CHINA MARKETS

China Markets Live - Hong Kong stocks fall to lowest close since 2012; Shanghai and Shenzhen modestly higher after choppy day

Hong Kong's Hang Seng extends fall from previous day; offshore yuan borrowing costs spike to fresh record high as PBOC fights to curb currency depreciation

PUBLISHED : Tuesday, 12 January, 2016, 9:04am
UPDATED : Monday, 25 January, 2016, 6:34pm

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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 is a summary of market action so far today:

  • Hong Kong's Hang Seng falls 0.9 per cent to lowest close since 2012
  • Shanghai Composite ends up 0.2 per cent after choppy trading
  • Shenzhen Composite adds 0.4 per cent at close
  • Overnight CNH Hibor hits new record high, as analysts say PBOC is buying offshore yuan to curb currency depreciation, driving up the borrowing costs

4:24 pm: Hong Kong stocks extended the heavy losses from Monday, falling to the lowest closing level since September 2012. 

The Hang Seng Index closed Tuesday at 19,711.76, down 0.89 per cent or 176.74 points. The H-shares index finished at 8,439.31, off 0.77 per cent or 65.85 points. 

Hang Seng Index (yellow), China Enterprises Index (purple). The percentage at the end of the chart represents the difference from the opening, not from previous close. Click to enlarge the chart.

 

4:20 pm: Oil prices dropped further in Asian trade Tuesday, as February West Texas Intermediate crude futures hit a 12-year low of US$30.41 a barrel, before slightly bouncing back to US$30.67. It plunged 5.3 per cent overnight in New York. 

February Brent crude futures also touched US$30.43 a barrel, the worst level since April 2004. It traded at US$30.80 a barrel at 4:20 pm. The grade sank 6 per cent overnight in London.

3:48 pm: Shares in Hong Kong-listed investment company COL Capital advanced 1 per cent to 49 HK cents in late afternoon trade, shrugging off a warning from the company that investors may face a “substantial increase” in losses.

COL Capital cited “dramatic fluctuations in the financial and commodity markets” for the anticipated losses in an exchange filing. However, it didn't reveal details about the value of potential losses.

3:41 pm:  Shares in Hong Kong-listed Chinese developer Evergrande Real Estate declined 2.26 per cent to HK$5.62 in late afternoon trading, after the firm issued US$700 million in notes and was downgraded by broker UOB Kay Hian amid worries over rising debt levels.

Due in 2019, the notes come in two tranches and will be used to refinance existing debt due this month, the firm said. Among them, the US$400-million tranche of private notes pays a 7.8 per cent coupon rate and the US$300-million tranche of senior notes pays an 8 per cent coupon rate.

UOB downgraded shares of Evergrande from "buy" to "hold". The brokerage firm said it saw little chance Evergrande’s net gearing would fall this year.

On Monday, Moody's Investors Service also cut the credit rating of Evergrande from B2 to B1, citing concerns about the firm’s debt levels.

3:35 pm: Asian markets recorded a broad-based decline. Japan's Nikkei Average tumbled 2.7 per cent to settle at 17,218.96, while the broader Topix slid 3.1 per cent to 1,401.95. Australia's S&P/ASX 200 dipped 0.1 per cent to close at 4,925.10. South Korea's Kospi Composite Index slipped 0.2 per cent to 1,890.86, and Taiwan's Taiex lost 0.3 per cent to 7,768.45.

3:15 pm: Chinese stocks ended Tuesday's choppy session in positive territory, with the benchmark bouncing back from a four-month low on Monday. 

The Shanghai Composite Index edged up 0.2 per cent, or 6.16 points, to close at 3,022.86. The index plunged 5.3 per cent on Monday to 3,016.7, the lowest settlement since September.

The CSI300 gained 0.74 per cent, or 23.49 points, at 3,215.94. The Shenzhen Composite Index added 0.39 per cent, or 7.29 points, to finish at 1,855.39. The Nasdaq-style ChiNext climbed 1.95 per cent, or 41.17 points, at 2,147.53. 

Below is the daily chart for Chinese stock markets. Shanghai Composite Index (orange), Shenzhen Composite Index (green), CSI300 Index (purple), and ChiNext (blue). The percentage at the end of the chart represents the difference from the oprning, not from the previous close. Click to enlarge chart.

 

 

3:03 pm: Hong Kong stocks deepened losses from early afternoon trade, as the Hang Seng Index dropped 0.7 per cent to 19,748.68. The H-share index also fell 0.7 per cent to 8,443.27.

2:54 pm: Gold prices will fall to US$950 per ounce by the end of 2016 as the Federal Reserve raises rates and the US dollar strengthens, according to estimates by international bullion-trading network Allocated Bullion Solutions.

The combination of a potential 100 basis point rise in US base rates and a 6 to 7 per cent rise in the greenback over the year will drive prices down from the current level of US$1,100 per ounce, while major buyers, including central banks, wait on the sidelines rather than adding to their bullion holdings, ABS said.

“Weakness over 2015 was observed across the board for precious metals, as concerns about the Chinese economy led to weak investor sentiment and industrial demand, while periods of ‘bargain hunting’ by retail investors provided little pricing support,” analysts from ABS said. 

However, prices will get some support from the global market uncertainty and the gold’s traditional role as a safe-haven asset class, they said. 

2:16 pm: Below are two charts for onshore and offshore yuan in the past five days.

  

1:50 pm: The Shanghai Composite Index traded at 3,039.1, up 0.74  per cent, or 22.4 points. The CSI300 index moved up 1.47 per cent or  47.03 points to 3,239.48.
The Shenzhen Composite Index was at 1,879.08, up 1.68 per cent or 30.98 points. The Nasdaq-style ChiNext Price Index jumped 3.43 per cent or 72.28 points to 2,178.64.

1:48 pm: Hong Kong stocks gave up all the gains from earlier trading. The Hang Seng Index dropped 0.3 per cent, or 59.73 points, to 19,828.77. The H-share index slipped 0.2 per cent or 20.12 points to 8,485.04.

1:38 pm: Among hot stocks of the day, Hong Kong media companies rose substantially. Singtao Group surged 13.22 per cent to HK$1.37 at 1:15 pm. The shares soared 20 per cent in earlier trade. HKET Holdings jumped 4.03 per cent to HK$1.55.

The gains of the sector came after Media Chinese International, the parent company of Chinese-language daily Mingpao, announced Monday night that it would sell its interest in One Media Group, which runs 100 Cents. 100 cents is a popular social media platform that teases and criticises Hong Kong and mainland government. 

Shares of Media Chinese have been suspended from trading since 2:42pm on Monday. Shares climbed 2.5 per cent to close at HK$1.2 before the suspension.

Chart for the media sector's hot stocks for the past five days. Share price of Singtao Group (orange) rose the most by 27.78 per cent in the five-day period, followed by a 5.26 per cent increase in shares of Media Chinese (green).  HKET Holdings (purple) remained relatively flat in the past five days, although it jumped 4.03 per cent on Tuesday alone. Click to enlarge the chart.

1:05 pm: The Hang Seng Index opened in the afternoon at 19,904.54, up 0.08 per cent or 16.04 points. The China Enterprises Index (H-share index), which tracks Hong Kong listed Chinese companies, opened in the afternoon session at 8,543.98, up by 0.46 per cent or 38.82 points.

The Shanghai Composite Index opened in the afternoon trades at 3,033.7 points, up 0.56 per cent, or 17 points. The CSI300 index of Shanghai-Shenzhen large cap stocks opened at 3,229.91, up 1.17 per cent or 37.46 points.

The Shenzhen Composite opened the session at 1,861.15, up 0.71 per cent, or 13.05 points. The NASDAQ-style ChiNext Price Index rose 1.92 per cent, or 40.39 points to trade at 2,146.75.

12:13 pm: Hong Kong stocks gave up most of their gains for the morning session to slip back below the 20,000 point level by the midday bell. The Hang Seng index added 0.30 per cent, or 58.90 points, at 19,947.40 at the mid-session close, while the China Enterprises index rose 0.51 per cent, or 43.32 points, to 8,548.48.

Below is the midday chart for Hong Kong stock market. Hang Seng Index (yellow), China Enterprises Index (purple). The percentage at the end of the chart represents the difference from the opening, not from previous close. Click to enlarge the chart.

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12:04 pm: Chinese stocks finished Tuesday's morning session in positive territory, with the Shanghai Composite index up 0.38 per cent, or 11.34 points, at 3,028.04. The CSI 300 index advanced 1.03 per cent, or 32.84 points, to 3,225.29.

The Shenzhen Composite index notched modest gains, up 0.25 per cent or 4.71 points to 1,851.81.

Below is the midday chart of Chinese stocks. Click to enlarge the chart.

            

11:51 am: The war between the People Bank of China and currency speculators has pushed the borrowing costs for offshore yuan to a fresh record high in Hong Kong, as analysts said the central bank is keen to defend the currency and fend off speculators’ attack.

The PBOC is continuing to intervene in the offshore yuan market to buy yuan and sell the US dollar, analysts say. This has dried up liquidity and led speculators and other traders to get cash at high cost to cover their positions, boosting offshore yuan and narrowing the spread between the onshore and offshore yuan.

The overnight CNH Hibor, a benchmark for offshore yuan interbank lending, surged to 66.815 per cent at 11:15 am on Tuesday, marking a fresh record high since Treasury Market Assocation launched the fixing in 2013. The fixing soared 10 per cent on Monday to 13.396 per cent, against Friday's 4 per cent. 

Offshore yuan traded at 6.5757 at 11 am, stronger by 0.27 per cent from Monday's close. The currency hit a record low of 6.7511 on Thursday.

Jasper Lo Cho-yan, a director of Tung Shing Futures, said the PBOC would continue to intervene the market to support the yuan.

“The fundamentals of the yuan remain weak due to the expectation of economic slowdown,” he said. “The PBOC intervention would stabilise the currency at the moment but the market sentiment remains weak. This means the PBOC will need to continue its intervention while it may also ask other central banks to join hands to do so.”

Onshore yuan traded at 6.5720, weaker by 0.08 per cent, after rising 0.39 per cent on Monday. The spread between onshore and offshore yuan narrowed to 37 basis points, against a record high of 1,400 basis points Thursday.

The PBOC set the yuan's midprice lower by 2 basis points for first time in three days. 

Click here to read a full version of the story.

11:33 am: Chinese stocks rebounded after a brief fall amid choppy trade. The Shanghai Composite Index rose 0.3 per cent to 3,027.03. The Shenzhen Composite Index added 0.3 per cent to 1,852.81.

11:33 am: Hong Kong's Hang Seng Index gained 0.4 per cent at 19,960.61. The H-share index was up 0.3 per cent at 8,550.35.

11:33 am: China is facing a sharpening dilemma between a perceived need to keep interest rates low to help the economy manage its debt burden, as well as downward pressure on the Chinese yuan and foreign reserves, according to analysts at Fitch Ratings.

“A country cannot simultaneously allow free capital flows and control its exchange rate and domestic interest rates. This is at the core of the policy dilemma China faces between the imperative of keeping rates low for domestic stability against pressures on external stability as exemplified by the exchange rate and reserves data. China still operates capital controls, but the scale of flows suggests that these have become porous,” Fitch analysts wrote.

The ratings agency estimated that capital outflows from China, excluding foreign direct investment, totaled US$909 billion between the second quarter in 2014 and the third quarter in 2015, and likely exceeded US$1 trillion by the end of 2015.

Authorities have cut interest rates steadily since November 2014 in a bid to help the economy manage its debt burden - which is high and still rising - at a time of slowing growth. However, lower rates are helping to drive capital outflows, weakening the yuan.

“The onset of sustained capital outflow from China may be linked with the intensification of the authorities' anti-corruption campaign. However, the pattern of flows may also be connected with the narrowing pick-up in yield on yuan assets versus the dollar, as Chinese rates have fallen while those in the US have begun to rise,” analysts wrote.

The spread on two-year government paper between China and the US has narrowed from 340 basis points in July-August 2014 to just 150 basis points in December 2015. This is mostly due to the cuts in Chinese interest rates. However, the US two-year rates have also risen by about 50 basis points over the same period, as the Federal Reserve embarked on its first interest-rate hike in nine years in December.

Fitch said it did not expect the authorities to resolve the dilemma with a large trade-weighted yuan depreciation, as this would risk creating additional uncertainty and further undermining policy credibility. It would also work against the broader priority of rebalancing the economy by strengthening the position of exporting corporates, the rating agency said.

11:23 am: Credit growth in China will pick up as the country’s central bank continues its “moderate credit expansion policy” for the economy to reach an average growth of 6.5 per cent for 2016, said French investment bank Natixis.

M2, which is a key measure of money supply, expanded in November by 13.7 per cent year-on-year. Natixis analysts forecast M2 to grow 13.8 per cent in December, as they expected China’s central bank to continue to cut bank reserve ratios to pump liquidity into the system.

However, credit expansion may come with a cost, said analysts.

“It depends on how credit-dependent banks would be in 2016, especially on assessing SME credits. On one hand, big 4 banks have political role to support SMEs, on the other hand, this would add fuel to the overcapacity problem in China,” they added.

Below is a chart of China's M2 and foreign exchange reserves from 2011 to 2015.

            

11:19 am: Among market shakers in Hong Kong, shoe retailer Belle International jumped 3.23 per cent to HK$5.43 half-way through the morning session, the biggest gainer on the Hang Seng index.

Among other gainers, milk producer Mengniu Dairy climbed 2.12 per cent to HK$11.54, and Macau casino operator Galaxy Entertainment rallied 2.10 per cent to HK$21.85.

13 of the 50 Hang Seng constituent stocks traded below the open. Chinese real estate company China Resources Beer slid 4.32 per cent to HK$14.62. Hong Kong property developer Henderson Land declined 2.61 per cent to HK$42.90, after Credit Suisse downgraded the company to “underperform”. Kunlun Energy tracked global oil prices lower, with its share prices giving up 2.19 per cent to HK$5.80.

11:14 am: Asian stock markets posted broad losses. Japan's Nikkei Average widened early losses and tumbled 2.1 per cent to 17,322.56, falling for a sixth straight session. Australia's S&P/ASX 200 turned lower after a higher opening and dropped 0.3 per cent to 4,916.00. South Korea's Kospi Composite Index also fell 0.3 per cent to 1,890.51. Taiwan's Taiex lost 0.4 per cent to 7,759.41.

10:58 am: China has been the biggest recipient of foreign capital inflows since 2008, which has led to a build-up in private debt that now needs to be addressed, wrote economists at AXA Investment Managers.

Expressed as a percentage of GDP, capital inflows into emerging markets translate into an increase of 49 percentage points for China since the end of 2007 in non-financial corporate (NFC) credit stock (loans and debt securities), but only 9.9 percentage points for non-China emerging markets.

“The problem is concentrated in China… we believe the level and pace of increase of Chinese NFC debt is rightly a concern,” AXA economists  said. “Some comfort is provided by the (Chinese) government’s capacity to manage the situation, via easing monetary policy, debt restructuring and possibly official bailout.”

“Nevertheless, this is clearly an area of economic and financial risks. We think debt restructuring will be a significant component of the reform of state-owned enterprises, which could trigger credit events in 2016. However, we believe the authorities, especially the PBOC, can prevent a chain reaction and we do not see China collapsing like a house of cards.”

10:43 am: Chinese stocks reversed opening gains, with the Shanghai Composite Index down 0.4 per cent to 3,004.50, and the Shenzhen Composite Index off 0.4 per cent to 2,098.23.

10:43 am: Hong Kong stocks saw much of their opening gains disappear, as the Hang Seng Index edged up 0.2 per cent to 19,932.64.

10:17 am: Hong Kong stocks also gave up some of their opening gains, with the Hang Seng Index up 0.6 per cent at 20,007.21.

10:17 am: Chinese stocks pared early gains, as the Shanghai Composite Index nudged lower by less than 0.1 per cent to 3,015.87. The Shenzhen Composite Index was up 0.7 per cent at 2,120.25.

10:10 am: Offshore yuan traded at 6.6047 at 9:50 am, weaker by 0.27 per cent from Monday's close. This came after the PBOC intervention that pushed the offshore yuan higher by 1.48 per cent on Monday. The offshore yuan fell 1.75 per cent last week.

Meantime, onshore yuan was at 6.5720, down 0.07 per cent, after rising 0.39 per cent in the prior session.

The spread between onshore and offshore yuan has narrowed down to 327 basis points, against a record high of 1,400 basis points Thursday.

9:50 am: Hong Kong-listed menswear company Evergreen International said its year-end loss may increase by more than 90 per cent compared to 2014, according to an exchange filing issued Monday evening. The company said the losses may be due to a sluggish retail environment in mainland China, inventory write-downs, and start-up costs incurred with launching new product lines.

9:45 am: Chinese stocks also rebounded in early trade, as the Shanghai Composite Index added 0.5 per cent to 3,031.11. The large-cap CSI300 advanced 1.1 per cent to 3,226.29.

The Shenzhen Composite Index gained 0.9 per cent to 1,865.49, and the Nasdaq-style ChiNext Index climbed 1.9 per cent to 2,146.60.

9:40 am: Hong Kong stocks opened higher Tuesday, as the Hang Seng Index rose 0.7 per cent or 141 points to 20,030. 

The Hang Seng China Enterprises index, or the H-share index, gained 0.7 per cent to 8,560.44.

9:25 am: The People’s Bank of China (PBOC) set Tuesday the midprice for the yuan against the US dollar weaker by 2 basis point. It was the first time in three days that the PBOC set the yuan reference rate lower.

The Chinese central bank has fended off currency speculators by intervening in the offshore yuan market on Monday, which led the offshore yuan higher by 1.48 per cent. The CNH Hibor overnight rate was also up 25 per cent on Monday afternoon.

The PBOC also set the midprice for the euro against the yuan stronger by 482 basis points at 7.1454. The midprice for every 100 yen against the yuan is at 5.5930 . 

9:19 am: Oil prices slumped again overnight, with the US crude futures finishing below US$32 a barrel for the first time in 12 years. February West Texas Intermediate crude sank 5.3 per cent to close at US$31.41 a barrel, the lowest settlement since December 2003.  February Brent crude plummetted 6 per cent to $31.55 a barrel in London. 

9:14 am: Other Asian markets traded mixed Tuesday. Japan's Nikkei Average declined 1.2 per cent to 17,483.44, catching up with Monday's losses in regional markets after returning from a public holiday. However, Australia's S&P/ASX200 rebounded 1 per cent to 4,982, following a 1.2 per cent loss yesterday.

9:08 am: Hong Kong stock market is expected to open higher Tuesday, as the Hang Seng Index futures spot October contract gains 0.5 per cent or 100 points to 20,043 in the pre-opening session.

US stocks eked out slight gains Monday night, with the S&P 500 nudging higher by less than 0.1 per cent at 1,923.67. The Dow Jones Industrial Average rose 0.3 per cent to close at 16,398.57. However, the Nasdaq Composite inched down 0.1 per cent to 4,637.99.

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9:05 am: Hong Kong's Hang Seng Index finished Monday 2.76 per cent lower, or down 565.21 points, at 19,888.5, the lowest closing level since June 2013. The H-shares index settled at 8,505.16, falling 3.85 per cent or 340.73 points. 

Below is the one day-chart of the Hong Kong market. Hang Seng Index (yellow), H-share index (purple). Click to enlarge the chart.

9:00 am: The Shanghai Composite Index closed yesterday down by 5.33 per cent, or 169.71 points, at a four-month low of 3,016.7. The CSI300 finished 5.03 per cent lower, or down 169.11 points, at 3,192.45.

The Shenzhen Composite Index ended Monday down 6.6 percent or 130.62 points at  1,848.1, the worst settlement in three months. The ChiNext settled at 2,106.44, down or 6.34 per cent or142.55 points.

Below is the one-day chart for Chinese markets. Shanghai Composite Index (yellow), Shenzhen Composite Index (green), CSI300 Index (purple) and ChiNext (blue). The percentage levels on the right of the chart represent the differences from the opening, not from previous close. Click to enlarge the chart. 

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