Saturday, 04 July 2015 00:00

A-shares oversold, look set for a bounce

Update: There appears to be a somewhat similar announcement circulating on social media regarding mutual funds in China, 23 of which allegedly planned to increase buying to help stabilize the market. With the joint announcement from securities brokers over the weekend that there would be a 120 billion RMB ‘stability fund’ to help the market and the Shanghai RSI showing an oversold market, A-shares are set for a near-term pop next week. The weekend announcement also suggested that they would be buyers at levels beneath 4,500, which is about +22% higher than Friday’s 3,687 close. The announcement appears to suggest…
Saturday, 04 July 2015 00:00

Week in review - Jul 3, 2015

US-listed China stocks extended the weekly losing streak to three during trading in holiday-shortened trading this week. By Thursday, the PowerShares Golden Dragon China fund had fallen -2.3%, bringing its YTD return to approximately 17.8%, pushing the peak to trough decline to -9.5% from recent highs achieved in mid-June.   Although there was some economic data which came out of China this week (home prices, official PMI), the main theme dominating discussions this week was the ongoing implosion in China’s domestic A-share market. The Shanghai Composite ended the week -12% lower than the previous Friday, bringing the index down nearly…
Data provided by the Shanghai stock exchange showed that margin debt has fallen for nine straight days, down to 1.3 trillion RMB as of July 2 compared to nearly 1.5 trillion RMB on June 18. When including July 1 end of day data from Shenzhen, the most recent available, total margin debt was just under 2 trillion RMB at the end of trading on July 2 versus nearly 2.2 trillion RMB in late June.  The drop in margin lending on July 2 was the biggest pullback in margin debt YTD, with a decline of nearly 36 billion RMB in margin…
Mainland stock markets took another dive lower on Wednesday, with the Shanghai Composite falling -5.2%, Shenzhen dropping -4.8%, and the ChiNext (growth industries board similar to NASDAQ) falling -3.5% on the day. Hong Kong markets were closed for a holiday. The drop in Shanghai comes on the heels of a recent triple-threat rate cut from the PBOC (slashing the RRR, as well as the deposit and lending rates) and calls for calm earlier in the week following the unexpected -3% drop on Monday, post-PBOC news. In a similar theme to recent trading bloodbaths, there were no industry groups which closed…
Data provided by ChinaClear showed that the pace of new A-share account openings fell sharply in the last week of June (ending June 26), with under 500,000 new openings during the week, down nearly -50% from the previous week. The dramatic slowdown in new account openings shouldn't come as much of a shock when considering the extreme levels of volatility that A-shares have recently exhibited. Over the past few weeks, the Shanghai composite has dropped over -20% from it's mid-June peak, punctuated by huge daily swings. Based on trailing monthly data (20 trading days), the annualized volatility has increased to…
Wednesday, 01 July 2015 00:00

Home prices rise in June 2015, 8-month high

Private survey data released on July 1 showed that the recovery in home prices continued through June 2015 across 100 cities nationwide, rising +0.6% MoM to levels -2.7% lower than a year ago. Although the aggregate price index did rise to an 8-month high, reversing earlier losses, the price recovery in top-tier cities like Beijing, Shanghai, Tianjin, Guangzhou, and Shenzhen was even more dramatic. On average, prices in those major metropolitan areas grew +2.3% during June, reversing earlier losses associated with the property slump which began in May 2014. Official home price data for June is slated for release July…
Wednesday, 01 July 2015 00:00

Eco data - PMI for June 2015

China’s National Bureau of Statistics released Manufacturing and non-Manufacturing PMI data for June 2015, which both indicated expansion, however in the case of manufacturers, the pace was decidedly weak. For both sets of data, deflationary pressure seemed apparent, with both input and output prices showing lower readings. China’s manufacturing PMI was 50.2, lower than the expected 50.3, and unchanged from the reading in May. The month’s official data was at odds with private survey data, which showed a worsening contraction than initially expected. The final reading of the HSBC/Markit Manufacturing PMI was 49.4, down from an initial 49.6 flash reading,…
KongZhong announced that a consortium made up of Chairman and CEO Leilei Wang and venture capital firm IDG Capital Partners submitted a bid for the company equating to $8.56 per ADS. Based on KongZhong’s FY2014 annual report, the consortium controlled about 25% of the company’s outstanding equity. In the past, management has tried just about every trick in the book to get the market’s attention, including share buybacks, special one-time dividends, and most importantly, generating a steady stream of cash flows while developing new lines of business. The buyout consortium’s proposed $8.56 price per ADS reflected a +20% premium to…
Sunday, 28 June 2015 00:00

Week in review - Jun 26, 2015

Trading this week in US-listed China stocks brought more volatility, and an unwelcome guest in the form of a drop nearly -3% on Friday to punctuate another week of losses. Although there was eco data from HSBC/Markit, the Flash Manufacturing PMI, the dominant narrative this week was undoubtedly the meltdown in domestic A-shares... which shed over -13% on the week. US-listed names have been taking a trading cue from Chinese shares of late, and seeing the floor fall out of domestic Chinese stocks clearly shocked investors in US-listed names. By Friday, the PowerShares Golden Dragon China Fund (PGJ) lost -3.8%…
In an effort to remove all doubt that the shaky A-share market is counter to policy, the People’s Bank of China cut just about every interest rate it could over the weekend, slicing lending, deposit, and banks’ required reserve ratio. The move is sure to have one definite consequence, which is to send inflows to China’s equity markets. Shanghai and Shenzhen markets have both fallen significantly from their recent highs, and easing monetary policy will come as a welcome relief to markets which have seen selling pressure in part due to over-leveraged investors. According to this release on the PBOC…
Updated data from the Shanghai stock exchange released on Friday, June 26 showed that investors in Mainland China continued to pull back on borrowed funds while the market was heading lower. By Friday, total margin debt outstanding was about 2.2 trillion RMB (updated data for Shenzhen was unavailable on Friday, so this figure combines current data from Shanghai and T+1 data for Shenzhen).  The recent trend in outstanding margin debt has been one of decline, something not surprising considering recent poor performance in China's domestic stock markets. The relationship between margin debt and the index’s rise has been widely covered…
Mainland shares had another losing day on Friday, shedding -7.4%, which brought the weekly loss to a painful -6.4% for the Shanghai Composite. Shenzhen dropped -8.2% on the day, which translated into a weekly drop of -8.4%. Although volume and turnover for the Shanghai Composite was lighter than the 20-day average, selling was indiscriminate across the board. Energy names led the charge lower, dropping -8.8%, followed by Communication and Communication equipment (-8.7%), Electronic equipment (-8.3%), Non-metal building materials (-8.3%), and Banks and financial names dropping -8.2%. The “best” performer of the 29 different A-share industry groups today was Air logistics,…
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