China Markets Live - Shanghai and Shenzhen surge to firm close in wild week when both shut down twice in five days; Hong Kong ekes out gain at close
Shanghai's weekly performance shows a loss of 10 per cent, having risen 9.4 per cent in all of 2015; Shenzhen sinks 14 per cent on the week while Hong Kong in worst week since 2011
Welcome to the SCMP's live China markets. The intense volatility in Chinese markets into 2016 due to the implementation of the circuit breaker has roiled world financial markets. Investors are increasingly focused on the broader question of how this episode might affect the wider economy of the country. We'll bring you the key levels, trading statements, price action and other developments as they happen.
Here’s a summary of market action, with analyst views and charts:
- Shanghai finishes up nearly 2 per cent, but down 10 per cent on the week
- Shenzhen gains over 1 per cent by the close and loses 14 per cent for the week
- Trading shutdown in Chinese markets in two of five days wreak havoc in Index performances
- Hong Kong's Hang Seng Index ends shade higher, but rings up worst weekly fall since September 2011
- Looking ahead: US monthly jobs data due out at 9:30 pm Hong Kong time on Friday
4:21pm: On a weekly basis, both the Hang Seng Index and H-shares reported their worst weekly fall since September 23, 2011 during the European sovereign debt crisis.
The Hang Seng Index is down 6.52 per cent for the week, close to the total annual loss in 2015 of 7.3 per cent.
It is the worst weekly decline since September 23, 2011 when the Hang Seng sank 9.18 per cent.
The H-shares Index dropped 8.39 per cent, or 810.99 points, for the whole week, also the worst weekly loss since September 23, 2011 when it crashed 11.87 per cent.
4:08pm: The Hang Seng Index closed at 20,453.71, up 120.37 points or 0.59 per cent.
H-share index closed the session at 8,845.89, up 91.92 points or 1.05 per cent.
Total market turnover stood at HK$86.09 billion.
3:38pm: Shanghai Composite Index down 10 per cent in the first trading week of 2016, wiping out all of the gains of 9.4 per cent in 2015 as a whole.
This is the worst weekly fall since August 21-25, 2015 when the Index stumbled 11.54 per cent in the middle of the summer rout.
CSI300 also lost 10 per cent for the whole week, similarly erasing the 5.58 per cent increase of last year.
This is also the worst week since August 21 -25, when it crumbled by 12 per cent.
3:38pm: Shenzhen Composite Index dropped 14.3 per cent in the first week of 2016, the worst since July 3-8, 2015 when the index crashed by 16.16 per cent.
The Index had risen 63.15 per cent in 2015.
The ChiNext fell 17.14 per cent on the week, the worst week on record since the Nasdaq style board was launched in June 2010. ChiNext gained 84.41 per cent last year.
3:26pm: Hang Seng Index trades at 20,536.31, up 202.97 points, or 1 per cent.
H-shares index rose 1.57 per cent or 137.81 points to 8,891.78.
3:11pm: Shanghai Composite Index closed at 3,186.41, up 1.97 per cent or 61.41 points. The index had swung widely during the session, rising 3 per cent after having dropped 2.17 per cent in morning trade.
The benchmark CSI300 closed at 3,361.56, up 67.41 points or 2.04 per cent higher.
3:11pm: The Shenzhen Composite Index closed up 1.05 per cent or 20.63 points, to 1,978.72. The index started 3 per cent stronger but then fell 4 per cent during trading.
The ChiNext Index though slipped 0.33 per cent or 7.53 points to close at 2,248.99. The index opened 2.7 per cent firmer but then sank 5 per cent before finally ending near even for the day.
2:12pm: Hang Seng Index trades at 20,519.44, up 0.92 per cent or 186.10 points from previous close. H-share index trades at 8,885.34, rose 1.50 per cent or 131.37 points.
2:12pm: Shanghai Composite Index trades at 3,209.03, up 2.69 per cent or 84.03 points.
CSI300 was trading at 3,387.79, up 93.41 points or 2.84 per cent higher.
ChiNext rises by 1.10 per cent, up 24.74 points to 2,281.26.
The Shenzhen Composite Index added 1.93 per cent to 1,995.79.
1:21pm: Hang Seng Index declined slightly from the morning close and was trading at 20,544.69, up 1.04 per cent, or 211.35 points from yesterday’s close.
H-share index also eased a bit and was trading at 8,896.68, off 1.63 per cent or 142.71 points.
1:21pm: Shanghai Composite Index climbed further as afternoon session started, and was trading at 3,203.38, up 2.51 per cent or 78.37 points.
CSI300 was trading at 3,385.73, 91.35 points or 2.77 per cent higher.
ChiNext edged up by 0.90 per cent, 20.38 points to 2,276.90.
The Shenzhen Composite Index added 1.84 per cent to 1,994.08.
12:40pm: For a look at the midday stock report of the SCMP, please click here.
12:14pm: Hang Seng Index closed the morning session at 20,561.25, up 227.91 points or 1.12 per cent.
H-share index closed midday at 8,904.74, up 150.77 points or 1.72 per cent.
12:10pm: People’s Daily published a short commentary on its microblog titled “Hello, tomorrow” late on Thursday.
“The CSRC suspended the circuit breaker mechanism after only four days of operation, making the investors and institutions surprised.
We have to realise the distance between theory and reality, when talking about any system looks beautiful without considering the social functioning. The amendment is under discussion, but before that, people’s confidence will not be crushed, and development of the stock market will not stop.”
11:50am: Hong Kong's Hang Seng Index trades at 20,580.43, up 1.22 per cent or 246.09 points. The H-share index trade at 8,919.63, up 1.89 per cent or 165.66 points.
11:47am: Shenzhen Composite Index finished midday at 1,990.34, up 32.25 points or 1.65 per cent. The index opened higher and climbed up to 3 per cent but it had once dropped 4 per cent in early trade.
ChiNext ended by midday at 2,273.02, up 0.73 per cent or 16.50 points. The index rose by up to 2.7 per cent but then dropped at one point by 5 per cent.
11:42am: Shanghai Composite Index closed midsession at 3,199.57.99, up 2.39 per cent or 74.57 points. The index swung five percentage points, rising 3 per cent after dropping 2.17 per cent in the morning trade.
CSI300 closed at 3,384.99, having gained 2.75 per cent or 90.61 points. The index had lost 1.7 per cent and then gained 3 per cent during the session.
11:36am: Barclays report:
“Our forecasts suggest a preference for a relatively stable NEER, but this would still imply USDCNY appreciating in an environment of USD strength. If China wants to focus on a stable NEER this would imply a move in USDCNY to 6.80 by year-end (Barclays forecasts USDCNY at 6.90). However, the NEER has been falling recently, and if China allows, for example, a 5 per cent fall in the NEER by year-end, USDCNY could move to as high as 7.22.
Not surprisingly, Asian currencies have borne the brunt of pressure from a weaker CNY. As it was, the region’s currencies were facing pressure from weaker Chinese growth, lower commodity prices, capital outflows, the Fed rate hike and a strong USD.
Faced with these concerns it is no surprise that currencies have started the year on a weak footing, with pressure exacerbated by the accelerated depreciation of the CNY.
Among Asian currencies we continue to see the KRW, TWD and SGD as being most exposed to CNY depreciation pressures, but the indirect impact of commodity price weakness, especially in oil prices, has also weighed on the MYR.
At the other end of the spectrum, we think the INR, PHP and THB are less vulnerable to CNY depreciation given the lower share of trade in their GDP and their more limited competition with China in third markets. That said, it is difficult for almost all countries in the region to escape the pressure from weakening Chinese growth.
We think China still cares about the CNH-CNY basis, aiming to reduce the spread with (reduced) intervention to curb speculation. However, the authorities have let the basis widen more than they have in the past before intervening.
Over a longer horizon, with China continuing the process of capital account liberalization and RMB internationalization, we expect more integration of the CNY and CNH markets and the spread between the two to narrow.
In the near-term, we believe that the spread has widened to levels that authorities have become more uncomfortable with. In our view, there will likely be an increase in FX intervention in spot CNH in the offshore market to limit the widening of the spread. However, given the FX reserves decline in December, it is no surprise that such intervention has become more sporadic and at more extreme levels."
Click on charts below to enlarge.
11:12am: Paul Mackel, Global Head of EM FX Strategy of HSBC said:
“In December, China’s FX reserves declined markedly by US$108 billion to US$3.33 trillion. Our estimate of currency valuation effects in the People’s Bank of China's reserve portfolio suggests that the actual decline could have been even larger, at US$128 billion, which would be the largest monthly fall on record.
Following the fixing reform in August, the PBOC now has a choice to let the exchange rate adjust more to relieve pressures on reserves, if necessary. In this context, the China Foreign Exchange Trade System's recent comment about having the exchange rate playing "a bigger role in the automatic adjustment of the balance of payments" this year is particularly important.
But, in any case, the PBOC does not appear to have a problem with running down its reserves. It has been finding ways to make better use of its FX reserves, such as to recapitalize policy banks and support Chinese corporates' overseas expansion.
Given its goal for the RMB to be a major global reserve currency (which means China can eventually denominate most of its external borrowings in the RMB), it can comfortably hold much lower reserves than it does today. The US Fed and the ECB, for example, hold very little FX reserves.”
Click on the charts below to enlarge.
10:50am: BofA Merrill Lynch Global Research.
"We are approaching a critical point for USD/CNY and China's FX Trading System (CFETS) FX basket. Either the PBOC intervenes aggressively to defend this line in the sand at 100 (which requires a USD/CNY fix at 6.5895 or lower Friday) or it lets go, unleashing further CNY and Asia FX selling pressure.
This comes as China helms the G20 Presidency and is scheduled for a FinMin and CB Governor meeting in Shanghai on February 26-27 and Dec FX reserve numbers show the largest intervention since August 2015."
Please click on chart below to enlarge.
10:38am: DBS Daily report:
“In the near term, we are guarded against excessive bearishness on the Chinese yuan. China introduced an RMB Index last December as part of its reforms to move towards a more market-determined exchange rate.
Unlike the global crisis, China is now seen keeping the onshore yuan (CNY) stable, not against the USD, but against a trade-weighted basket of currencies. This was demonstrated by the unanticipated CNY devaluation on 11 August 2015.
As witnessed in the last week of August 2015, China stopped pushing USD/CNY higher when the RMB index hit the floor of its stable range. Yesterday, the same floor was breached again, but this was due to stronger currencies such as the euro and yen, two of its most heavily weighted components in its index.
That said, market volatility this week suggests that nobody really knows what the policy is right now. Or if the government itself knows or is capable of implementing the policy even if there is one.
The market’s message was loud and clear that more clarity and less flip-flopping is needed going forward. The situation remains fluid. Nonetheless, USD/CNY has moved markedly higher this week. We will be releasing our new CNY forecasts next week.”
Click on chart below to enlarge.
10:32am: Aidan Yao, senior emerging Asia economist at AXA Investment Managers (AXA IM), said government intervention is still the key in strengthening investor’s confidence.
“Looking ahead, we think that policy actions are key to dispel the prevailing bearish sentiment. One thing that will determine an intervention, as discussed yesterday, is the extent to which a widespread negative contagion is occurring in the marketplace.
We are now seeing synchronized movements in onshore equity and currency markets, with signs that a negative spill-over is hitting other Asian and developed markets – a phenomenon similar to last August. Hence, it is not surprising that the authorities are taking actions.
We reiterate our cautious view on A-shares and suggest investors to stay on the sideline, given the rising market volatility and uncertainty. Our moderate-depreciation 3~5 per cent view on the CNY/USD for 2016 may prove to be too cautious, in light of the new focus on the currency basket.
The intention (of the authorities) to keep the RMB stable should now be seen in the context of the CNY index, not the bilateral cross rate vs. the USD. The CNY/USD movement will hence be a by-product of how the dollar performs against other major currencies in the CNY basket.
Finally, on the real economy, we see the yuan depreciation as positive for exports and inflation. Although capital outflows can drain domestic liquidity, we do not see any signs of instability yet (apart from the equity market). “
10:30am: For story on the opening of China's markets, please click here.
10:26am: Onshore yuan (CNY) trades at 6.5887 to the US dollar, up 0.06 per cent from Thursday close.
Offshore yuan (CNH) trades at 6.6784, stronger by 0.03 per cent.
10:18am: For story where circuit breakers were suspended after a week of turmoil on Chinese markets, click here.
10:18am: For related story on China putting circuit breakers on hold, click here.
10:14am: Hang Seng Index rose 0.95 per cent, or 193.36 points, to trade at 20,526.70. H-shares index rose 1.27 per cent or 111.13 points to 8,865.10.
10:06am: CSI300 Index rose 0.1 per cent to 3,297.68.
10:06am: Shanghai Composite Index down 0.18 per cent to 3,119.25.
10:06am: Shenzhen Composite Index rose 0.57 per cent to 1,969.22, ChiNext down 0.92 per cent to 2,235.80