Option traders brace for volatility in China"s stock markets

Options markets continue to suggest bearish investors fear a correction for China"s red hot stock markets.... more

APAC Financial Markets • #China, #Equities, #MSCI, #Options, #StockMarket, #Volatility #MarketNews

China property groups diversify to survive

As the Chinese real estate market sours, developers have been forced to switch tack.... more

APAC Financial Markets • #Agriculture, #China, #ChineseRealEstateDevelopers, #Diversity, #ECommerce, #EvergrandeRealEstateGroup, #WandaCommercialProperties #MarketNews

China"s Guotai Junan Securities Plans $4.8 Billion IPO

Guotai Junan Securities received regulatory approval to raise as much as $4.79 billion in an initial public offering in Shanghai, paving the way for what could be China’s largest IPO in five years.... more

APAC Financial Markets • #China, #GuotaiJunanSecurities, #IPO #Equities, #Issuance/Pipeline

Minsheng Leasing unit returns; Trafigura eyeing CNH facility

China’s Minsheng Financial Leasing is back in the loan market for a $175m-$200m facility, picking Credit Suisse as the sole bookrunner and mandated lead arranger.... more

APAC Financial Markets • #China, #CreditSuisse, #InvestmentGrade, #Loans, #MinshengFinancialLeasing, #Syndication #Issuance/Pipeline, #SyndicatedLoans

Fitch shoots down Moody"s over China ABS rating

It only took a few deals, but a spat has already blown up between international ratings agencies when it comes to Chinese auto ABS. On Wednesday Fitch issued a strongly worded opinion on why it thinks the latest SAIC-GMAC Automotive Finance deal did not deserve the rating it has received from a competitor.... more

APAC Financial Markets • #ABS, #AssetBacked, #AutoABS, #China, #Fitch, #Moodys, #Rating, #SAICGMACAutomotiveFinance #AssetBacked, #StructuredFinance

HSBC China push faces regulatory hurdles

Strong local competitors and red tape have long thwarted foreign banks on the mainland.... more

APAC Financial Markets • #China, #HSBC, #RegulatoryHurdles #MarketNews, #RegulatoryIssues

EQUITIES: Franshion raises US$563m from placement

Franshion Properties (China) has raised HK$4.37bn (US$563m) from a placement of 1.6bn shares, or 14.99% of its enlarged share capital, at a price of HK$2.73 each.... more

APAC Financial Markets • #China, #Equities, #FranshionProperty, #SharePlacement #Equities, #Issuance/Pipeline

Vietnam Confronts Debt Surge Echoing China’s as Growth at Stake

(Bloomberg) For decades, Vietnam has modeled its growth after China’s, with a state-enterprise driven economy and a push toward low-cost manufacturing. Now, the Southeast Asian nation is trying to avoid the debt pitfalls of its larger neighbor.

Vietnam’s national debt is rising too quickly, said Nguyen Duc Kien, deputy head of the National Assembly Economic Committee. It may climb to a record 64 percent of gross domestic product by the end of 2015 from 60 percent last year, he said, a forecast that includes government-guaranteed liabilities that ratings companies leave out in their assessments.

“Public debt has risen at the fastest pace ever in a period when the economy had its slowest expansion,” Kien said in an interview in Hanoi Tuesday. “We need to be more mindful about how we spend money.”

Prime Minister Nguyen Tan Dung, who has increased spending on roads and export zones in recent years to bolster growth, began warning about “great payment pressure” earlier this year. That echoes concerns about China’s debt-fueled investment boom that helped spur one of the fastest expansions in the world and is now putting the brakes on the economy as companies and local governments struggle with repayments.

National debt rose about 20 percent every year from 2010 through 2014, Kien said, as officials tried to restructure loss-making state enterprises such as Vietnam Shipbuilding Industry Corp., formerly known as Vinashin, and Vietnam Airlines Corp., whose debt is guaranteed by the government.

Deteriorating Outlook

In contrast, Standard & Poor’s said in a March report it expects Vietnam’s general government debt to rise at an average rate of below 5 percent over the next three years, reducing net debt to 43 percent of GDP from about 46 percent. Fitch Ratings has an assessment of 49 percent at end-2014, while Moody’s Investors Service has it at 45.5 percent.

Vietnam’s national debt to GDP ratio is still higher than the median of 42 percent among its peers, said Andrew Fennell, Hong Kong-based associate director of Asia Pacific sovereign ratings at Fitch. Indonesia’s is about 24 percent and Bangladesh, which shares Vietnam’s BB- rating, is at under 29 percent.

“Fitch has historically and continues to view public finances” as one of Vietnam’s key credit weaknesses, Fennell said. “Further upside to the rating will be challenged by a deteriorating outlook for the country’s public finances.”

Seriously Inefficient

Dung has criticized “seriously inefficient projects with poor management, wasted investment and signs of corruption,” and reiterated a goal of curbing public debt at about 60 percent of GDP by 2020. In a report last month to the National Assembly, Finance Minister Dinh Tien Dung said officials will improve public debt management and better monitor use of debt guaranteed by the state and in provincial governments, without outlining specific measures to do so.

“Our annual liability, or how much we pay for the debt every year is more crucial than the overall debt number,” Bui Quang Vinh, planning and investment minister, told Bloomberg Tuesday in Hanoi. “Our liability is now getting close to the limit” of about 25 percent of state revenue, he said.

The 60-percent-of-GDP limit targeted by the government is the level recommended in the Maastricht treaty for European Union member nations, said Tamara Henderson, a Bloomberg economist.

“It’s not an alarming number,” she said. “Much of Vietnam’s external debt is on concessional terms” that are probably more favorable than market terms, and it is likely being used to fund critical infrastructure, including that to comply with agreements related to integration plans of the Asean nations in Southeast Asia, she said.

Vietnam’s household debt is contained at about 20 percent of GDP, compared with more than 80 percent in Malaysia and Thailand, according to HSBC Holdings Plc. A widening fiscal deficit and a weaker currency will pose a bigger burden on interest expense payments in dong terms, Trinh Nguyen, a Hong Kong-based economist at HSBC, said in a report last month.

Vietnam “will require more steadfast reforms to streamline expenditure spending, expand the tax base, and improve debt management,” she said.

by Uyen Nguyen

APAC Financial Markets • #China, #Debt, #Vietnam #MarketNews

China bottom of the class for fund investors

Korea has been ranked as one of the best markets in the world for fund investors alongside the US, according to new research. But China has received the lowest grade due to its restrictive market and high fees.... more

APAC Financial Markets • #China, #FundInvestors, #HighFees, #Korea, #RestrictiveMarket #AssetManagement, #Buyside

MSCI Defers China Inclusion as It Opts to Work With Regulator

(Bloomberg) MSCI Inc. held off from adding China’s mainland stocks to its benchmark indexes, opting to work with the nation’s securities regulator to overcome remaining obstacles to inclusion.

The index provider expects to put yuan-denominated stocks, also called A shares, in its global benchmarks after settling investor concerns about accessibility and share ownership through collaboration with the China Securities Regulatory Commission, according to a statement issued Tuesday. MSCI said a decision to include Chinese stocks may come at any time.

The possible addition of mainland equities to MSCI’s global indexes has been a divisive issue among fund managers. Even as China’s stocks more than doubled over the past year, foreigners have been cautious about entering a market where retail investors account for 80 percent of trading.

“Some might regard it as disappointing that it did not happen immediately,” Shane Oliver, head of investment strategy at AMP Capital Investors Ltd. in Sydney, which manages about $124 billion, said by phone. “By the same token, it looks like it’s going to happen anyway at some point, it’s just a question of when. They’ve just got some remaining issues to resolve.”

Chinese regulators have addressed some of the concerns that emerged from MSCI’s review last year over market access. They increased the quota under the existing Qualified Foreign Institutional Investor scheme and granted a “temporary” waiver on capital gains levies in November for stock purchases through the Shanghai-Hong Kong exchange link.

Remaining Issues

MSCI said in its statement that it will work with Chinese regulators to establish policies that “effectively resolve the remaining accessibility issues.” Those include giving investors access to quotas commensurate with the size of their assets under management, improvements in liquidity and further clarification of share ownership rules.

Brendan Ahern, the chief investment officer at Krane Fund Advisors, which manages a U.S. exchange-traded fund investing in Chinese domestically-listed shares, said some investors might have expected an immediate inclusion of A shares to the indexes.

“Short term, it’s a disappointment for some of us who would like to see them start the process sooner,” Ahern said by phone Tuesday. “But the trajectory is there. It’s telling asset managers, ‘You have to figure this out — this change is coming.’ I don’t believe the three issues they raised are insurmountable. They won’t wait until the 2016 review to include A shares. It will happen sooner.”

Stocks Surge

The benchmark Shanghai Composite Index has jumped 152 percent in the past 12 months, the most among major global benchmark indexes, spurred by record margin debt and prospects the central bank will add to cuts in interest rates to boost the economy. The gauge is valued at 25.6 times reported earnings, compared with a multiple of 13.9 for the MSCI Emerging Markets Index.

“At these valuations, investors are not likely to jump in and buy more of the A-share market,” Jorge Mariscal, the emerging-markets chief investment officer at UBS Wealth Management in New York, which oversees $1 trillion in invested assets, said by phone Tuesday. “The timing is a little uncertain and the requirements may not be fulfilled, as MSCI has made it conditional. It could be delayed until next year or even later.”

Mobius Buying

Templeton Emerging Markets Group’s Mark Mobius, who was against inclusion as recently as March, became the latest convert in May, saying his funds are now buying China’s shares. Five of nine global investors interviewed by Bloomberg last month said mainland shares were ready for MSCI’s global indexes.

China, through companies listed in Hong Kong, accounts for more than 25 percent of the emerging-market benchmark. It’s the biggest weighting in the gauge, followed by South Korea’s 15 percent and 13 percent for Taiwan, data compiled by Bloomberg show.

Minsheng Securities Co. estimates $7.8 billion will flow into A shares based on limited inclusion and $154.5 billion based on full inclusion in MSCI indexes.

MSCI also said Tuesday it’s monitoring the opening of Saudi Arabia’s equity market, consulting investors regarding a possible inclusion of the MSCI Saudi Arabia Index in the emerging-market benchmark. The index-provider also said it added Pakistan to the list for consideration for an upgrade to developing-nation status as part of the 2016 review.

by Kyoungwha Kim, Belinda Cao and Ye Xie

APAC Financial Markets • #China, #Defers, #Inclusion, #MSCI, #Regulator #MarketNews

Corporate China goes on a borrowing binge

Despite some alarming numbers, fears of a debt crisis have diminished.... more

APAC Financial Markets • #Borrowing, #China, #Corporates, #DebtCrisis, #Default, #Diminished, #Kaisa #MarketNews

Low Prices Let China Blaze New Easing Path

China’s low inflation keeps the door open to novel forms of monetary stimulus.... more

APAC Financial Markets • #China, #LowInflation, #MonetaryStimulus #MarketNews

Chinese Investors Keep Cash Close to Home

As Beijing allows cash to move more easily across its borders, and makes its currency more market-driven, it’s facing a thorny challenge: local investors staying home.... more

APAC Financial Markets • #China, #Investors #MarketNews

The birth of new reserve currencies

China’s renminbi will become a global reserve currency in the not too distant future.... more

APAC Financial Markets • #China, #Renminbi, #ReserveCurrency #MarketNews

China"s trust industry debuts offshore bond

China"s enormous shadow banking sector steps into the international spotlight, with the pricing of a debut offshore bond issue by Zhongrong International Trust.... more

APAC Financial Markets • #Bonds, #China, #Debut, #OffshoreBond, #ShadowBanking, #TrustIndustry, #ZhongrongInternationalTrust #Bonds, #Issuance/Pipeline

UBS ups JV stake, fills senior roles in China

UBS appoints new China country head and confirms increased investment in China securities JV..... more

APAC Financial Markets • #China, #CountryHead, #Securities, #UBS #PeopleMoves

Dalian Wanda turns to crowdfunding

With a minimum investment of $161, project opens commercial real estate to retail investors.... more

APAC Financial Markets • #China, #CommercialRealEstate, #Crowdfunding, #DalianWanda, #Funding, #RetailInvestors, #ShoppingMalls #MarketNews

China to Have Veto Power in Infrastructure Investment Bank

The China-led Asian infrastructure bank aims to differentiate itself with a leaner structure meant to showcase Beijing’s reputation for speed and efficiency.... more

APAC Financial Markets • #AIIB, #AsianInfrastructureInvestmentBank, #China, #VetoPower #MarketNews

P&M: BofA Merrill loses head of China financing

Kenneth Chow has resigned as head of China financing, Asia global capital markets, at Bank of America Merrill Lynch, according to sources with knowledge of the matter.... more

APAC Financial Markets • #BAML, #China, #Financing, #KennethChow #PeopleMoves

Chinese Emboldened by 150% in Stock Returns Ignore Bonds

(Bloomberg) Li Feixiang, who has bet all his money on Chinese stocks that returned more than 150 percent in the past year, scoffs at the 4 percent yields on AAA corporate bonds.

“I can’t settle for low returns,” said Li, a finance industry worker from Chengdu who has some 100,000 yuan ($16,120) left in his savings account after investing more than 2 million yuan in shares. “I’m not interested in bonds. It doesn’t make sense to put my money elsewhere when the stock market is going through a super bull run.”

Individual investors like Li, who account for 80 percent of trading in China’s 9.6 trillion yuan equities market, help explain why, in the face of a slowing economy, the Shanghai Composite Index breached 5,000 for the first time since 2008 on Friday. They’re ignoring bonds and pulling money out of funds that buy them, even as the securities decline to the cheapest levels relative to stocks in five years.

Flagging demand couldn’t come at a worst time as the debt market braces for municipal bond issuance of 1.77 trillion yuan this year, four times as much as in 2014. Net sales of corporate notes slumped 29 percent to 535 billion yuan in the first four months, just as a slowing economy makes it harder to repay liabilities and authorities allow the first onshore defaults.

Stocks Lead

The earnings yield for shares in the Shanghai Composite Index was 0.34 percentage point lower than the 4.32 percent average yield on top-rated five-year corporate bonds as of Friday, the least attractive since December 2009, according to data compiled by Bloomberg. The Shanghai benchmark has surged 146 percent in the past year, dwarfing a 7.8 percent return on debt included in the ChinaBond Composite Total Return Index, while returns coupled with reinvested dividends came in at 154 percent.

Chinese investors opened an unprecedented 4.44 million new stock accounts in the week ended May 29, according to data from the China Securities Depository & Clearing website. Equity fund assets jumped 84 percent to 1.77 trillion yuan in the year through April 30, while bond funds’ rose 34 percent to 359 billion yuan, data from the Asset Management Association of China showed.

While retail investors dominate China’s stock trading, commercial banks accounted for 62 percent of ownership in the interbank bond market as of May, according to ChinaBond data. This means that when people take money out of deposits and bank wealth products, demand for debt takes a hit.

“This year, we’ve really seen a seesaw effect,” said Cici Wang, a fixed-income analyst at Citic Securities Co. in Beijing. “When stocks rise more quickly, many bond funds and wealth-management products face redemption pressures.”

Bond Headwinds

The bond market has faced other headwinds as well, with supply set to soar as China moves to reduce local government borrowing costs. Municipal authorities will issue 1.77 trillion yuan of debt this year, which will include securities that will be exchanged for at least 1 trillion yuan of maturing high-cost borrowings. China will raise the swap quota by another 1 trillion yuan, according to people familiar with the matter.

“Investors’ enthusiastic chase for newly issued shares has diverted funds from bonds,” China International Capital Corp. analysts led by Chen Jianheng wrote in a June 1. “And as local governments will issue more debts in June than in May, the bond market may not be as bullish this month and the yields might increase.”

IPO Frenzy

New share sales by 23 companies in the five days through June 5 were forecast to attract 4.9 trillion yuan of bids, a Bloomberg survey showed. Shares of the 144 firms that went public this year have jumped an average 539 percent so far, including a 44 percent increase on the first day of trading, the maximum amount allowed by local bourses.

“It’s better to embrace the stock market bubble than be afraid of it,” said Jeffrey Qi, who helps oversee about 30 billion yuan as a money manager at E Fund’s Hong Kong unit. “The Shanghai rally will continue due to the central bank’s easing, and there’s no need to cash out anytime soon.”

Valuations such as earnings yields or price-earnings ratios are not really applicable to China’s stock market, said James Yip, a fund manager at Shenwan Hongyuan Asset Management (Asia) Ltd. in Hong Kong.

“China’s stock market is liquidity-driven and policy-related,” Yip said in an interview on June 1. “Under such circumstances, stock investors’ mind-sets are not that rational. They don’t look at PEs, the earnings are meaningless.”

State Support

While Bill Gross, who oversees an unconstrained bond fund for Janus Capital, declared on Twitter June 3 that shares on the Shenzhen index are the next big trade for short sellers, China’s state media showed support for the stock market. The bull run won’t change and any adjustments will support further development, Xinhua News Agencysaid in an editorial May 28. The People’s Bank of China has reduced its benchmark one-year lending rate three times since November and lowered reserve ratios twice this year, adding to the stock boom.

“The Shanghai Index will hit 6,000 this year,” said Li, half of whose investment in stocks was funded by loans from a brokerage firm. “Probably some big institutions hold bonds to lower risks, but I don’t think individual investors like me have to when the current market conditions are so good.”

APAC Financial Markets • #Bonds, #China, #ChineseStocks, #Equities #MarketNews