Markets gained significantly during a holiday shortened week, hovering around record levels on two occasions. Markets in China were closed on Monday and the Hong Kong exchanges were closed on both Monday and Tuesday. Stocks in Shanghai moved to record highs on Tuesday, boosted once again by expectations of additional monetary stimulus. The Shanghai Composite Index moved above 4,000 for the first time in nearly seven years on Wednesday. Stocks experienced losses on Thursday on apprehensions that data on inflation to be released on Friday would come in below par.
Alibaba Group Holding Limited BABA said that is considering an asset injection into its failing film production division. Shanda Games Limited GAME said on Apr 3 that it has given its assent to go private in a deal valued at $1.9 billion.
Last Week’s Developments
Last Friday, the Shanghai Composite advanced 1%, closing at its highest level since Mar 2008. Commodity stocks and brokerages led gains. This was a result of continued influx of funds following expectations of additional government measures to stimulate growth. Meanwhile, the country’s markets regulator provided approval for 11 IPOs in Shanghai and 19 in Shenzhen.
The CSI 300 moved up 1.1%. Gauges of material and financial stocks gained in excess of 1.4%, the highest among the 10 industry groups of the CSI 300. Meanwhile, an index of energy shares lost 0.2%.
The Shanghai Composite increased 4.7% over the week, marking its fourth consecutive weekly gains. However, the benchmark index’s RSI continued to hover above 70 for the 14th day, indicating losses for shares may be imminent. Markets in Hong Kong were closed for the day and reopened only on Wednesday.
Markets and the Economy This Week
Markets in China were closed on Monday for the Ching Ming Festival holiday. Stocks moved to record highs on Tuesday, boosted once again by expectations of additional monetary stimulus. The Shanghai Composite Index surged 2.5% while the Shenzhen Composite, which tracks the country’s other stock exchange gained 2.1%. This was the highest level achieved by the benchmark index since Mar 14, 2008.
Meanwhile, the country’s central bank introduced 20 billion yuan ($3.23 billion) into the money market. Market watchers believe that this measure is an attempt to increase liquidity in the system. The CSI 300 index moved up 2.2%. Financial shares were the leading gainers for the day. Telecom, machinery and transportation gained on China’s attempts to expand business overseas.
Additionally, a gauge of banking shares increased 3% following new regulations which will speed up sale of asset-backed securities. Market watchers believe new rules will help banks retire risky assets and provide funds for new business activity.
The benchmark index moved above 4,000 for the first time in nearly seven years on Wednesday. Continuing hopes of additional monetary stimulus helped to increase the span of the largest global market rally. Ultimately, the Shanghai Composite lost some of these gains to post an increase of 0.8%. Meanwhile, the Hang Seng China Enterprises Index surged 5.8%, the highest gains since Dec 2011. The Hang Seng gained 3.8% to close at its highest point in since May 2008.
Gains were led by financial and industrial stocks. Meanwhile, net purchases of shares listed in Hong Kong via the exchange link beat the daily record. This was the first time it reached its 10.5 billion yuan quota
Analysts opined that the benchmark index breaching the 4,000 level would induce individual investors to increase their stock investments. On the other hand, Mark Mobius, chairman of Templeton Emerging Markets Group said stocks could face a 20% slump because they had gained too quickly.
The Shanghai Composite index lost 0.9% on Thursday. Additionally, the CSI 300 moved 0.8% lower following losses made by commodity and consumer stocks. These losses were perhaps a result of apprehensions that data on inflation to be released on Friday would come in below par. In February, the producer price index declined 4.8%, the steepest decline since the recession.
Meanwhile, the Hang Seng gained 2.7% while the Hang Seng China Enterprises index increased 2.6%. The H-share index touched its highest level since Nov 2010, Shares in Hong Kong gained after the Hang Seng China AH Premium index declined 3.3%. Additionally, the Chinese government has eased the movement of domestic funds through the Hong Kong-Shanghai exchange link.
Stocks in the News
500.com Limited WBAI, a leading online sports lottery service provider in China, did not witness any movement on Apr 6 as a result of voluntary and temporary suspension of online lottery sales by the company. Additionally, the company stated that it was one of the two entities that got approval from the Ministry of Finance in 2012 to provide online lottery sales services on behalf of the China Sports Lottery Administration Center. 500.com’s shares closed at $12.29, same as the last trading day of Apr 2.
On Apr 7, shares closed at a monthly high of $14.47, rising by 18%. At $10.1 million shares, trading volume was five times higher than the average over three months. Gains came after the company stated the finance ministry approval it received in 2012 had not been withdrawn. Shares had slumped to an all-time low of $9.23 in March, following the government’s suspension of certain online sports lotteries.
Alibaba Group Holding Limited said that is considering an asset injection into its failing film production division. Alibaba has proposed to combine its online movie ticketing business and film production crowdfunding business into Alibaba Pictures Group Ltd, which is listed on the Hong Kong stock exchange.
Following these comments, Hong Kong listed shares of the movie production division gained 37% after resumption of trading on Apr 8. Both the film crowdfunding and online ticketing businesses were founded in 2014. According to Alibaba, they are in “early stages of development.” No further details regarding the deal or its possible timing were provided by Alibaba.
JD.com, Inc. JD has inked an agreement with Uniqlo Co., a Japanese clothing company. Following the agreement, Uniqlo will become the first international clothing brand which will utilize JD.com’s logistics services. Per the agreement, Uniqlo will use JD.com warehouses as well as its logistics.
Uniqlo already has a physical presence in China through its stores. The agreement will enable it to utilize a pre-existing popular online marketplace to reach the country’s customers. Shares of JD.com increased 5.4% on Apr 8 to $32.66, its highest close ever.
Shanda Games Limited said on Apr 3 that it has given its assent to go private in a deal valued at $1.9 billion. This decision comes after efforts to convince Shanda lasted a year. A group of buyers will pay $3.55 per ordinary share as well as 7.10 per ADS.
The price is 46.5% higher than the stock’s 30-day average before the company said in January that it has received an offer to go private. These buyers already hold a 76% stake in the company and have 91% voting rights. The deal is expected to be completed by the second half of 2015.
China Telecom Corp. Ltd. CHA has inked a deal with IBM Corporation (IBM) for accelerating mobile enterprise adoption by Chinese businesses. Per the agreement, joint customers can leverage IBM’s iOS-based MobileFirst Platform to build and integrate enterprise apps that will be hosted on China Telecom's cloud.
In Jul 2014, Apple AAPL partnered with IBM to develop enterprise class software and services under a new project — IBM MobileFirst — for iOS. The platform allows companies to develop mobile apps for boosting the efficiency of enterprises while connecting the firm with its customers in a more hassle-free way
The partnership will allow both established organizations and start-ups in China to customize and manage the apps using the cloud platform of China Telecom, the largest IDC/cloud service provider in the region.
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 |
+1% |
-3.3% |
|
SFUN |
+24% |
-30% |
|
JD |
+8.6% |
+23.7% |
|
YOKU |
+22% |
-8.2% |
|
VIPS |
+3.5% |
+54.3% |
|
QIHU |
+15.2% |
-11.6% |
|
YY |
+15.7% |
-17.9% |
|
WBAI |
+54.6% |
-52.4% |
|
BIDU |
+2.7% |
-2.2% |
|
NQ |
+0.3% |
-43% |
Next Week’s Outlook:
Despite a holiday-shortened trading week, stocks have experienced eventful times. Breaching the 4,000-level was a key event for the benchmark even though stocks declined on the very next day. Expectations of additional stimulus have kept the market rally going. In fact, the central bank has kept such hopes alive after injecting 20 billion yuan into the money market.
At the same time, the Shanghai Composite’s 100-day volatility increased to its highest level in more than five years on Thursday. This is a clear indication that stocks could face volatile trading in the short term. However, several analysts believe that any such reverses would be only temporary in nature. The Xinhua News Agency said that despite fluctuations, markets remain on track to chalk up gains this year.
Meanwhile, economic reports will take center stage this week. Several important releases are lined up for release, starting with inflation data on Friday. This will be followed by trade data on Monday before the plethora of crucial reports to be released on Wednesday. This includes data on industrial production, retail sales and all-important GDP numbers. Any positive indications on this front would go a long way in reducing volatility in the days ahead.
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