plans IPO

    Miss Sixty parent in Asia, Chinese fashion house Trendy International Group, is planning a domestic initial public offering, probably by the end of next year.

    The Guangzhou-based company hopes to achieve a valuation of about US$5 billion before selling an undisclosed stake, insiders say. Trendy International will join other Chinese clothing retailers such as Modern Avenue Group, owner of the Canudilo brand, and Shanghai La Chapelle Fashion in funding expansion by selling shares.

    Altogether, 25 apparel companies have held IPOs in China and Hong Kong during the past three years, raising a combined $2.2 billion, according to Bloomberg.

    Investment firm L Capital Asia, backed by French luxury group LVMH, bought a minority stake, estimated at about 10 per cent, in Trendy International for nearly $200 million in 2011.

    Founded in 1999, Trendy International owns women’s brands Five Plus and Ochirly as well as male casualwear line Trendiano. It later acquired the Asian business of Miss Sixty, known for its skin-tight retro jeans, as well as the Energie and Killah denim brands.

    The fashion group has more than 3000 shops, and last year set up a joint venture with UK clothing chain SuperGroup to introduce its Superdry brand into China.

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  • Eagle Gates Group plans Asia expansion

    Eagle Gates Group plans Asia expansion

    Eagle Gates Group plans to further expand its Asian retail business in the next five years. Eddy McClough, chief executive officer at Eagle Gates Group, says the group will continue to look at retail opportunities in Asia, with possible plans to establish new offices in the region.

    Eagle Gates Group’s history spans almost a decade and through careful stewardship and intelligent investment, the group has expanded to become one of the leading financial services groups across America and Europe.

    Eddy is positive about the outlook for the Asian market.

    “I see tremendous growth opportunities in the Asia Pacific region, especially the likes of China and Thailand. A number of partnership discussions are already underway. The foray into the Asian market reflects our commitment to growing the global footprint of Eagle Gates Group and gives us access to such an important investment market,” he said.

    Eagle Gates Group provides exchange traded funds and other products investing in indices, infrastructure and real estate. Eagle Gates Group also serves institutional investors who need to invest insurance or pension funds.

    In Asia, Eagle Gates Group has a Tokyo office which has been operational since 2013 but Eddy admitted its Asia business should be bigger.

    “The business in Asia Pacific now represents only single digits of our global business asset size. We are targeting a double digit in the next five years. Asia has a young population and a growing segment of wealthy individuals which would support future growth for the asset management industry,” he said.

    SOURCE Eagle Gates Group

  • Bursa Malaysia expected to trade higher next week

    Bursa Malaysia is likely to trend higher next week on improved sentiment including Bank Negara’s overnight policy rate (OPR) cut, rebound in oil prices, global bank stimulus and a stronger currency.

    Affin Hwang Investment Bank Vice-President and Retail Research Head, Datuk Dr Nazri Khan Adam Khan said the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) was ready to stage further upside if the ringgit and commodities continued to strengthen.

    He said the local bourse should be catalysed by Bank Negara’s unexpected move to reduce the OPR to 3.00% from 3.25%.

    “The index should be bullish with the rate cut although the broad market is slow to react.

    “We see the OPR cut as a pre-emptive move to ensure that inflation remains under control and the economy remains on a steady growth path,” he told Bernama.

    This was confirmed by the Malaysian bonds three-year yield which dropped to its lowest level since 2009 and a stronger ringgit which hit a 10-week high against the US dollar this week, he added.

    He said technically, the FBM KLCI had broken out from its consolidation zone and was still looking to test its immediate resistance level at 1,680.

    “Overall, given the buoyant mood coming from global markets as well as positive catalysts in the domestic front, we reckon that the FBM KLCI could be poised to trend upwards this week to break out from its consolidation zone,” said Nazri Khan.

    He said the upside resistance and downside support are now spotted at 1,700/1,680 and 1,650/1,630 levels, respectively.

    On Friday-to-Friday basis, the FBM KLCI rose 23.86 points to 1,668.40 from 1,644.54 recorded last week.

    The FBM Emas Index improved 190.22 points to 11,657.87, the FBMT 100 Index rose 184.2 points to 11,360.08 and the FBM Emas Syariah Index was 208.9 points higher at 12,228.11.

    On a sectoral basis, the Finance Index fell 22.19 points to 14,252.12, the Industrial Index increased 46.35 points to 3,140.55 and the Plantation Index improved 13.94 points to 7,531.31.

    Weekly turnover increased to 8.18 billion units worth RM9.37 billion from 2.87 billion units worth RM3.37 billion last week.

    Main market volume rose to 5.44 billion shares worth RM8.84 billion from 1.95 billion shares valued at RM3.21 billion previously.

    Warrant turnover swelled to 1.22 billion units valued at RM197.75 million from 446.69 million units worth RM75.04 million last week.

    The ACE market increased to 1.49 billion shares worth RM320.29 million from 471.92 million shares valued at RM89.36 million previously.

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  • Korea to Develop Quick-time Consumption Index

    Korea to Develop Quick-time Consumption Index

    Statistics Korea revealed Tuesday that it’s developing what it calls a ‘quick-time consumption index’ based on civilian credit card approval information provided by the Credit Finance Association (CFA).

    The new index will use big data related to credit card approval information from eight domestic credit card companies, and is expected to launch in October.

    The CFA-provided information consists of approved credit card transactions categorized by date, 17 cities and provinces, and 178 business categories. To further broaden the index, Statistics Korea will also use additional credit card approval information from more specific types of businesses such as department stores and supermarkets.

    Statistics Korea expects the new index to allow for quicker observation of the ‘production index for the service industry’ and ‘retail sales index’, with an improvement of approximately three weeks, which in turn will permit quicker responses to economic changes.

    “The total approved credit card transactions take up 76 percent of all consumption and sales, which will make this new index quite reliable,” said an official from Statistics Korea.

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  • Is There a Tech Bubble in China?

    Is There a Tech Bubble in China?

    Wealthy Chinese investors are in a bind. All the usual, typically safe investment vehicles—commodities, stocks, even stable real estate—have been anything but usual or safe over the last couple months. The Chinese economy has slowed and inflation has picked up, the yuan has been under pressure, oil has tanked, and gold markets have been rattled. Real-estate markets in previously inviolable zip codes like Manhattan, a longtime sure bet for foreign investors looking to park their money in the stability of multi-million-dollar apartments, have started to sway.

    With the new reality of so much risk and little hope for returns in these markets, Chinese investors are pushing their money toward technology start-ups, according to Reuters. Investments in these companies more than doubled last year, according to CB Insights research, leaping to $32.2 billion. So far this year, venture-capital investments have already climbed to $4.7 billion. That stands in stark contrast to the Shanghai Composite Index, which is down nearly 20 percent in 2016. Established-enough Chinese start-ups like the ride-hailing Uber competitor Didi Kuaidi have benefited the most. The company saw its valuation jump 25 percent to about $20 billion—dwarfing its American competitors.

    We’ve watched this movie before in the U.S. As investors got tired of waiting to wade back into the muck of traditional markets in the wake of the financial crisis, they looked for new places to strike gold. They set their sights out West, to Silicon Valley, pouring their money into small start-ups with huge funding rounds, hoping for a payday. The result was the birth of dozens of new billion-dollar companies. On a hope, a prayer, and the blood, sweat, and tears of many a millennial, these unicorns hung on and continued to raise money. But now, the chickens are coming home to roost.

    Last month, Fidelity marked down investments in 19 start-ups, including onetime Silicon Valley standouts Dropbox and Zenefits (the markdown, however, seems like the least of Zenefits’s worries). Millennial darling Snapchat got similar treatment from Fidelity last fall. Others, like Jawbone, and again, Zenefits, have laid off workers. Funding has started to dry up, yet even those able to raise capital are struggling. Oscar, the health-care app pegged to Obamacare exchanges, closed a round last month that boosted its valuation to $2.7 billion. But on Tuesday, the company reported that it was bleeding money, losing more than $100 million in 2015.

    American investors thought they were trading risky investments for the kinds of returns they could only dream of, but it appears the risk in their their start-up bets were just as great. Now, as Chinese investors make similar calculations, they may face a similar fate.

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  • Alibaba Beats, Changyou Beats on Earnings

    Alibaba Beats, Changyou Beats on Earnings

    Markets experienced another volatile week, gaining and losing on alternate days ahead of the Lunar New Year holidays next week. The Shanghai Composite Index declined on Monday after the official purchasing managers index suffered its sixth consecutive monthly fall. The benchmark index increased on Tuesday, moving up 2.3% after the People’s Bank of China moved to raise liquidity in the financial system.

    The Shanghai Composite Index moved lower on Wednesday as investors turned cautious and oil prices declined heavily. The benchmark index increased 1.5% on Thursday closing at its highest level since Jan 25.

    Alibaba Group Holding Ltd. reported third-quarter fiscal 2016 (ended Dec 30, 2015) earnings of 73 cents per share, which exceeded the Zacks Consensus Estimate of 70 cents. Changyou.com Ltd. reported adjusted fourth-quarter 2015 earnings of 73 cents per share, which exceeded the Zacks Consensus Estimate of 54 cents.

    Last Week’s Developments

    Last Friday, the Shanghai Composite Index surged 3.1%, reducing its monthly loss to 23%. Despite the day’s gains, the decline for the month was the worst since Oct 2008. Stocks moved up for the first time in four days following speculation that the worst selloff in over a month was excessive in nature. Industrial and financial stocks led gains.

    Additionally, China’s central bank announced it will undertake open market operations on every working day around the Lunar New Year holiday. The number of these operations will be increased from their normal biweekly pace to increase liquidity in the banking system ahead of the holiday. This statement also boosted stocks.

    The CSI 300 added 3.2%. A gauge of brokerages and banks increased 3.2%. A measure of industrial shares increased 3.6%, the highest among the 10 industrial sectors. The Hang Seng increased for a third day, moving up 2.5%. The Hang Seng China Enterprises Index increased 2.7%. The H-share index increased after the Bank of Japan lowered interest rates into the negative zone in order to stimulate its flagging economy.

    Markets and the Economy This Week

    The Shanghai Composite Index declined 1.8% on Monday, increasing January’s selloff. The official purchasing managers index declined to 49.4, the sixth consecutive monthly fall. This is the lowest level experienced in three years. Additionally, the country’s most established companies issued warnings about a fall in earnings.

    Among other economic reports, official non-manufacturing PMI fell from 54.4 in December to 53.5 in January. In contrast, Caixin China Manufacturing PMI increased from 48.2 to 48.4 in January.

    The CSI 300 declined 1.5%. A sub index of energy stocks declined 2.8%, emerging as the largest decliner among the 10 industry groups. PetroChina Co. lktglost 2.8% after stating that falling crude and gas prices would hurt full year earnings.  The Hang Seng declined for the first time in four days, falling 0.5%. The Hang Seng China Enterprises Index moved down 1.2%.

    The benchmark index increased on Tuesday, moving up 2.3% after the People’s Bank of China moved to raise liquidity in the financial system. The central bank injected 100 billion yuan ($15 billion) into the country’s banks via reverse repurchase agreements ahead of the new year holidays.

    Tech and industrial stocks led gains. A measure of tech stocks rose to its highest level in seven days. The CSI 300 advanced 2.1%. All of its sub-indexes increased while measures of tech and industrial stocks increased by a minimum of 2.7%.  The Hang Seng declined 0.8% The Hang Seng China Enterprises Index moved down 1.1%.

    The Shanghai Composite Index lost 0.4% on Wednesday as investors turned cautious and oil prices declined heavily. A measure of energy stocks declined 1.6% as oil prices moved to around $30 a barrel following the steepest two day decline in seven years. PetroChina declined by 1.4% in Shanghai and lost 4.2% in Hong Kong.

    Positive economic data provided little comfort to investors. The Caixin China Services PMI increased to 52.4 in January from 50.2 in December. This was the highest level witnessed since July. A measure of energy stocks declined 1.6% due to the drop in oil prices.

    A sub-index of property stocks increased 0.4% on the Shanghai exchange. This was primarily due to the central bank’s decision to reduce down payments on mortgages for first time home buyers. The CSI 300 declined 0.4%. The Hang Seng fell for a third successive day, declining 2.3%. The Hang Seng China Enterprises Index sank, losing 2.5 percent, to its lowest point in more than a year.

    The benchmark index increased 1.5% on Thursday closing at its highest level since Jan 25. Commodity stocks surged and the People’s Bank of China intensified its efforts to reduce shortage of cash before markets close for the new year holidays. A gauge of energy stocks moved up from record low levels following the longest rally in crude futures in nearly two weeks.

    The central bank pumped 80 billion yuan ($12 billion) into the monetary system utilizing reverse repurchase agreements lasting 14 days. This open market operation is part of the monetary authority’s efforts to control rising borrowing costs even as capital outflows and demand for funds rise.  Meanwhile the People’s Bank of China increased yuan fixing by the highest extent in two months.

    The CSI 300 added 1.2%. A sub-index of material stocks within the CSI 300 gained 2.8%, the highest among its industry groups. PetroChina gained 0.6% during the session. The Hang Seng China Enterprises Index rebounded, moving up 1.5%.

    Stocks in the News

    Alibaba Group Holding Limited reported third-quarter fiscal 2016 (ended Dec 30, 2015) earnings of 73 cents per share, which exceeded the Zacks Consensus Estimate of 70 cents. The adjusted figure excludes one-time items but includes stock-based compensation expense.

    Alibaba reported revenues of RMB34.54 billion (US$5.3 billion), up 55.8% sequentially and 31.9% year over year, driven by strong mobile revenues. Also, revenues surpassed the Zacks Consensus Estimate of $5.08 billion.

    Total China retail marketplaces GMV came in at RMB964.0 billion (US$149.0 billion), up 23% year over year. China retail marketplaces had 407 million annual active buyers in the 12-month period ended Dec 31, 2015, representing a 22% year-over-year growth.

    Mobile GMV was RMB651.0 billion (US$101.0 billion), a 99% year-over-year surge. Mobile GMV accounted for 68% of total China retail marketplaces GMV as against 62% last quarter and 42% in the previous year. Mobile MAUs grew to 393 million, improving 48% year over year, driven by increased promotion of mobile apps.

    Changyou.com Ltd. reported adjusted fourth-quarter 2015 earnings of 73 cents per share, which exceeded the Zacks Consensus Estimate of 54 cents. This was also a significant improvement over earnings of 21 cents per share reported in the same period last year. However, this was lower than the adjusted earnings of $1.55 cents reported in the third quarter of 2015.

    Changyou.com reported revenues of $162 million, down 14% from third quarter 2015. Additionally, revenues declined 25% compared to the same period last year. Revenues from online games came in at $127 million, falling 31% on a year-over-year basis.

    For fiscal year 2015, Changyou.com reported revenues of $762 million, an improvement over 2014’s figure of $755 million. Revenues from online games came in at $637 million, declining from $652 million reported in 2014. .

    TAL Education Group reported adjusted third-quarter 2015 earnings of 12 cents per share, in line with the Zacks Consensus Estimate. This is marginally lower than the 13 cents reported in the year-ago period. However, this is significantly lower than the adjusted earnings of 72 cents reported in the second quarter of 2015.

    TAL Education Group reported revenues of $142.2 million, representing a 43.1% increase over the same period last year. However, revenues declined significantly from the $173 million reported in second quarter 2015.

    For the nine months ended Nov 2015, TAL Education reported revenues of $ 444.9 million, which represents a 43.2% improvement on a yearly basis. During this period, total student enrollments increased by 53.4% on a yearly basis.

    JD.com, Inc. has inked an agreement with DHL per which they will collaborate across a number of cross border supply chain activities. These initiatives will utilize each company’s unique capabilities, of ecommerce and logistics and widen their existing relationship.

    Earlier, in July last year the two companies had revealed that DHL was becoming the preferred logistics service provider for delivery of certain orders made on the Chinese ecommerce giant’s U.S. Mall. The agreement related to deliveries would pertain to those products delivered to China as well as across that country.

    DHL will be the preferred logistics provider for JD.com’s International Business Group per the terms of the new agreement. This unit concentrates on consumers placing orders from outside China. Further, JD.com will now be a strategic customer per the Fast Growing Enterprises initiative of DHL. This will provide the ecommerce company access to a number of logistics solutions from all of DHL’s business units.

    CNOOC Ltd. said it has started production at two offshore projects. These are the Weizhou 12-2 oilfield joint development project and the Weizhou 11-4 North oilfield Phase II project. Both of these projects are located in South China Sea’s Beibu Gulf Basin.

    With an average water depth of around 36 meters, the Weizhou 12-2 project has three oilfields. Production facilities include three wellhead platforms, including 18 wells on all of which production has started. Total production has touched a daily rate of 16,000 barrels, achieving the peak production of its overall developing plan.

    The Weizhou 11-4 North Project’s average water depth is around 40 meters. It has two wellhead platforms and 15 producing wells. At present, one well is producing oil at a daily rate of 500 barrels and is projected to touch peak production of 8,000 bpd by end 2016.

    Performance of Most Actively Traded US-Listed Chinese Stocks                              

    The table given below shows the price movements of 10 Chinese companies with the highest three-month average trading volume on U.S. exchanges. Price movements over the last five days and during the last six months have been included.

    Ticker Last 5 Day’s Performance 6-Month Performance
    BABA -9.2% -19.6%
    JD -7.2% -30%
    VIPS -6.4% -41.3%
    CTRP -5% +1.6%
    SFUN -5.3% -19.2%
    BIDU -5.5% -10.1%
    YOKU -0.1% +41.3%
    JMEI -8% -67.9%
    QIHU -0.8% +12.4%
    TSL +1.2% +4.6%

     

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  • Should We Worry About The Hong Kong Dollar?

    Should We Worry About The Hong Kong Dollar?

    Winter is coming to Hong Kong. The Hong Kong dollar breached its 2007 low today, down to as low as 7.8226, just haircuts away from the 7.85 level that would prompt the Hong Kong Monetary Authority to intervene.
    After China decoupled its loosely pegged yuan from the dollar last August, we Hong Kong residents are understandably worried Hong Kong may de-peg its currency as well.

    But really, rather than the Hong Kong dollar, we should worry about the Hong Kong economy instead.

    First of all, it is highly unlikely Hong Kong would want to rock the boat even though Hong Kong’s economy is more closely tied to China (and so should its monetary policy be). After all, this is the government that lets its citizens kidnapped across the border without consequences.

    Second, HKMA has enough gun power to defend its currency when it comes to it. Hong Kong’s foreign reserve is currently at $359 billion, which covers 1.75 times its monetary base. See my last week’s blog for Credit Suisse‘s commentary on the possibility of Hong Kong de-pegging.

    But what this means is that Hong Kong has to raise its interest rates to compensate for the Hong Kong dollar outflow, estimated to be around 300 billion Hong Kong dollars, or $38 billion. This certainly is not good news for the Hong Kong economy, especially when it is already in the downturn. In 2015, Hong Kong retail sales, a growth engine in recent years, is expected to slump over 5%, even worse than the SARs epidemic in 2003.

    Hong Kong investors are catching up to reality today, sending the Hang Seng Index down 3.1% a new 40-month low. No surprise, Hong Kong property developers tumbled today. Cheung Kong Property fell 5.6%, Wheelock dropped 4.8%, Wharf Holding was down 3.7%.

    Year-to-date, the iShares China Large-Cap ETF (FXI) fell 13.5%, the iShares MSCI China ETF (MCHI) fell 13.4%, the iShares MSCI Hong Kong ETF (EWH) was down 10%.

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  • Learn to build winning portfolio with new investment series

    Learn to build winning portfolio with new investment series

    Here’s your chance to learn how to build a winning portfolio amid the uncertain market.

    Over the next 12 months, The Sunday Times will feature a new series that will showcase and track the simulated portfolios of three types of retail investors. The year-long Save and Invest Portfolio Series campaign aims to encourage and equip investors with the knowledge to save for the future.

    The initiative will involve the Singapore Exchange (SGX) collaborating with CFA Society Singapore and MoneySense, the national financial education programme.

    Starting next Sunday, the series will feature simulated portfolios of a young working adult, a married couple with two young children and a retiree.

    Their portfolios are guided by a panel of four CFA charterholders who are volunteers with CFA Society Singapore and have 77 years of experience collectively as investment professionals.

    SMART INVESTING

    We are excited about this initiative that showcases real-life investment portfolios of people at different life stages that the average investor can relate to. This series is an extension of SGX’s commitment to educating and engaging our retail investors, and to arm them with skills and confidence.

    MS LYNN GASPAR, head of retail investors at SGX.

    The series aims to guide retail investors in basic investment techniques and how to build a portfolio in accordance with their investment goals and risk tolerance.

    The portfolios will be tracked over 12 months. Different types of investment instruments and choices, including relatively new ones such as the Singapore Savings Bonds, will be introduced.

    Mr Lee Boon Ngiap, Monetary Authority of Singapore’s assistant managing director of capital markets, says it is essential to save and invest for the long term to grow our retirement nest egg.

    He says: “In investing, one should consider one’s goals, investment objectives, existing commitments and risk appetite.

    “We encourage the public to visit the MoneySense website and Facebook page which regularly feature informative guides and useful articles on investing.”

    He adds that the Save and Invest Portfolio Series will help enhance financial knowledge and complement MoneySense in empowering investors to make better-informed decisions.

    Ms Lynn Gaspar, head of retail investors at SGX, says: “We are excited about this initiative that showcases real-life investment portfolios of people at different life stages that the average investor can relate to. This series is an extension of SGX’s commitment to educating and engaging our retail investors, and to arm them with skills and confidence.”

    She adds: “We hope this will set the momentum for more investors to start or progress in their investing journey.”

    The SGX Academy and CFA Society Singapore will jointly host six public seminars that are aligned with themes featured in the series.

    These seminars will allow retail investors to meet SGX Academy trainers and CFA Society professionals.

    Ms Jan Richards, president of CFA Society Singapore, says one of the most fundamental and effective ways to protect investors is to equip them with the knowledge and tools to make informed decisions.

    “This has become ever more imperative as global markets remain uncertain and the investment environment challenging,” she adds.

    “We hope that the Save and Invest Portfolio Series can introduce The Sunday Times readers to a more disciplined way of investing, inspire them to learn more and eventually help them grow their hard-earned savings into a comfortable nest egg.”

    Business editor Lee Su Shyan believes readers will get an in-depth look into how different investing decisions play out in real life. She says: “We at Sunday Times Invest feel very strongly about financial literacy and this series will enhance retail investors’ understanding of investing.

    “Readers are welcome to write in with their views and suggestions to Invest editor Lorna Tan.”

    Watch this space.

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  • What’s Driving China’s Stock Market Selloff?

    What’s Driving China’s Stock Market Selloff?

    Just as they did when Chinese stocks swooned in July, global investors appear to be learning the right lessons about China for all the wrong reasons. Investors who can see through the haze and confusion can keep picking up bargains in undervalued markets like Indonesia.

    First and foremost, the latest stock-market turmoil does not mean that China’s economy is in a meltdown. Yes, China’s economy is still slowing as investment retreats and exports decline. Spending by China’s emerging middle class remains a bright spot. But the service sector’s growth isn’t powerful enough to counteract the slowdown in China’s industrial sector. Most predictions are for growth of roughly 6.4% this year, slightly below the government’s 6.5% target.

    What’s driving the selloff? Not global investors jittery about China’s growth prospects. China’s markets remain highly restricted to foreigners, who represent a tiny fraction of trading. On the contrary, trading in China is dominated by domestic, retail investors. This makes the market relatively volatile. Retail investors everywhere tend to trade more frequently are more prone to herd behavior. Many in China fled the market after last summer’s turmoil, which has left the market in the hands of an even smaller group of jittery, retail punters.

    That’s why China’s new circuit breakers turned out to be such a bad idea. Intended to halt panics so cooler heads could prevail, the trading curbs proved too narrow for a market as volatile as China’s. In the U.S., a much less volatile market, trading pauses for 15 minutes if the S&P500 drops 7% or more and halts for the day only if the index falls 20%. China’s circuit breaker imposed a 15-minute halt after a 5% drop and halted trading if its CSI300 index fell 7%, a fluctuation all too common last year. So as stocks started falling, retail investors nervous they might be frozen into positions if the circuit breakers tripped joined the stampede to sell. The circuit breakers thus heightened volatility. Realizing this, regulators scotched the breakers Thursday night.

    Most of these domestic, retail investors in the stock market aren’t middle-class consumers. They’re relatively affluent individuals who invest a conservative portion of their net worth in stocks. Volatility in China’s stock market therefore poses little threat to the overall wealth of China’s middle class and its ability to spend.

    So what caused these wealthy punters to take flight? Because China’s economy is so tightly controlled by the government, and the stock market so dominated by big government-controlled companies, investors in Shanghai have long looked to signals on policy, rather than corporate profits, to drive markets. Beijing’s intervention in the stock market last summer has only reinforced this logic. So signals over the weekend that President Xi Jinping might favor painful economic reform over feel-good stimulus measures touched off this week’s selling.

    Does that mean we shouldn’t be worried? Absolutely not. While China’s slowdown by itself isn’t enough to derail global growth, it won’t help. As times get tougher, growing labor unrest is a worrisome red flag. And the more growth slows, the more difficult it will be for China Inc. to service a mountain of corporate and local government debt that by some estimates has swelled to 250% of GDP. China is inching closer to a possible credit crisis.

    That’s particularly true now that China has removed its gloves to join the global currency war already underway between Japan and Europe. It fired a shot across the bow in August with a one-time depreciation of its currency, the yuan. Then in December, the People’s Bank of China started marking the yuan down with the currencies of China’s major trading partners.

    Some economists believe most of that revaluation lower is complete. Not likely. Central banks in Europe and Japan, which are using weaker currencies to try to revive growth, will now likely need to push their own currencies lower still, which will prompt China to nudge the yuan lower with them. That creates a vicious circle of depreciation.

    Worse, China’s decision to move the yuan lower appears to be accelerating what was already a torrent of outflows by Chinese savers eager to get their cash out of the way of the slowing economy and a widening crackdown on corruption. China is trying to discourage the outflows by cracking down on foreign-exchange transactions and even trying to influence rates for yuan offshore. But the vacuum of funds out of banks is pushing up the cost of credit, forcing the PBoC to print yet more yuan to inject into the banking system – a measure that stands to weaken the yuan even further. And Jefferies warns that liquidity is likely to tighten even more ahead of the Lunar New Year holidays a month from now.

    A weaker yuan will ultimately be good for China’s exporters and stocks. But because it inflates China’s economy by exporting deflation, the cheaper yuan is bad for economies that rely on exporting to China, like Australia, or that are using a weaker currency to try to inflate their own growth, like Japan.

    Not surprisingly, stocks in Australia and Japan suffered the biggest declines in Asia outside China this week, falling 5.8% and 5.4%, respectively. Also hit hard was South Korea, which has one of the region’s highest exposures to China’s import demand. Stocks there have dropped 2.8%.

    But the turmoil doesn’t alter the overall outlook for regional markets this column laid out earlier this week. Because it’s most likely to enjoy government support, China’s stock market is still likely to outperform its neighbors’. And stocks in a handful of Asian markets still stand to exceed investors’ rock-bottom expectations. This week’s declines have made stocks in Jakarta, for example, even more attractive.

    Comments? E-mail us at wayne.arnold@barrons.com

    Comments? E-mail us at asia.editors@barrons.com

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  • China’s stock market like a casino, only riskier

    China’s stock market like a casino, only riskier

    The one thing to remember about the Chinese stock market is that it operates so differently from U.S. and European markets. First off, the China market is dominated by retail investors, who treat it very much like a casino. Look at this chart:

    There are more than 200 million trading accounts in China. That’s the same size as America’s adult population. And that’s one of the main reasons we’re seeing so much volatility. FIS Group in a recent report said that more than 90 percent of capital accounts are owned by retail investors, suggesting the wild moves in Chinese stocks is primarily driven by “their market structure” and “trade momentum.”

    Even though we’ve seen huge drops in the last week, let’s not forget how massive the spikes up have been in the past 10 years. Chinese stock market volatility makes the S&P 500 look almost like a flat line.

    Another way to see it: the difference between small and large caps.

    Of course small caps anywhere tend to move more than large caps — but in China, that difference is bigger, especially in the past months.

    Remember, many Chinese large-cap stocks are primarily state-owned enterprises, so retail traders generally look toward smaller companies to make their quick bucks.

    Wu Jinglian, a veteran economist, has said comparing Chinese markets to a casino is actually unfair — to the casinos. He said that at least the casinos have stronger rules, and don’t have price manipulation.

    That’s why when bad news in the economy happens, a spooked and scared set of retail traders will be much quicker to bail versus the more professionally dominated U.S. market.

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  • China imposes fresh stock-sale restrictions

    China imposes fresh stock-sale restrictions

    China’s securities regulator will suspend its newly implemented circuit-breaker mechanism designed to tame market volatility after it exacerbated stock sell-offs and shut down equity trading early twice in one week.

    The China Securities Regulatory Commission announced late on Thursday night that the circuit-breaker system would be halted from Friday, only four days after introduction, without saying how long the suspension will last.

    “It didn’t work out as expected… Currently the negative effect is bigger than the positive one. Therefore, we have decided to suspend it in order to maintain market stability,” the CSRC said in a statement posted on its Weibo account.

    The regulator implemented the mechanism on Monday, hoping to offer a “cooling period” when there are sharp fluctuations in the market and therefore stamp out the wild swings.

    A move of 5% in either direction on the CSI 300 Index, China’s blue-chip tracker, triggered a 15-minute trading halt for stocks, convertible bonds, stock options and futures contracts. A swing of 7% froze trading for the rest of the day.

    Previously, individual Chinese stocks were only allowed to rise or sink by a maximum 10% per day.

    Circuit-breaker controversy

    However, the new mechanism appears to have amplified the panic among investors and prompted new waves of selling in response to sluggish economic data and renminbi weakening, according to some market players and equity analysts.

    Hong Hao, chief China strategist at Bank of Communications in Hong Kong, said circuit-breakers could easily pose threats to market liquidity and investor sentiment.

    “Clearly the tight stops of 5% and 7% of China’s circuit breaker have a magnet effect as prices gravitate towards the breaker [striking points] and prompt a stampede that drains market liquidity,” he said.

    The circuit-breaker system halted trading early on Thursday for the second time in a week, following its first use on Monday. The close of a 14-minute trading session in Shanghai and Shenzhen on Thursday morning also marked the shortest in the country’s history.

    “There are huge risks to introduce it in China now as irrational, retail investors are not really for it. When they see the market fall by 3%, they will only want to sell rather than buy. Then it could soon trigger the trading halt. Then there’s no liquidity,” one Hong Kong-based senior investment banker at a Wall Street bank told FinanceAsia.

    Fresh stock-sale restrictions

    Earlier on Thursday, the CSRC also introduced fresh restrictions on stock sales. It announced new rules to prohibit large shareholders and company directors or managers with stakes of more than 5% from selling more than 1% of their outstanding shares every three months.

    In a separate statement, the CSRC said the new rules would help to “defuse panic sentiment” among investors and would not lead to a new peak of stock selling. “There’s no basis to say they will lead to sharp falls in the market.”

    The new rules, which will come into effect on January 9, require stock sales to be conducted through a centralised auction system and major shareholders to disclose equity-disposal plans 15 days in advance.

    “The 15-day heads-up could more or less dilute the impact on the market – as retail investors know which company’s major holders plan to sell shares. Retail investors can exit their positions first,” said one Beijing-based fund manager at Citic Securities.

    The new measures, which will apply to significant stakes held when a company listed, replace an existing ban set to expire on Friday.

    Beijing in early July imposed a six-month curb on stock selling by major shareholders as part of a raft of controversial measures introduced in the summer to prop up sagging markets.

    China’s stock market, dominated by retail investors, has been one of the most volatile in the world over the last 18 months, with the Shanghai Composite index advancing by as much as 150% in a year-long rally running through mid-June, before plunging 43% by late August. It recovered somewhat in the subsequent months, and plunged again into 2016.

    Hong at Bank of Communications told FinanceAsia earlier on Thursday that the new restrictions alone would be “useless to stem the market plunge as the top priority now is either to abolish the circuit breaker mechanism or improve it.”

    Some of China’s retail investors have tried to use humour on social media platforms like Wechat and Weibo to deal with the new circumstances.

    One wag said the new circuit breakers were like having a girlfriend with a bad temper: “If she’s angry with you and you fail to cheer her up in 15 minutes, she won’t be talking to you for the rest of the day.”

     

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  • China’s stock market is a clown show

    China’s stock market is a clown show

    Just as “bad cases make bad law,” to cite the ancient legal adage, bad stock markets make for bad investment decisions. China’s stock market, with its repeated crashes, has the entire world in a tizzy.

    The Shanghai stock exchange experienced its shortest trading day ever on Wednesday, as circuit breakers designed to end trading if the market slid 7% kicked in after only 14 minutes of active trading. As reported, the Shanghai Composite has dropped about 12% this year, and the Shenzhen composite has fallen more than 15%.

    Investors in the U.S. have taken the opportunity to sell. As of Thursday’s close, the Standard & Poor’s 500 index is down 4.67% from the opening bell for 2016 trading Monday, theNasdaq has lost 4.29%, and the Dow Jones Industrials have shed 5.12%. European stocks have marched over the cliff in tandem.in the U.S. took the opportunity to sell. As of Thursday’s close, the Standard & Poor’s 500 index is down 4.67% from the opening bell for 2016 trading Monday, the Nasdaq has lost 4.29%, and the Dow Jones Industrials have shed 5.12%. European stocks have marched over the cliff in tandem.

    The world should take a deep breath. The China stock market meets the definition of a bad stock market.

    The market is the target of relentless intervention by the Chinese government, which has been setting investment rules and tweaking them without any evident understanding of how open markets work. Adding to the chaos, the market was inflated by an inflow of small investors buying on huge margins — a notoriously skittish class of investors buying under conditions that made them especially vulnerable to the market’s volatile swings.

    Last April, as Evan Osnos of the New Yorker reported, the official organ of the Chinese Communist Party exhorted citizens to plunge into the market. An upsurge of more than 80% in four months was “merely the start of a bull market.” Investors should take heart from the government’s determination to keep Chinese companies strong.

    “Over the next two and a half months, investors opened thirty-eight million new stock accounts, more than quadruple the number of accounts opened in all of 2014,” Osnos wrote. “Retail exchanges, equipped with audience seating, attracted retirees and other small-time investors who spent hours scanning the digital displays, like visitors to the dog track.”

    This was a bubble primed for pricking. But that wasn’t all. On July 8, during a major market crash, Chinese regulators imposed a lockup on shareholders owning 5% or more of their companies, prohibiting them from selling for six months.

    The effect of lockups is well understood in mature stock markets; they tend to create latent bearish pressures as the expiration approaches. That expiration was due for Friday, Jan. 8, plainly creating some of the downdraft witnessed this week.

    The circuit breakers are another source of trouble. Introduced Jan. 4, the rules halt trading for 15 minutes after a 5% drop in the benchmark CSI 300 index, and stop trading for the rest of the day when the index falls 7%. They were triggered on day one, and again on Wednesday.

    Circuit breakers exist in U.S. markets, but critics say they’re cinched too tight in China, where 5% swings have been far more common. In the U.S., trading is shut down only if the Standard & Poor’s 500 benchmark falls 20% in a day.

    Adding to the confusion is that Chinese authorities lack the courage of their own convictions. On Wednesday, regulators tried to keep the bear caged by extending the stock lockup for three more months, albeit in modified form–big shareholders could sell, but only up to 1% of their companies’ shares. And following the circuit-breaker meltdowns of Monday and Wednesday, they scrapped the circuit-breakers themselves, a clear indication that they were not implemented properly in the first place.

    Among other signs of the immaturity of the markets and their regulators are stiff limits on short-selling–after a market crash this summer, the Shanghai and Shenzhen exchanges banned one-day short sales, in which traders place short orders and cover them on the same day. Mature exchanges understand that short selling is an indispensable relief valve for overheated bull markets.

    All these features, artifacts of the government’s inclination toward intervention in the stock market on the bull side, make the market an unreliable gauge of economic trends, many critics say. (Though they’re not unanimous — last February, economists at MIT and New York University argued that the market had matured to the point that it was providing reasonably accurate signals about future corporate earnings. “China’s stock market no longer deserves its reputation as a casino,” they wrote.)

    None of this means that there’s not cause to be concerned about the Chinese economy and its effect on world markets. Underlying the Chinese market plunge are signs that the world’s second-largest economy is slowing down, and that government economic officials aren’t fully up to the task of managing it.

    They’ve been frantically depreciating the Chinese yuan, which will put pressure on the nation’s trading partners by making Chinese exports more competitive and imports more expensive. The rapid depreciation sends a signal, moreover, that policymakers are getting to the end of their stimulative arsenal.

    Adding to uneasiness about government policy, no one has ever been entirely certain about the pace of China’s economic growth because its official figures are untrustworthy. Gross domestic product may have been overstated as much as three-fold, some observers believe.

    There’s no question that cracks in the Chinese economy are worrisome, but the wild swings of the stock market may be exaggerating the mood of panic. It makes sense for investors worldwide to keep their eye on the economy, but the stock exchanges? Just watch the ride.

     

  • European Stocks Fall on North Korea Bomb Test

    European Stocks Fall on North Korea Bomb Test

    European shares fell on Wednesday as a self-professed bout of nuclear testing by North Korea and a falling renminbi rattled investors.

    By late morning in London, the FTSE 100 was down 1.33% at 6,055.53. Mining stocks, as leaders BHP Billiton (BHP) and Rio Tinto (RIO) led the benchmark lower.

    In Frankfurt, the DAX was down 1.31% at 10,175.31 and in Paris the CAC 40 was down 1.36% at 4,475.91. Volkswagen (VLKAY)  extended Tuesday’s losses in Frankfurt amid fears of hefty legal costs in the U.S. over emissions-tests rigging.

    After the Chinese central bank set the renminbi reference point at a weaker-than-expected level, the currency fell to a five-year low against the dollar. Meanwhile, North Korea claimed to have tested an underground hydrogen bomb, although some international observers were skeptical.

    Final eurozone purchasing managers’ data from Markit Economics came in better than expected in December, with the composite index, which melds the service sector with factory output, unexpectedly rising to 54.3, taking it further above the 50 threshold which separates economic expansion from contraction. Initial December data had pointed to a reading of 54.0. However, weak European Union producer price data for November later took the sheen off those Markit figures.

    Construction and engineering company Costain was up almost 2% in London after it reported record orders worth £3.9 billion ($5.7 billion) in 2015, including £2.8 billion-worth of revenue that Costain will accrue in 2017 and beyond. It will release its full 2015 results on March 2.

    Retailer Topps Tiles was up about 1.3% after reporting same-store sales growth of 4.4% in its first quarter.

    Another retailer, Card Factory, was up 1.8% as it announced that Christmas trading had met its expectations. It said CEO Richard Hayes would retire and be replaced by Karen Hubbard, the chief operating officer of discounter B&M European Value Retail.

    Insurer NN (NNGPF) was up almost 3% at €32.10 in Amsterdam after ING cut its stake to 16.2% from 25.8%. ING sold the shares at €31 in an accelerated book build, raising €1 billion ($1.1 billion). NN itself bought 8 million of the 33 million shares on offer.

    Many Asian indices fell as the renminbi and emerging-market currencies retreated.

    In Seoul, stocks were mixed, with the main index closing up 0.47% at 687.27 after the North Korea H-bomb claim. But Chinese stocks recovered after a state media outlet reported that Chinese securities regulators would extend a six-month ban on share selling by major investors until permanent rules were put in place. The ban would otherwise have expired on Friday. The Shanghai Composite closed up 2.25% at 3,361.84 and the Shenzhen Component index gained 2.24% to close at 11,724.88.

    In Hong Kong, the Hang Seng closed down 0.98% at 20,980.81.

    Shares of New World China Land closed up almost 21% in Hong Kong at HK$7.49 per share after majority shareholder New World Development offered HK$7.80 per share to take the company private after a previous attempt failed to garner sufficient shareholder approval in June 2014. The new offer values the stock at HK$67.8 billion ($8.7 billion).

    In Tokyo, the Nikkei 225 closed down 0.99% at 18,191.32 and the Topix fell 1.05% to close at 1,488.84.

    In Sydney, the S&P/ASX 200 closed down 1.18% at 5,123.13.

  • China stocks plunge 7%, activate circuit breaker for the second time

    China stocks plunge 7%, activate circuit breaker for the second time

    Trading in China’s stock markets has been halted for the rest of the day, after a 7 per cent plunge in the blue-chip CSI300 index in the afternoon trading session triggered a circuit breaker mechanism which came into effect on Monday (Jan 4).

    Earlier in the session, trading in both the country’s equity indexes and equity index futures had been halted for a brief 15 minutes, following a 5 per cent decline in the benchmark index.

    The rapid activation of the second trading halt just after 1.30 pm local time indicated “a rise in market volatility” following the first trade suspension.

    “There was uncertainty in the markets. Investors were worried that maybe they might not be able to sell stocks after markets were halted,” Jackson Wong, associate director at Huarong international Securities, said in a telephone interview. “So when markets resumed trade, we saw an acceleration in selling.”

    The fact that retail investors account for nearly 70 per cent of China’s stock-market trading volume also contributed to the rapid selloff.

    “Retail investors are by nature more risk averse than institutional investors.. It isn’t hard to understand why markets legged down hard to the 7 per cent final breaker limit when markets reopened after the first circuit breaker was triggered and halted the market for 15 minutes, as this 15 minutes give a big window of opportunity for investors, mostly retail, to get new sell orders queued into the market,” Gavin Parry, managing director of Hong Kong-based Parry International Trading, said in an email interview.

    For most of Monday’s session, Chinese shares were on the back foot, following a dismal reading from the latest Caixin manufacturing purchasing mangers’ index (PMI) and ahead of the imminent expiration of a share sales ban on listed companies’ major shareholders, according to IG’s market strategist Bernard Aw.

    In addition, the move by authorities to cut the yuan’s value against the greenback on Monday, making it weaker than 6.5 for the first time in more than four-and-a-half years, added to the risk-off sentiment.

    The Shanghai Composite ended down 6.9 per cent, while the smaller Shenzhen Composite nosedived 8.2 per cent. In Hong Kong, the benchmark Hang Seng index was pulled down nearly 3 per cent.

    Mr Aw expects China’s stock markets to remain on a downward spiral on Tuesday. “I’m quite sure that there will be downward pressure tomorrow,” he said. “Circuit breakers only help to stall the pace of declines, but they do not stop the direction of movements.”

    For CMB International’s Strategist Daniel So, China’s A-shares will likely see downward pressure in early trading on Tuesday, but may “turn north by (the) market close” on the back of support from some investors who believe that now is “a good opportunity for bottom fishing amidst panic selling”.

    CIRCUIT BREAKER: BOON OR BANE?

    The idea of a circuit breaker mechanism was first raised by the Shanghai Stock Exchange last September and officially confirmed on Dec 4, 2015.

    Under the mechanism, a move of 5 per cent in either direction from the CSI300 index’s previous close will trigger a 15-minute trade suspension across the country’s stock indexes if the move occurs before 2.45 pm local time. After that, a 5 per cent move will prompt a trade suspension until the market closes at 3.00 pm.

    Moves of 7 per cent in the index will spark a trading halt for the rest of the day.

    The introduction of a circuit breaker seems to have sparked more unease among Chinese investors, despite its good intentions of limiting market volatility, according to Huarong’s Mr Wong.

    “Investors are just getting used to the new mechanism. After they get used to the idea, it may not be as bad,” the Hong Kong-based analyst said. “But to be honest, 5 to 7 per cent swings is very normal for China’s markets so while the stock market circuit breaker is introduced with good intentions, it might not be a good idea given the experiences of Chinese investors.”

    On the other hand, IG’s Mr Aw believes that investors should look beyond the short-term repercussions as the new mechanism will bring China’s markets more in line with international standards.

    The circuit breaker system will also “complement” the current 10 per cent daily limit rule which is usually limited to only “a handful of stocks”, he noted.

    Under current rules, individual stocks and index futures in China are allowed to rise or fall a daily maximum of 10 per cent from the previous closing level. Trading of a stock stops when it hits the daily maximum allowable limit.

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  • Kalyan Jewellers plans IPO

    Kalyan Jewellers plans IPO

    Indian retailer Kalyan Jewellers is planning an IPO to raise capital for expansion internationally.

    The company has plans for six stores in Qatar and an undisclosed number in Singapore, Malaysia and Sri Lanka.

    Chairman and MD T S Kalyanaraman has not revealed the timeframe for the IPO, but the move comes a year after high-profile private equity investor Warburg Pincus took a cornerstone stake in the business, effectively giving it an international scale credibility.

    Kalyan has 85 premium stores across India and in the Middle East and has a further 15 in planning. More significant is its second tier of concessions and ‘service centre’ stores branded ‘My Kalyan’ – a network currently numbering 650, with another 350 planned by March next year.

    “We had opened two [Kalyan] stores in Chennai – at Chromepet and Adayar – a couple of days ago,” said Kalyanaraman.

    “Going at this pace, we will be touching the 100-store mark towards the end of financial year 2016,” he said.

    Kalyanaraman sees huge potential in the ‘affordable diamond’ segment of the market, which it plans to service through the My Kalyan network.

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