“The emerging markets outlook will remain very challenging. The implications to developed markets are now price and value shock. It was likely to have a big impact on developed markets causing a third wave of deflation and a drop in world trade. 

In the short term, markets are going to continue to be painful until we get some insight into how central banks are going to respond to this. There is an increased probability that the Fed will delay the interest rate hike. They are going to have to take this more seriously now. The Fed really needs to send a clear message to the markets that it’s going to step back once more. 

Volatility is inevitable. Corrections are a normal part of bull markets. Investors should bear in mind three important rules. Firstly, avoid leverage. Secondly focus on companies with excess cash flows who can distribute them. And thirdly, invest in innovation, particularly innovation in technology, healthcare and media. 

The way you enter these treacherous markets is very gradually. It takes several months for a market to stabilise and bottom out after one of these sharp corrections and you should give yourselves several months to reposition your portfolio.” 

4:20pm: The Hang Seng Index recovered to close at 21,404.96 points, up 0.72 per cent or 153.39 points. The H-shares index was unable to win back its daily losses, closing at 9,514.04, down 0.92 per cent or 88.25 points.

3:55pm: China indices as they traded today, as they fell dramatically over the past four days, and as they took off and returned to earth over the year: the Shanghai Composite (orange), Shenzhen Composite (green), CSI 300 (purple) and ChiNext (blue). Click to enlarge.

3:49pm: The 7-day HIBOR-SHIBOR spread continues to widen on Tuesday, as investors sell down yuan-denominated assets. The gap has opened to a 289 per cent difference as of 3.20 pm.

3:26pm: Rabobank analysts worry what market sell-offs means for the US Federal Reserve’s plan to raise interest rates:

“It is not only about a technical rebound from oversold levels, but more importantly about the Fed. With more than USD 5 trillion reportedly wiped out from the value of global equities since China unexpectedly devalued the yuan on August 11 and triggered the global selloff, market expectations that the US Federal Reserve may postpone raising rates until the end of the year (or even until the first half of next year) have increased.

That said, Fed’s Lockhart still expects the Fed to raise rates for the first time in almost a decade this year. However, he also admitted yesterday that the appreciation of the US dollar, the devaluation of the yuan and the further decline in oil prices “are complicating factors in predicting the pace of growth.

Delaying a Fed rate hike may cause an even deeper correction in the USD index and would provide risky assets with much needed respite. The Russian ruble and the South African rand led losses on Monday as commodity prices continued to fall. 

The rout in commodities (caused mainly by growing concerns about China) once again fuelled the risk of prolonged disinflation (or even deflation) in many developed and emerging economies where central banks already unleashed unprecedented monetary policy stimulus.”

3:17pm: Shanghai closes at its lowest level since December 15, 2014, when the index settled at 2,953.42.

3:09pm: The Shanghai Composite Index dropped below the 3,000 point milestone to close at 2,964.97 points, down 7.63 per cent or 244.94 points. The CSI 300 of large caps closed at 3,042.93, down 7.10 per cent or 232.60 points. 

3:09pm: The Shenzhen Composite Index also scraped the bottom toward the end, closing at 1,749.07 points, down 7.09 per cent or 133.39 points. The ChiNext Price Index dropped to 1,990.71, down 7.52 per cent or 161.91 points.

3:03pm: China’s insurers in July pulled 160 billion yuan out of the stock market and mutual funds, as their equity and mutual funds positions dropped 1.28 percentage points from a month earlier, data released by the China Insurance Regulatory Commission showed.    

3:02pm: The Hang Seng Index trades to 21,048.88 points, down 0.78 per cent or 166.69 points. The H-shares index stands at 9,391.06, down 2.20 per cent or 211.23 points.

2:55pm: Shares in Sunac China have dropped 6.9 per cent to HK$4.72 after the property developer reported its interim results which saw revenue plummet by 40 per cent as less projects were delivered. 

Zhongzhi Pharmaceutical Holdings is down 4.9 per cent after its interim results announcement, with revenue up 20.6 per cent and net profit up 29.9 per cent. Purapharm has plunged 13 per cent after reporting a loss from last year’s profit.  

Tiande Chemical Holdings has lifted 5.5 per cent to HK$1.35 having grown turnover and net profit by 4 per cent each and declaring an interim dividend of 2.5 HK cents per share.

2:40pm: Onshore yuan trades at 6.4138 to the dollar, weaker from the previous close at 6.4041. 

Offshore yuan trades at 6.4802 to the dollar, stronger from the previous close at 6.5022. 

2:11pm: The Hang Seng Index has lost more than 500 points in the last hour, going to 21,006.24 points, down 1.15 per cent or 245.33 points. The H-shares index has also fallen back to 9,368.87, down 2.43 per cent or 233.42 points. 

2:11pm: The Shanghai Composite Index has dropped to 3,014.96 points, down 6.07 per cent or 194.95 points. The CSI 300 is at 3,079.89, down 5.97 per cent or 195.64 points.

2:11pm: The Shenzhen Composite Index has traded to 1,753.76, down 6.84 per cent or 128.70 points. The ChiNext Price Index drops below 2,000 again, going to 1,997.16, down 7.22 per cent or 155.45 points.

1:42pm: Those mainland Chinese investors still in the game are making for the safe haven of major finance stocks today, limiting that sector’s losses to just 1.2 per cent in Shanghai. 

In Shenzhen, all sectors are at least 4 per cent down. Larger players AVIC Aircraft in the industrial sector and Hebei Steel in raw materials have hit their 10 per cent downside limits and weigh heavily on the index, as does B-share BOE Technology Group, down 7.3 per cent.

1:11pm: Moving into the afternoon session, Hong Kong’s big winners among the heavily traded stocks are Tencent Holdings, up 6.24 per cent to HK$132.80 with turnover exceeding HK$3 billion, and AIA, up 6.62 per cent to HK$43.50 with around HK$1.5 billion in shares changing hands.

1:01pm: The Hang Seng Index starts the afternoon at 21,595.74 points, up 1.62 per cent or 344.17 points. The China Enterprises Index of H-shares has improved to 9,646.01, up 0.46 per cent or 43.72 points. 

1:01pm: The Shanghai Composite Index trades at 3,071.06 points, down 4.33 per cent or 138.85 points. The CSI 300 of large-cap stocks is at 3,147.76, down 3.90 per cent or 127.77 points. 

1:01pm: The Shenzhen Composite Index has dropped to 1,772.31, down 5.85 per cent or 110.15 points. The emerging tech-focused ChiNext Price Index is at 2,012.73, down 6.50 per cent or 139.88 points.

12:28pm; Kerry Logistics, a leading logistics service provider in Asia, reported 11 per cent growth in core net profit in the first half of the year thanks to gains in the international freight forwarding sector.

Core net profit, excluding one-off gains or losses, amounted to HK$542 million. Turnover rose 2 per cent to HK$10.1 billion.  

12:27pm: Cosco Pacific, the port arm of China Ocean Shipping Group, reported first-half net profit rose 12 per cent to US$164.4 million, boosted by lower costs. Revenue declined 8.6 per cent to US$402.4 million.

The company’s shares, along with all listed subsidiaries in the Cosco clan, have been suspended from trading since three weeks ago, pending possible merger plans with rival China Shipping Group. 

12:25pm: Want Want China, mainland China's top snack food and dairy products maker, posted a 10.3 per cent year-on-year drop in net profit to US$285.53 million for the year’s first six months, due to lower finance income and higher distribution and administration costs. Revenue fell 1.9 per cent year-on-year to US$1.82 billion, it said in a filing to Hong Kong’s bourse. Gross profit margin rose to 42.5 per cent from 40.3 per cent in the year-earlier period. 

12:13pm: Analysts at Credit Suisse say the chances of an economic hard landing for China are still extremely low: 

“China still has a very healthy current account surplus, its capital account is still partly closed and its major financial institutions are largely state-owned. These factors combined would allow the monetary authority a free hand to create liquidity in the system if it wants to do so. Hence, China does not have a lender-of-last-resort problem. 

Growth drivers in the past decades have largely disappeared, and environmental and social costs of keeping high growth is becoming unbearable, while the declining labour force reduced political pressure to generate growth. Investors should assume that China's structural growth will continue to decelerate in the next few years. 

We believe that there will not be a credit-crunch triggered hard landing and the financial system/ exchange rate regime could be maintained relatively stable. The hope for Chinese corporate revenue/earnings growth bounce back to the level few years ago is unrealistic, but the fear of a repeat of the 1997 Asian Financial Crisis or a 2008 Global Financial Crisis is not warranted.”

Avoid major macro positioning at this stage. First, there would still be downside surprise on growth. Second, policy response is still ambiguous. We recommend investors focus more on China/HK stocks that have strong micro fundamentals and are less susceptible to Chinese economic growth, but were dragged down by recent market weakness.”

12:10pm: Li Jiange, the Vice Chairman of Central Huijin, also concurrently the Chairman of Shenyin & Wanguo Securities in an article he posted online on Tuesday.

"I think it is very dangerous to endorse a bull market with the name of a national will or a reform. The issues of the market should be handled by the market itself." 

"China's equity market has experienced several major ups and downs, and the people in China have certain degree of bearing capacity to face the volatilities."

It would be more dangerous if we loosen supervision to maintain the bull market, he said, noting it is disappointing that some inside tradings have escaped punishment, and are unfair to mass investors.

“Let’s just let the market forces decide on how the market will go. Things will only become worse If we loosen our supervision to prop up shares.”

Chinese state-owned investment firm Central Huijin is the long term shareholder of shares transferred from official margin lender China Securities Finance Corporation.  

12:07pm: The Hang Seng Index close at midday at 21,595.74, up 1.62 per cent or 344.17 points. The China Enterprises Index (H-share index), which track Hong Kong listed Chinese companies, closed at 9,646.01, up by 0.46 per cent or 43.72 points.  

12:06pm: Asia Pacific stocks on the rebound. Hong Kong's Hang Seng rose 1.28 per cent, Australia's ASX200 added 2.19 per cent, Korea's Kospi up 1.62 per cent and Taiwan's TWSE gains 2.58 per cent.  

11:37am: The Shanghai Composite Index closed the morning session at 3,071.06, down 4.33 per cent or 138.85 points. The CSI300 index of Shanghai-Shenzhen large cap stocks finished the morning at 3,147.76, down 8.57 per cent or 307.43 points. 

11:37am: The Shenzhen Composite closed the morning session at 1,791.71, down 4.82 per cent, or 90.74 points. The NASDAQ-style ChiNext Price Index falls 3.9 per cent or 127.77 points to trade at 2,112.73. 

11:36am: In Hong Kong, mainland financials and insurers led the gains. Dual-listed China Taiping Insurance climbed 4.28 per cent to HK$19.48, while CC Securities rose 5.23 per cent to HK$3.82. Among the five most traded stocks, Tencent gained 5.76 per cent to HK$132.2 and Hong Kong Exchange and Clearing lifted 2.61 per cent to HK$179.8.    

11:22am: The Hang Seng Index trades at 21,543.69, up 1.37 per cent or 292.12 points. The China Enterprises Index (H-share index), which track Hong Kong listed Chinese companies, trades at 9,613.71, up by 0.12 per cent or 11.42 points.  

11:20am: Economists at Morgan Stanley say comparisons with the 1997 Asian Financial Crisis are overdone: 

“Readers of our Asian economics reports over the last few years would be familiar with our long-held cautious stance on the big-picture developments in Asia – highlighting the story of declining potential growth, large-scale misallocation, falling incremental returns on capital employed, buildup of debt and PPI deflation.  We think that a downward adjustment cycle in Asia began in 2013 – this cycle has been and will remain painful, in our view. 

While the adjustment process is likely to continue for long, we believe a 1997-98 scenario is unlikely – i.e., an abrupt, systemic downdraft in Asia, translating into a deep banking system crisis, with adjustment forced on the region at a rapid pace.

To be sure, we have been arguing that there are a lot of similarities in this downward adjustment cycle. However, we believe that a more domestic debt profile, presence of persistent disinflationary pressures, current account surpluses, flexible exchange rates, and adequate FX reserves give policy makers in the region better control over liquidity conditions. 

Moreover, the pace and extent of rate hikes in the US is likely to be slower than previous cycles and with the ECB and BoJ still implementing their QE programs, DM monetary policies will not turn adverse at a quick pace.

In addition, the tighter links in the global economy and Asia’s significantly higher share in global GDP does mean that economic developments in Asia will have a more sizable impact on the US as compared to previous cycles, and as our US economics team have argued, it could delay the pace of tightening. 

Though an abrupt systemic downdraft is unlikely to materialise, that does not necessarily mean that Asia’s macro outlook is in good shape. The persistent disinflationary pressures and the slow response from policymakers in addressing these pressures remains our topmost concern.” 

11:17am: Mikhail Zverev, head of global equities at Standard Life Investments, says markets are not at an inflection point: 

“Recent market moves are symptomatic: investors are focused on global macro themes, at the expense of bottom-up stock selection. 

Neither the China market fall nor yuan devaluation on their own can justify this reaction. Chinese stocks are not held widely enough to cause any systemic ‘wealth effects'. The yuan devaluation impacts exporters and companies selling into China, but with limited systemic impact. 

The effectiveness of China's economic policy is key. China needs to transition from its reliance on export and investment to a more consumer-led economy, whilst maintaining economic growth. Therefore any perceived policy mistake is highly scrutinised.  

For us the rout is a buying opportunity, not a market inflection. Globally, the China slowdown is creating headwinds for industrial capital goods and commodities. But we see no shortage of stock-specific investment opportunities in our broader investment universe.”

10:57am: Principal Global Investors: 

“The recent nervousness in global equities is less related to the plunge in China’s stock prices, and more attributed to renewed declines in a broad range of commodity prices/demand and related indices. 

We believe that a lack of profit across emerging markets and years of excessive investment have led to immense overcapacity in China. 

With so much excess capacity after years of huge investment gains, manufacturers and commodity producers have little pricing power. 

The combination of over-supply, vastly higher wages, and no pricing power has squeezed profits. This structural corrosion of producer profitability is endemic across the developing world. 

China has been the world’s growth engine. As that burst of economic energy fades, another propellant must replace it or the positive, but uninspiring, global growth that exists now will persist.” 

10:53am: In Shanghai, state-owned large caps like China Life Insurance, Ping An, China Pacific Insurance Shanghai International Port Group all rose by more than two per cent, helping erase some of the benchmark Shanghai Composite’s losses in the morning.  

10:45am: The Shanghai Composite Index trades at 3,102.89, weaker by 3.33 per cent or 107.02 points. The CSI300 index of Shanghai-Shenzhen large cap stocks trades at 3,178.07, higher by 2.98 per cent or 97.46 points. 

10:45am: The Shenzhen Composite Index trades at 1,791.72, down 4.82 per cent or 90.74 points. The NASDAQ-style ChiNext Price Index slides 5.34 per cent or 115.01 points to trade at 2,037.6.

10:35am: The Hang Seng Index reversed the losing steak and rose 2.14 percent, or 455.33 pointes, to trade at 21,706.9.

The China Enterprises Index (H-share index), which track Hong Kong listed Chinese companies, trades at 9,764.44, up 1.69 per cent or 162.15 points. 

10:33am: All major sectors are down in Shanghai but investors are differentiating between sectors this morning. Financials are the least hit, with China Life holding up strongly, although outweighed by Agricultural Bank of China which extends its poor run from yesterday. 

Energy stocks are underperforming, particularly oil giants PetroChina, Sinopec and coal digger China Shenhua. Industrials are trailing at the back thanks to CSICL, China Railways, CRRC and HTSC, while Baosteel is dragging the raw materials sector.

10:20am: As the Hong Kong market experiences an early morning rebound, 38 Hang Seng Index constituents are trading up and 9 down.

New World Development, HSBC Holdings and Swire Pacific are at 52-week lows, but 8 index stocks have jumped by up to 4 per cent or more, including turnover leader Tencent Holdings and bourse operator Hong Kong Exchanges and Clearing.

10:17am: The Shanghai Composite Index trades at 3,059.02, down 4.7 per cent, or 150.89 points. The CSI300 index of Shanghai-Shenzhen large cap stocks trades at 3,130.51, down 4.43 per cent or 145.02 points. 

10:17am: The Shenzhen Composite Index trades at 1,769, down 6.03 per cent, or 113.46 points. The NASDAQ-style ChiNext Price Index slid 6.35 per cent, or 136.62 points to trade at 2,015.99.

10:10am: The Hang Seng Index trades at 21,505.85, down 1.2 per cent or 254.28 points. The China Enterprises Index (H-share index), which track Hong Kong listed Chinese companies, trades at 9,655.56, down 0.55 per cent or 53.27 points. 

10:07am: Before the weekly meeting of his cabinet – the Executive Council - this morning, Chief Executive Leung Chun-ying said while he remains confident about the Hong Kong stock market and its regulators, investors should be cautious in making choices.

He dismissed worries about a repetition of the Asian Financial Crisis in 1997, and said “Compared  to 18 years ago, economies in the region are now much stronger; and having learned the lessons of 1997, the regulators are also much more capable nowadays.” 

10:00am: People’s Bank of China will inject an additional 150 billion yuan worth of liquidity on Tuesday via seven-day reverse repurchase agreements, the official Shanghai Securities News reports citing traders. 

9:58am: Below are charts showing the daily changes of outstanding margin financing; and total outstanding margin financing remaining. (In 100mn CNY) Click to enlarge both charts.

 

9:55am: Heng Koon-how, FX strategist with Credit Suisse private banking, said:

“As for the onshore yuan (CNY), our base case is that, mainly due to overvaluation, we see some gradual 2 per cent weakness towards 6.55 over 12 months, from current spot level of 6.40. The CNY is very overvalued on Real Effective Exchange Rate (REER) basis, however, the People’s Bank of China may need to be careful in guiding the CNY lower. 

Should the mindset of further large scale depreciation takes hold, causing further destabilizing capital outflows and volatility to financial markets. It may need to guide the onshore yuan gradually lower, to reduce the significant REER overvaluation. More monetary policy easing like Reserve Ratio Requirement and onshore rate cuts will also help stabilize onshore conditions. 

However, should China’s upcoming economic data turns out to be worse than expected and the growth outlook deteriorates, there may be more urgency for the CNY to be adjusted lower.

As such, the risk case for the CNY is more pronounced weakness beyond the 2 per cent to 3 per cent gradual adjustment that we anticipate. It is worth noting that forwards are already pricing in more CNY weakness, with the 1Y CNY NDF at 6.70 and 1Y CNH FWD at 6.76.” 

9:52am: Onshore yuan trades at 6.4010 to the dollar, stronger from the previous close at 6.4041. 

Offshore yuan trades at 6.4851 to the dollar, stronger from the previous close at 6.5022. 

9:47am: ING Morning Call: 

“The global market volatility will persist in coming days and weeks, supported by China growth anxiety and because of rising uncertainty about the Fed lift-off. The scale of the latest rout suggests it will need very aggressive intervention by the Chinese authorities to stabilize the markets. 

In a verbal intervention to calm the markets, the National Development and Reform Commission said that “with the series of policies released by the government, it is expected China’s economic growth will remain stable in the second half,” and that “There is a positive long-term trend”.

Separately, the Shanghai Securities News quoted Wang Yong, a professor at the People’s Bank of China Zhengzhou training school as saying that a reserve requirement ratio cut to boost the market won’t work. He also said that the impact of the latest financial crisis on China would be larger than that during the GFC and the market rescue might be more difficult than ever before. 

We consider another round of the PBOC monetary stimulus as capable of calming the markets. We expect as much as 100bp RRR cut as the first salvo anytime now.” 

8:50am: Reorient report:

“We forecast a 10 per cent correction in the S&P on March 31. Now that the correction has occurred, it is not clear when and where equity markets will find a bottom.

The Federal Reserve is now in something of a bind. If it tightens monetary policy, it will confirm the deflation trend now ripping through markets. If it announces that economic and financial conditions are too shaky to permit a tightening, it will frighten the market. We remain cautious and in cash.” 

8:47am: SG Morning Call:

“Global markets plummeted once again on Monday and EM currencies came under downward pressure. The People’s Bank of China will likely continue its forex intervention before it lets the currency float freely, and a cut in the reserve requirement ratio (RRR) is expected to follow.

In Europe, attention will be focused on German second quarter GDP which should rise by a steady 0.2 per cent quarter on quarter. Much of the lift will be supported by a healthy 2.2 per cent quarter on quarter increase in exports. Disappointedly, IFO data on business climate conditions and expectations will probably decline in August on concerns over China. East of the border, Polish unemployment is expected to fall by two ticks.

The US should at least provide the markets with some good news as new home sales, consumer confidence, and the Richmond Fed Manufacturing Index, will all be looking to improve. In Latin America, falling imports are likely to lift the current account to a surplus of US$4.607 billion year to date.”

Click on charts below to enlarge.

8:26am: Mainland property developer Sunac China posted a 17.1 per cent year-on-year rise in net profit to 951.4 million yuan for the year’s first six months. Excluding gains from the acquisition of equity interests, the fair value change of the investment properties and impairment provision for properties, first-half core net profit slid 1.96 per cent to 1.0 billion yuan, Sunac said in a filing to Hong Kong’s bourse today.

Contracted sales for the half grew 5 per cent year-on-year to 27.26 billion yuan. Revenue tumbled 40 per cent year-on-year to 5.44 billion yuan, as less property projects were delivered. Gross profit margin dropped to 11.4 per cent from 22.4 per cent in the year-earlier period, since low-margin projects accounted for a greater portion of projects delivered.

Sunac shares have fallen 35.7 per cent year-to-date, compared to a 10 per cent fall of the Hang Seng Index. 

8:17am: China market indices yesterday: the Shanghai Composite (orange), Shenzhen Composite (green), CSI 300 (purple) and ChiNext (blue). Click to enlarge.

 
8:17am: Hong Kong's Hang Seng Index (orange) and China Enterprises Index (purple) yesterday: click to enlarge.

8:15am: The onshore yuan closed Monday at 6.4041 to the dollar, weaker from the previous close at 6.3887. The offshore yuan finished at 6.5022 to the dollar, weaker from the previous close at 6.4544.

8:13am: China Merchants Bank (yellow) will report its interim results today. The state-owned lender closed down 10.19 per cent on Monday at HK$17.10. Its share price has underperformed the Hang Seng Index (purple) over the past three months. Click to enlarge chart.

8:10am: CK Property (yellow), the reorganised conglomerate that houses all the non-property assets in tycoon Li Ka-shing’s business empire, will report its interim results after the market close today.

Shares of the company closed at HK$98.55 on Monday, down 4.04 per cent. Its share price has been resilient, outperforming the benchmark Hang Seng Index (purple) the past three months. Click to enlarge chart.

8:07am: China Aircraft Leasing (yellow) will announce its first-half results today after the market close. The company, a joint venture between China Everbright Group, China Aerospace Science and Technology Corp and Friedmann Pacific Asset Management, closed down 11.14 per cent at HK$5.98 on Monday. Its share price has plunged 58 per cent over the last three months, underperforming the Hang Seng Index (purple). Click to enlarge chart.

8:05am: Kerry Logistics Network (yellow) will announce its interim results today with top executives meeting the media at 3:45 pm. The company finished on Monday at HK$9.93, down 5.61 per cent. Its share price outperformed the Hang Seng Index (purple) the last three months. Click to enlarge chart.

 

8:02am: Jiangxi Copper (yellow), China’s largest smelter of copper, will announce its interim results today. The company ended on Monday at HK$9.41, down 5.61 per cent. Its share price underperformed the Hang Seng Index (purple) the last three months. Click to enlarge chart.

8:00am: Huaneng Power International (yellow), the listed flagship of China’s largest power generator China Huaneng Group, will announce interim results today. The company closed on Monday at HK$8.62, down 3.25 per cent on the day. Its share price has traded in line with the Hang Seng Index over the past three months. Click to enlarge chart.

7:55am: Haitong International Securities Group (yellow) will announce its interim results today, with top executives meeting the media at 4:30 pm.

The company dropped 12.30 per cent on Monday to close at HK$3.28. Its share price has underperformed the Hang Seng Index (purple) the last three months. Click on chart to enlarge.