Markets notched up significant gains during a week of volatile trading even as the benchmark surged to record levels. Stocks declined on Monday due to record turnover following regulatory action aimed at reducing speculation based trading. The Shanghai Composite index rebounded on Tuesday, powered by small cap stocks.
Markets surged on Wednesday, following speculation that further monetary easing would take place to boost the economy. The benchmark index gained again on Thursday following a session of volatile trading caused by disappointing manufacturing data.
China Mobile Ltd. CHL, the largest wireless operator of China, reported mixed financial results in the first quarter of 2015. China Petroleum & Chemical Corp. SNP also known as Sinopec completed a $6.4 billion bond sale.
Last Week’s Developments
Last Friday, the Shanghai Composite advanced 2.2%, closing at its highest level since Mar 2008. Speculation that the government will take fresh measures to boost the economy, which seems to have hit a slowdown, encouraged investors. The benchmark index had surged 81% over a six month period at the point, the highest among the global indexes.
The CSI 300 moved up 1.8%, fuelled by gains from industrial and energy stocks, which jumped 4%. The Hang Seng China Enterprises Index declined 1.3% while the Hang Seng lost 0.3%.
The Shanghai Composite added 6.3% over last week, marking its sixth week of consecutive gains. China’s economy increased only 7% during the first quarter of 2015, the slowest in six year. Other data released last week was equally disappointing. This includes below par numbers on retail sales, fixed asset investment and industrial production, which increased by only 5.6% in March.
Markets and the Economy This Week
Stocks declined on Monday due to record turnover following regulatory action aimed at reducing speculation based trading. These developments were enough to negate optimism generated by the highest reduction in reserve requirements by the People’s Bank of China in seven years. However, the Shanghai property index gained 2.1% following the central bank’s move to cut reserve requirement ratio of lenders by 1%. Additionally, home prices declined in a lower number of cities in March.
But regulatory action aimed at deterring speculative trading dampened investor sentiment. China’s securities regulator unveiled measures to control the use of shadow financing to purchase stocks. In addition, the use of “umbrella trusts” by margin trading units of brokerages was banned. Meanwhile, fund managers have been allowed to lend shares for short selling.
As a result, the benchmark index declined 1.6%. The CSI 300 lost 1.6%. A sub-index of financials within the index declined 4.3%, the largest among the 10 industry groups. The H-share index slumped 2.9% while the Hang Seng lost 2%.
The Shanghai Composite index rebounded on Tuesday, gaining 1.8% by the close. Stocks gained even though analysts opined shares are overvalued. Additionally, the Xinhua News Agency warned that investors should not give in to “irrational exuberance.” Markets favored small cap stocks and the ChiNext jumped 5.8%. This was the small cap index’s largest increase in four years.
The CSI 300 moved up 2.2%. A sub-index of consumer staples stocks increased 5.4%, emerging as the largest gainer among the 10 industry groups. Only the gauge of industrials took a hit, losing 2.6%. The Hang Seng China Enterprises Index also staged a comeback, gaining 3%. The Hang Seng also increased, gaining 2.8%.
Markets surged on Wednesday following speculation that further monetary easing would take place to boost the economy. The Shanghai Composite gained 2.4% even as the People’s Daily commented that the benchmark index would continue to remain around the 4,000 mark. According to commentary on its online edition published on Tuesday, further reforms and the Silk Road plan would continue to support the economy.
The CSI 300 moved up 2.6%. Sub-indices of material, financial and utility stocks gained a minimum of 2.8%, emerging as the largest gainers among the industry groups. The H-share index increased again, gaining 1% while the Hang Seng advanced 0.3%. Each of the 10 companies which launched trading on Wednesday surged in excess of 30%.
The Shanghai Composite index gained 0.4% on Thursday following a session of volatile trading. The volatility index jumped to its highest level in five years after preliminary HSBC Markit PMI numbers came in at 49.2, well below most estimates. At the same time, weak data once again triggered speculation about the prospect of further monetary stimulus.
Manufacturing data for April declined to the lowest level in 12 years. This indicates that government efforts to arrest a slowdown have not yet met with success in the manufacturing sector. Numbers were also lower than the March reading of 49.6.
The CSI 300 ended the trading session nearly flat. Sub-indices of consumer-staples and financial stocks experienced the largest losses among the industry groups. The Hang Seng China Enterprises Index lost 1.3% and the Hang Seng declined 0.4%.
Stocks in the News
China Mobile Ltd., the largest wireless operator of China, reported mixed financial results in the first quarter of 2015. In spite of an increase in revenues, net earnings declined year over year. This also marked the seventh successive quarter of net profit decline.
Quarterly total revenue was approximately $25.9 billion, up 3.9% year over year. Net earnings were around $3.8 billion, down 5.6% year over year. Quarterly earnings before depreciation, amortization, interest and tax (EBITDA) were $9.5 billion, reflecting a rise of 2.8% year over year.
As of Mar 31, 2015, China Mobile had a total of 815.38 million subscribers. The company added approximately 53 million 4G subscribers in the reported quarter. In the reported quarter, average revenue per user per month was $9.50 compared with $10 in the prior-year quarter.
China Petroleum & Chemical Corp. also known as Sinopec has completed a $6.4 billion bond sale which comprises multiple tranches. This is the third-largest Asian bond sale ever at extremely low borrowing costs for an Asian company. This is primarily due to the fact that the issue has received considerable interest from European investors.
According to data from Dealogic, the only bond issues larger than Sinopec’s are the $8 billion bond sale made by Alibaba Group Holding Ltd. BABA in November last year and the $6.5 billion offering from Bank of China last October.
The enthusiasm of European investors helped Sinopec raise a total of 1.5 billion euros ($1.6 billion) at 0.5% and 1% for its three- and seven-year bonds, respectively. The other tranches of the issue were issued at 2.5% and 4.1% in dollar terms, with maturity periods of a maximum of 30 years.
Huaneng Power International, Inc. HNP reported consolidated operating revenue of $5.5 billion during first quarter 2015, which represents a year-over-year decline of 6.4%. However, net income came increased 21% year-over-year to $812 million. Prior to adjustment for assets acquired from the holding company, net income improved 37% compared to the same period last year.
Higher profits were primarily due to a year-over-year decline in the domestic cost of fuel. Last year’s acquisition of generation assets from the holding company also contributed to the increase in profits.
Alibaba’s Hong Kong listed movie unit has acquired a cinema ticketing system supplier for 830 million yuan ($134 million). The purchase was made by Alibaba Pictures subsidiary Zhong Lian Sheng Shi Culture. Movie ticketing software company Guangdong Yueke Software Engineering Company is one of those which have received government approval to offer online ticketing systems. This is part of country-wide efforts to regulate cinema ticket sales.
Yingli Green Energy Holding Co. Ltd. YGE has secured a financing facility of $48 million to develop a 50 MW PV power plant in China. China General Nuclear Power Group’s wholly-owned subsidiary CGN International Finance Leasing has furnished the 10-year direct financing lease to be utilized for the development and construction of the project.
The plant will be located in Handan City in the Hebei Province and is projected to generate around 54 million kilowatt-hours of solar power generated electricity per year. This will offset more than 50,000 tons of carbon emissions. The project is expected to be completed and linked to the grid by end May 2015.
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 |
|
SFUN |
+8.2% |
-24.7% |
|
BABA |
-3% |
-10.5% |
|
JD |
+1.6% |
+32.7% |
|
VIPS |
-1.6% |
+44.2% |
|
TSL |
+5.9% |
+26.1% |
|
QIHU |
+4.4% |
-4.4% |
|
CTRP |
+4.9% |
+16.3% |
|
YOKU |
+10.4% |
-12.8% |
|
BIDU |
-0.7% |
-2.7% |
|
WBAI |
+1.2% |
-44.3% |
Next Week’s Outlook:
Several crucial events occurred during a volatile week of trading during which stocks notched up gains. Monday was possibly the most eventful day, with the central bank announcing a reduction in reserve requirements. However, regulatory action to reduce equity market speculation negated optimism generated by the development.
Economic reports continued to be disappointing with manufacturing data coming in below expectations. However, as per earlier trends, dismal data seems to be having a beneficial data on stocks for the time being. This is because any such report increases the prospect of further stimulus measures.
Next week is bereft of the release of any major economic reports except official manufacturing and services data. However, going by current trends it is likely that the bull run will continue. Any further stimulus measures from the government would go a long way in reducing volatility in the days ahead.
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