Chinese Stock Market
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Connecting to investors' needs
Both its economic growth rate and currency stability can make China a useful hedge against the United States The beginning of this week saw the opening of stock trading connection between Hong Kong and Shenzhen, a stock market on the Chinese mainland that features most of the country's technology companies. Back in November 2014, the stock trading connection between Hong Kong and Shanghai, the largest stock market on the mainland, went into operation. The Shenzhen-Hong Kong connection is important first of all because it marks the completion of a system able to synchronize trading in the three main securities markets in the country and help Chinese investors access securities markets in other parts of the world. With more than $3 trillion (2.79 trillion euros; 2.373 trillion) in total market capitalization ($16 trillion for New York, by comparison) and robust trading - of which around half is by investors from the outside - Hong Kong is an important capital market in the world. Connecting to investors' needs The Chinese regulatory authorities are commendable for linking up the two domestic stock markets with a more open and mature market like Hong Kong to help reform the trading culture in the domestic markets in such a way as to be closer to international rules and norms. Furthermore, the timing for setting up the stock trading connection is also important - for investors to evade some risk in currency exchanges and also to avoid putting all their eggs into one basket, meaning the basket of the US dollar and US market. At the moment, as ample signs are suggesting a rally in the dollar (against all other major currencies) and a rally in American stocks - potentially benefiting from the tax cut and investment hike in public infrastructure that Donald Trump promised - it may be hard for investors in the world to resist the temptation for converting their money into the greenback. For some time now, China's foreign exchange reserve and its renminbi's price against the dollar have both been on the decline, because Chinese money has been used for overseas buyouts of assets in large volume. But the Chinese companies' overseas buying spree cannot be sustainable, judging from the trend emerging in the United States. Assets are becoming more expensive. Government is becoming restrictive. If the American rally continues, liquidity will have dried up a few months from now and investors will be forced to give up some of their interests. Many Chinese investors are already talking about the need to deleverage before it is too late. For them, foreign currencies, especially the dollar, will be more precious. But the renminbi won't become less significant simply because of its falling exchange rate against the dollar in recent months, because it is still relatively stable compared with other currencies' rate against the dollar. Both its economic growth rate and currency stability can make China a useful hedge against the United States, as Sun Mingchun, chairman and chief investment officer of Hong Kong-based Deepwater Capital, pointed out. In case of instability in America, either in the dollar or its stock market, investors may find China, especially its freer and more orderly market in Hong Kong, a worthy place to be - so long as China can maintain a basic balance in its own economic transition. At least in the foreseeable future, one can be almost certain that China's three stock markets combined can be a more attractive market than many other places. With Hong Kong's stock trading connections with Shanghai and Shenzhen, Chinese investors will not have to exchange all their money into dollars at this time of uncertainty but still chase the value in a dollar-denominated market - which is part of Hong Kong's uniqueness. This is because, first, the Hong Kong dollar is pegged to the US dollar in its exchange rate and the Hong Kong stock market is a highly international one. Second, the trading connections with the mainland don't require investors to exchange their money when they invest in Hong Kong. Given some time, the existing trading connections can easily expand their functionalities by facilitating trade in bonds and in international investment funds, thus making the entire Chinese financial system more open and more agile in correcting its excesses. The author is editor-at-large of China Daily. Contact the writer atedzhang@chinadaily.com.cn
Chinese selling homes to cover stock losses: local media
China's dramatic stock market collapse appears to be spilling over into the country's real estate market, where investors are rushing to sell their homes or abandoning plans to buy a new property as they nurse hefty losses on equities, local media reports. Several Shanghai-based real estate agents told the China Daily that more apartments and villas had appeared on the market as investors tried to recoup their losses by selling their properties. Cui Aijun, a real estate agent at Shanghai Junda Property Services said that four of his clients were urgently selling their homes after getting burnt in the stock market, the government-run newspaper reported on Friday. While stability appears to have returned to China's turbulent equity market in recent days, stocks have been on a wild ride. The Shanghai Composite has tumbled 25 percent in the past month, while the Shenzhen Composite has suffered even steeper losses, down bymore than 30 percent over the same period. "Some investors sold their stocks to buy properties in March and April. But now we see people selling properties after piling up losses in the stock market," Cui told China Daily. Read MoreThree charts explaining China's strange stock market Those looking for a quick sale typically offer their properties at a price that is 10 percent below the market average, the report said, citing a villa in Shanghai's upscale Pudong New Area, which is on the market for 17 million yuan ($2.74 million), a steep discount to the other homes in the neighborhood, which are asking for 19 million yuan . These developments come just as China's property market recovery begins to take hold. Average home prices rose 0.56 percent in June from a month earlier, according to the China Index Academy's survey of 100 cities, up from a 0.45 percent gain in May and the fastest growth since January 2014. The government stepped up support for the real estate sector in late March, unveiling measures aimed at encouraging home buyers into the market, including lowering minimum down payments for buyers of second homes and cutting to two years the length of time a seller must own home before selling in order to avoid paying a business tax. David Cui, head of China equity strategy at Bank of America-Merrill Lynch, believes the stock rout could have a prolonged impact on the real estate market. A big unknown is how much stock investors have borrowed from banks using property as collateral, he said. On July 5, China's securities regulator announced that property had become an acceptable form of collateral for margin traders.
Once Bitten, Twice Shy: Zhou Xiaochuan Didn’t Talk Up Stock Markets, PBOC Says
A year ago, Zhou Xiaochuan, the governor of China’s central bank, joined a chorus of official voices talking up the nation’s stock markets as a way to help the economy. Now, according to some domestic media reports, Mr. Zhou apparently did that again, in remarks at an economic forum over the weekend. Except that’s not correct, the People’s Bank of China said in a post on its official microblog on late Monday. The quick rebuttal marks the latest effort in a relatively recent campaign by the central bank to communicate better and more clearly with markets. In his remarks on Sunday, according to a transcript on the central bank’s web site, Mr. Zhou discussed the need to reduce corporate debt, which he said is “on the high side,” and a solution to that would be more mature capital markets. Better capital markets, he said, would be able to tap into the high level of household savings. Nowhere in his remarks did Mr. Zhou talk about encouraging more Chinese savings to go into the stock market, as reported by some domestic media outlets, the central bank said in the post. “This is another case of misinterpretation by the media,” the central bank said. Clear and timely communication is something the central bank is still trying to get right. Early last year, senior officials and some state media outlets joined forces to promote the markets, as they soared. The upbeat rhetoric then led individual investors to flock in droves to buy shares, often with borrowed money. When the markets collapsed, not only did investors get burned, Mr. Zhou and other top regulators and officials also went quiet, doing and saying little to instill confidence. Moves by the People’s Bank to devalue the yuan last year and early this year also caught international investors off guard, compounding worries about China’s economic health and adding to turmoil in global markets. This time around, maintaining stability has become a top priority for Chinese policy makers. Some other senior officials have also gone to great lengths to avoid being seen as touting the domestic markets. Early this month, at a press conference on the sidelines of China’s annual legislative meeting, the newly-appointed top securities regulator took issue with earlier domestic media reports portraying him as encouraging the public to buy shares and not to sell. “What I really said that day was, as chairman of the Securities Regulatory Commission, I’m not in the position to advise people on buying stocks or selling stocks,” Liu Shiyu said. Chinese shares ended down slightly Tuesday unhelped by the central bank’s clarification on Mr. Zhou’s remarks. At Sunday’s China Development Forum, Mr. Zhou also said China is targeting a “managed float” of the yuan, instead of a “free float,” suggesting the central bank will continue to intervene in the currency market. –Lingling Wei and Yifan Xie
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Examples
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