China Markets Live - China stocks close in bear market territory; Hong Kong falls for third week

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 movements today:

• Mainland China’s benchmark Shanghai Composite slides 3.6 per cent to end at 2,900.97 on Friday, the worst closing level in two years. It has fallen 21 per cent from the most recent high of 3,651.77 on Dec. 22, technically entering the bear market territory. The index is down 18 per cent this year and 44 per cent lower from the June peak of 5,166.35.
• Hong Kong stocks fell 1.5 per cent Friday. It also recorded a weekly drop of 4.6 per cent, marking the third straight week of declines. So far this year, the benchmark has plunged 11 per cent, compared with an annual loss of 7.2 per cent in 2015.

5:59 pm By Laura He

Elsewhere in Asia, Japan’s Nikkei Average settled 0.5 per cent lower at 17,147.11, extending a fall of 2.7 per cent on Thursday. Australia’s S&P/ASX 200 shed 0.3 per cent to close at 4,892.80, reversing all the gains in the morning. South Korea’s Kospi Composite Index fell 1.1 per cent to finish at 1,878.87. India’s Sensex declined 1.3 per cent to 24,451.39 in the afternoon.

5:47 pm By Laura He

The Hong Kong dollar traded at 7.7941 against the US dollar, down 0.14 per cent from the previous day’s close. The currency has fallen 0.4 per cent in the past two trading session, as fears over China’s economic slowdown and stock market turmoil triggered capital outflows from the region’s markets.

5:23 pm By Laura He

Bank of America Merrill Lynch also expected the Chinese central bank to cut interest rates further this year to shore up the faltering economy.

“We think further countercyclical monetary easing policies are still necessary to keep policy stance away from being pro-cyclical and counter downside growth risks,” the investment bank said Friday.

Analysts predicted the PBOC will lower the benchmark interest rate twice this year, one in each of the first two quarters.

Further RRR cuts and other liquidity injection measures will also likely be introduced to boost domestic liquidity amidst capital outflow pressures, to keep money market rate relatively stable.

5:06 pm By Laura He

The decline in China’s new yuan loans for December was led by a sharp contraction in loans extended to non-bank financial institutions, which may reflect a loan repayment by state-backed China Securities Finance Corp., while household and corporate loans remained robust, Barclays said in a Friday research note.

Going forward, the firm believes continued capital flight from China and headwinds to the economic outlook will require money policies to remain easy for an extended period.

“We continue to look for two 50 bp (basis-point) RRR (reserve requirement ratio) cuts and two 25 bp benchmark rate cuts in H1 to support liquidity and lending. In particular, we see the risk of an RRR cut ahead of Lunar New Year when liquidity conditions usually tighten,” economists from Barclays said.

4:14 pm By Jessie Lau

Hong Kong’s Hang Seng Index closed at 19,520.77, down 1.50 per cent or 296.64 points. The index dropped 4.6 per cent for the week.

The H-share index finished at 8,236.28, down 2.64 per cent or 223.35 points. It recorded a weekly fall of 6.9 per cent.

Below are the daily and weekly charts for the indexes. Hang Seng Index (yellow line), H-share index (purple line). Click to enlarge the charts.

3:49 pm By Laura He

Global stock markets had “horrendous” first two weeks of 2016, triggered by the sell-off in Chinese markets and fears of further yuan devaluation, said Bernard Aw, an analyst from IG Group.

Meantime, US markets continued to face challenges of weak corporate earnings and a strong US dollar, “providing few impetus to push higher”.

“Fear dominated the first two weeks,” Aw said, adding that recent economic data suggested that markets could see “more deterioration in the global economy before things get better”.

Looking forward, he said traders will closely watch a number of key data for economic clues, including China’s Q4 and 2015 GDP, US housing and CPI data, and dozens of US companies’ quarterly financial results.

3:16 pm By Jessie Lau

The Shanghai Composite Index closed Friday at 2,900.97, down 106.68 points or 3.55 per cent. For the week, the benchmark plunged 8.92 per cent. The large-cap CSI300 shed 3.19 per cent or 102.84 points to 3,118.73.

Meantime, the Shenzhen Composite Index ended at 1,796.13, down 3.4 per cent or 63.24 points. It posted a weekly loss of 9.23 per cent. The ChiNext slid 2.86 per cent or 62.11 points to 2,112.90.

Below are the one-day and one-week charts for China’s major stock indexes. Shanghai Composite Index (orange), Shenzhen Composite Index (green), CS1300 Index (purple) and ChiNext (blue). The percentage at the end of the chart represents the difference from the opening, not from the previous close. Click to enlarge the charts.

3:09 pm By Xie Yu

Judy Chang, chief investment officer for CIFM Asset Management, said the economy showed some signs of stabilising recently. He expected the Chinese economy to bottom out and pick up in the second quarter, as the fiscal stimulus package starts to take effect.

She said:

“The Chinese government will be keen to maintain a at least mild bull market, to prepare favorable conditions for kicking off the registration-based initial public offering reform.

On the other hand, we heard the regulators overseeing the banking, securities and insurance markets are set to strengthen coordination in supporting the stock market.

Another challenging factor is China’s supply-side reform, highlighted by the leadership since December, while a serious cut in oversupply will squeeze companies’ earnings broadly, before it is accomplished with a more efficient economic system establishes.”

2:55 pm By Laura He

Statistics from PBOC showed Friday that new yuan loans fell sharply to 597.8 billion yuan in December, compared with November’s 708.9 billion. It was well below an average market estimate of 700 billion yuan.

2:43 pm By Jessie Lau

The Hang Seng Index dropped 1.13 per cent or 224.90 points to 19,592.51. The H-share index fell 2.38 per cent or 201.60 points to 8,258.03.

The Shanghai Composite Index slid 3.04 per cent or 91.37 points to 2,916.28. The large-cap CSI300 shed 2.99 per cent or 96.31 points to 3,125.26.

The Shenzhen Composite Index traded at 1,804.28, down 2.96 per cent or 55.09 points.The Nasdaq-style ChiNext Price Index was at 2,120.52, down 2.51 per cent or 54.49 points.

2:34 pm By Enoch Yiu

Kai Hu, senior vice president from Moody’s Investors Service, said:

“China’s suspension of fuel-price adjustments when crude oil falls below US$40 a barrel is credit positive for the country’s national oil companies because profits from their refining business will rise, partially offsetting profit declines in the upstream exploration and production (E&P) segment.

On 13 January 2016, the National Development and Reform Commission (NDRC) changed its pricing policy on refined products. The new policy allows the NDRC to stop reducing the prices of refined-oil products when crude prices are below US$40 per barrel.

China National Petroleum Corporation (CNPC, Aa3 stable), China Petrochemical Corporation (Sinopec Group, Aa3 stable) and China National Offshore Oil Corporation (CNOOC, Aa3 stable) will benefit as the pricing floor will result in higher profits for their refining businesses. Higher profits from the refining business will likely moderate the negative impact of lower crude prices on the companies’ E&P businesses.”

1:54 pm By Jessie Lau

The Hang Seng Index opened the afternoon session at 19,570.36, down 1.25 per cent or 247.05 points. The H-share index, which tracks Hong Kong-listed Chinese companies, opened at 8,264.98, down 2.30 per cent or 194.65 points.

The Shanghai Composite Index traded at 2,952.76, down 1.83 per cent or 54.89 points. The CSI300 index was at 3,163.16, down 1.81 per cent or 58.41 points.

The Shenzhen Composite fell 1.37 per cent or 25.41 points to 18,33.96. The Nasdaq-style ChiNext Price Index dropped 1.13 per cent or 24.66 points to 2,150.35.

12:38 pm By Enoch Yiu

Jasper Lo, director of Tung Shing Futures, said the HK dollar hitting a four-year low of 7.7894 Thursday was a result of the capital outflow.

“Obviously, the international investors do not have expect the stock market would bounce back much in future. They sold from the stock market and leave the money out of Hong Kong to other markets. It is likely the currency would continue to be weak for the near future,” Lo said.

Hong Kong dollar was at 7.7857 against the US dollar at 12:40 pm, down from the previous close of 7.7826.

The currency was also weaker against other major currencies. Euro traded against the Hong Kong dollar at 8.4722 around noon, with the Hong Kong dollar weaker by 0.29 per cent. The Japanese yen also rose 0.56 per cent against the Hong Kong dollar to 0.0662, with the Hong Kong dollar weaker by 0.56 per cent.

Onshore yuan traded against the Hong Kong dollar at 1.1821, with Hong Kong dollar down 0.13 per cent.

Below are the one-week charts for onshore yuan and offshore yuan.

12:25 pm By Laura He

Further depreciation of the Chinese yuan and possible policy mismanagement could trigger more volatility in emerging markets this year, Deutsche Bank predicted in a recent research note.

“China will be a growing source of volatility in the region, as the adoption of the CNY basket creates significant room for USD/CNY upside as the Fed-PBoC divergence builds without disrupting the trade-weighted rate,” analysts said.

The German investment bank said the yuan falling to 7 to the US dollar is a “reasonable target” for the year. However, depreciations are “intrinsically difficult to manage”, analysts noted.

“The room left for (the yuan’s) depreciation vs. the USD and risk of policy mismanagement could trigger further intra-EMFX (emerging-market currencies) adjustments and bouts of volatility,” they added.

12:16 pm By Enoch Yiu

Offshore yuan weakened further Friday morning. However, the currency was poised to post it strongest weekly gain since October, as the PBOC aggressively intervened earlier this week to raise borrowing costs, aiming to drive away currency speculators.

The offshore yuan moved lower for a second day in a row at 6.6160 at 11:30am, weaker by 0.24 per cent.

So far this week, however, the currency traded by international investors in Hong Kong is still up 1 per cent, on track to record its strongest weekly gain since October. The yuan fell 1.72 per cent last week.

Onshore yuan traded by mainland traders in Shanghai rose 0.03 per cent to 6.5866. The onshore rate currently is stronger than the offshore yuan by 294 basis point, against a record discount of 1,400 basis point last Thursday.

12:11 pm By Laura He

The Hong Kong dollar dropped further against the greenback in late morning trade, down to an intra-day low of 7.7858. The currency hit a four-year low of 7.7894 late Thursday, as fears intensified over China’s economic slowdown and the volatility in the Chinese yuan.

12:08 pm By Benjamin Robertson

Hong Kong’s Hang Seng index ended down 0.81 per cent at 19,657.36 by the midday close, with the H-share off 1.65 per cent to 8,320.33.

Over on the mainland, the Shanghai Composite Index closed the morning session 1.54 per cent lower at 2,961.47, and the Shenzhen Composite was off 0.88 per cent at 1,842.92.

Below are the midday charts for Hong Kong and Chinese stock indexes. Click to enlarge the charts.

11:41 am By Benjamin Robertson

Shares in clothing retailer Bossini plunged 17 per cent to 45 HK cents Friday morning, after the company announced an estimated 80 to 90 per cent drop in net profits for the second half of 2015. The company blamed the warm winter weather for poor sales of its year-end collection and a drop in visitor numbers to Hong Kong.

11:23 am By Enoch Yiu

HSBC economist Frederic Neumann said:

“A hard landing in China would spread pain everywhere. But we might just be able to live with a Mainland economy that continues to slow.

Consider Japan’s boom and stumble in the 1980s. At the end of the decade, the Japanese economy had roughly the same share in global USD GDP as China has today. Its contribution to world growth was about the same, too.

And yet, when Japanese demand slowed rapidly, the world sailed on with barely a blip in the 1990s. Could the same occur with China this time around? Not quite.”

The below chart from HSBC shows Japan and China’s contributions to global GDP in the past three decades.

11:20 am By Laura He

Hong Kong property developers suffered broad losses Friday morning, as a sharp drop in Hong Kong dollar fueled concerns over a possible increase in interest rates, which may threaten local real estate developers.

Sun Hung Kai Properties shed 1.9 per cent to HK$87.6, Henderson Land Development slid 1.9 per cent to HK$42.1, New World Development Company declined 1.8 per cent to HK$6.72, and Cheung Kong Property lost 1.2 per cent to HK$45.7.

10:55 am By Laura He

Despite the fall in Chinese stock markets, other Asian markets staged a modest rebound Friday morning. Japan’s Nikkei Average rose 0.7 per cent to 17,367.22, after sliding 2.7 per cent to a three-month closing low on Thursday. The broader Topix also bounced back 0.8 per cent to 1,417.03. Australia’s S&P/ASX 200 added 0.3 per cent to 4,926.30, following a 1.6 per cent decline in the prior session.

10:51 am By Enoch Yiu

Bank of America Merrill Lynch said:

“In our view, the People’s Bank of China (PBOC) is trying to gain more freedom in monetary policy on the back of foreseeable monetary tightening by the Fed.

But in view of the costs from capital outflow, the central bank will likely opt for both tightening capital control and maintaining dollar exchange rate stability in the near term, instead of free-floating the currency or initiating a large one-off devaluation against the dollar.

We think the exchange rate management of the PBOC has entered a new paradigm, but it is still in its early phase in finding the new monetary anchor.”

10:40 am By Benjamin Robertson

Shareholders in Beijing Enterprises Water Group have given a lukewarm response towards the firm’s rebuttal of a previous report by a short seller alleging false accounting numbers.

Beijing Enterprises Water rose 0.89 per cent to HK$4.55 Friday morning. However, it is still down more than 20 per cent since the allegations were first made by GMT Research in mid-December.

In an exchange filing on Friday, Beijing Enterprises said GMT “distorted” various intercompany transactions to “intentionally misleads the investors”. GMT analysis had “major errors”, and the firm “does not understand the business of the Group and lacks any understanding of the dynamic nature of the business sector that the Group’s operates in”, Beijing Enterprises Water said in the filing.

10:34 am By Benjamin Robertson

Hong Kong police has started an investigation over a fraudulent 100-million-yuan loan made by Hong Kong-listed China Healthcare Holdings, according to a company filing on Friday.

Trading in the company’s shares was set to resume Friday, after the company revealed that one of its directors was allegedly involved in falsifying documents related to a 100-million-yuan loan from the company to Tianjin Shengyou Hospital.

China Healthcare has suspended its director Chung Ho and started legal proceedings against him for “breach of directors fiduciary duties”, the company said in the filing. It is also taking legal action against two other firms -- Zheng Hua Investment and Pacas Worldwide, which were reportedly involved in the deal.

The loan was supposedly secured with the support of the Tianjin Catholic Patriotic Association (TCPA), though the filing said the TCPA never executed the agreement.

China Healthcare filed a police report on Wednesday and a case file has been opened, the filing said.

10:08 am By Enoch Yiu

Hong Kong Financial Secretary John Tsang Chun-wah expected capital outflow from Hong Kong to continue, which would led the local currency weaker after hitting a four-year low against the US dollar on Thursday.

Hong Kong dollar briefly dropped to 7.7894 against the US dollar late Thursday , the lowest in four years, before bouncing back to 7.781 on Friday morning.

9:51 am By Enoch Yiu

The People’s Bank of China (PBOC) set Friday the midprice of the US dollar against the yuan at 6.5637, weaker by 21 basis point. On Thursday, it set the reference rate stronger by 14 basis points.

Meantime, the yuan’s midprice against the euro was stronger by 71 basis points to 7.1397, and every 100 yen against the yuan was up 196 points to 5.5661. The PBOC also set the yuan’s midprice against the pound weaker by 253 basis point to 9.4862.

Traders are allowed to trade up to 2 per cent each direction of the mid price for the day.

9:38 am By Benjamin Robertson

Hong Kong and Chinese stocks both opened lower, seemingly ignoring a strong lead from Wall Street overnight. Hong Kong’s Hang Seng Index fell 0.36 per cent or 71.54 points to 19,745.87 in early trade, and the H-share index was down 0.46 per cent, or 38.84 points, at 8,420.79.

The Shanghai Composite index was 0.65 per cent weaker, or down 19.60 points, at 2,988.05. The CSI 300 index was off 0.68 per cent, or 22.02 points, at 3,199.55.

The Shenzhen Composite index inched down 0.14 per cent, or 2.52 points, at 1,856.85.

9:19 am By Laura He

On Thursday, Hong Kong stocks finished lower, paring an earlier decline, with the Hang Seng Index down 0.59 per cent or 117.47 points to 19,817.41.

Over on the mainland, Shanghai and Shenzhen markets reversed course and rallied at close, after more than 20 companies listed in Shenzhen’s startup board pledged their major shareholders won’t sell stakes in at least six months, joining state efforts to stabilise the markets and bolster the sentiment.

The Shanghai benchmark tacked on 2 per cent to settle at 3,007.65. The Shenzhen Composite Index jumped 3.81 per cent or 68.19 points to close at 1,859.37.

Below are the charts of Thursday’s Hong Kong and Chinese stocks by Jessie Lau. Click to enlarge the charts.

9:11 am By Laura He

US stocks climbed Thursday night, as energy shares rallied after oil prices rebounded for a second straight day.

The S&P 500 index ended up 1.7 per cent or 31.56 points to 1,921.84. The Dow Jones Industrial Average closed 1.4 per cent higher, or up 227.64 points, to16,379.05. The Nasdaq Composite finished up 2 per cent or 88.94 points to 4,615.00.

Meantime, crude futures rallied, as February WTI crude futures jumped 2.4 per cent to US$31.20 a barrel on the New York Mercantile Exchange. February Brent crude also gained 2. 4 per cent to US$31.03 a barrel on London’s ICE Futures exchange.

9:08 am By Benjamin Robertson

Hong Kong stock futures shrugged off a strong overnight performance on Wall Street. The Hang Seng Index futures spot January contract dropped 0.30 per cent to 19,750 in the pre-trade session, while the H-share index futures were up 0.26 per cent at 8,475.