Fitch Sounds Warning on Hong Kong Banks, Citing China Risks

Asian Stock Markets

Fitch Ratings Ltd. cut its assessment of Hong Kong banks’ operating environment due to the territory’s tighter links to the mainland economy.

Fitch said in a statement that they believe that Hong Kong’s growing connectivity with China’s economy and financial system creates risks, adding that China’s governance standards, as measured in the World Bank’s indicators, are substantially lower than Hong Kong’s.

The ratings company said it also took into account risks in Hong Kong due to above-trend credit growth and high property price inflation, largely the result of the deepening linkages with China.

It cut the assessment for Hong Kong banks to ‘a’ with a stable trend, from ‘a+’ negative.

The Hong Kong Monetary Authority has a strong record of curtailing the impact of loan delinquencies on its banks when home prices unexpectedly drop, while the regulator is unlikely to set limits or additional buffers explicitly for China-related risks in the near term, according to Fitch.

It is more challenging for the HKMA to maintain independent and prudent oversight of banks’ China expansion as it relies on coordination with the authorities on the mainland to ensure banks’ activities there are well-managed and well-capitalized, Fitch said.

Fitch’s operating environment assessments are different from its ratings, and take into account other factors such as the economic environment, how developed the financial market is, and the regulatory and legal framework.

Saudi Aramco will list in Hong Kong eventually

Asian Stock Markets

Access to Chinese investors will eventually bring Saudi Aramco to list in Hong Kong, said Charles Li, CEO of Hong Kong Exchanges and Clearing. Hong Kong is competing against New York and London for what is expected to be the world's largest IPO ever. A win for Hong Kong would be a welcomed boost for the city that recently lost its crown as the global IPO leader.

The potential to reach the vast Chinese investing public will eventually bring Saudi Aramco to list in Hong Kong, even if the oil giant skips over the special administrative region for its first public offering, said Charles Li, chief executive of Hong Kong Exchanges and Clearing.

Hong Kong is competing against exchanges in New York and London — and potentially elsewhere — for what is expected to be the world's largest IPO. Saudi Aramco, valued at $1 trillion to $2 trillion, is widely expected to float around 5 percent of its shares.

The energy company earlier said that it is fully prepared to launch its IPO in the second half of 2018, but the exact timing and the decision on where to list will depend on its sole shareholder: the government of Saudi Arabia.

A win for Hong Kong would be a welcomed boost for the city that recently lost its crown as the global IPO leader.

The financial center raised $15.6 billion through new listings in 2017, coming in third after New York and Shanghai, according to a report by EY. In 2016, Hong Kong had topped the league with $25.2 billion in proceeds, EY said.

The stock exchange in Hong Kong has since announced an overhaul of its listing rules to lure a greater number of IPOs.

The changes that will take place this year include the introduction of dual-class shares and easier entry for bio-tech companies and firms seeking a secondary-listing in Hong Kong, Li said.

A dual-class structure is one that gives shares held by company founders and executives larger voting rights compared to those owned by minority holders. Major tech companies such as Facebook and Alibaba use such a format, but the structure has escalated concerns about corporate governance and protection for minority investors.

Li acknowledged there may be some risks in allowing dual-class shares, but added that he did not expect protection for minority investors to diminish.

Singapore Exchange Takes on Hong Kong With Dual-Class Shares

Asian Stock Markets

Singapore Exchange Ltd. said it allow companies with dual-class share structures to list, a month after Hong Kong announced a similar proposal, as competition between markets for technology listings becomes increasingly fierce.

 

The moves by the two Asian exchanges come as some of the world’s largest technology companies from Alibaba Group Holding Ltd. to Facebook Inc. use stock with enhanced voting power to protect the influence of their founders and management.

Such structures have faced opposition from investors, who fear their rights could be eroded amid corporate governance concerns.

SGX shares rose 3.3 percent to S$8.24 just before the lunch break on Monday, the highest level since July 2015, according to data compiled by Bloomberg. Analysts including Nick Lord of Morgan Stanley and RHB Bank Bhd.’s Leng Seng Choon wrote in research reports that the stock would probably gain as revenue increases.

The Monetary Authority of Singapore said Friday it supported SGX’s decision to allow dual-class share structures, and that it would review the safeguards the exchange will propose to mitigate the risks involved.

Hong Kong Exchanges & Clearing Ltd. proposed allowing innovative companies to list with dual-class shares as part of a package of measures released last month.

Its plan would see each multiple-vote share represent no more than 10 times the votes of ordinary shares, and only companies with a focus on new technologies would be eligible. Founders and executives would need to demonstrate how their contribution merits the structure.

SGX also said that it would go ahead with the introduction of stock futures on some of India’s largest companies on Feb. 5. The National Stock Exchange of India Ltd. was asking the Singapore bourse to delay the start, Bloomberg reported last week.

The exchange operator is also planning a medium term note program to raise as much as S$2 billion ($1.51 billion) in debt to fund its growth.

China stocks rise, could have 9th straight gain; Hong Kong up

Asian Stock Markets

China shares rose early Wednesday, led by banking and consumer stocks, and were on track to climb for a ninth straight session. 

China’s December producer prices grew at their slowest pace in 13 months as the government’s stepped-up war against winter smog dented factory demand for raw materials, and the country’s consumer inflation accelerated less than expected to 1.8 percent in December from 1.7 percent previously.

At 04:03 GMT, the Shanghai Composite index was up 11.94 points or 0.35 percent at 3,425.84. China’s blue-chip CSI300 index was up 0.49 percent, with its financial sector sub-index higher by 0.82 percent, the consumer staples sector up 1 percent, the real estate index up 0.36 percent and healthcare sub-index down 0.37 percent.

Chinese H-shares listed in Hong Kong rose 0.92 percent at 12,368.42, while the Hang Seng Index was up 0.68 percent at 31,223.19. The smaller Shenzhen index was down 0.35 percent and the start-up board ChiNext Composite index was weaker by 0.67 percent.

Around the region, MSCI’s Asia ex-Japan stock index was weaker by 0.18 percent while Japan’s Nikkei index was down 0.21 percent.

The yuan was quoted at 6.5216 per U.S. dollar, 0.11 percent firmer than the previous close of 6.5285.

The largest percentage gainers in the main Shanghai Composite index were Easysight Supply Chain Management Co Ltd up 10 percent, followed by Shanghai Prosolar Resources Development Co Ltd gaining 9.98 percent and Shanghai U9 Game Co Ltd 9.96 percent.

The largest percentage losses in the Shanghai index were Cultural Investment Holdings Co Ltd down 5.94 percent, followed by Kama Co Ltd losing 5.33 percent and BOCO Inter-Telecom Co Ltd down by 5.06 percent. So far this year, the Shanghai stock index is up 3.23 percent, while China’s H-share index is up 4.7 percent.

The top gainers among H-shares were China Merchants Bank Co Ltd up 3.53 percent, followed by China Citic Bank Corp Ltd gaining 3.52 percent and Anhui Conch Cement Co Ltd up by 3.06 percent.

The three biggest H-shares percentage decliners were Great Wall Motor Co Ltd which has fallen 4.87 percent, Air China Ltd which has lost 1.7 percent and New China Life Insurance Co Ltd down by 1.5 percent. About 12.06 billion shares have traded so far on the Shanghai exchange, roughly 77.2 percent of the market’s 30-day moving average of 15.61 billion shares a day.

The volume traded was 19.15 billion as of the last full trading day. As of 04:03 GMT, China’s A-shares were trading at a premium of 26.43 percent over the Hong Kong-listed H-shares. The Shanghai stock index is above its 50-day moving average and above its 200-day moving average.

The price-to-earnings ratio of the Shanghai index was 15.38 as of the last full trading day while the dividend yield was 1.9 percent. So far this week, the market capitalisation of the Shanghai stock index has risen by 0.68 percent to 29.91 trillion yuan.

In Hong Kong, the sub-index of the Hang Seng index tracking energy shares rose 2 percent while the IT sector fell 0.2 percent.


The top gainer on Hang Seng was Country Garden Holdings Company Ltd up 6.35 percent, while the biggest loser was Link Real Estate Investment Trust which was down 2.15 percent.

China, Hong Kong stocks cheer Beijing's commitment to reform

Asian Stock Markets

China and Hong Kong stocks rose on Thursday morning, on investor optimism over Beijing’s plans to deepen structural reforms and curb financial risks while maintaining steady economic growth in 2018.

This was in contrast to subdued Asian equity markets that took their cue from a weaker Wall Street, as the passage of U.S. tax cuts was seen largely factored into share prices.

The Chinese government will push forward with structural supply-side reform and maintain prudent, neutral monetary policy next year as it looks to improve the quality of growth, the Xinhua news agency said on Wednesday, citing top leaders at a key economic planning meeting.

At 04:10 GMT, the Shanghai Composite index was up 15.69 points or 0.48 percent at 3,303.29. China’s blue-chip CSI300 index was up 0.97 percent.

China’s major raw materials firms, which will benefit from further supply-side reforms, posted robust growth, while healthcare and consumer stocks also gained. Meanwhile, the government’s pledge to reduce risks in the financial system gave a boost to banking shares .

Chinese H-shares listed in Hong Kong rose 0.91 percent to 11,610.06 while the Hang Seng Index was up 0.49 percent at 29,378.70.

The smaller Shenzhen index was up 0.55 percent and the start-up board ChiNext Composite index was higher by 0.28 percent. Around the region, MSCI’s Asia ex-Japan stock index was weaker by 0.04 percent while Japan’s Nikkei index was down 0.05 percent .

The yuan was quoted at 6.571 per U.S. dollar, 0.1 percent firmer than the previous close of 6.5775. The largest percentage gainers in the main Shanghai Composite index were Wuxi Taiji Industry Co Ltd up 6.06 percent, followed by Poly Real Estate Group Co Ltd gaining 5.87 percent and Shanghai Fosun Pharmaceutical Group Co Ltd up by 5.09 percent.

The largest percentage losses in the Shanghai index were Guizhou Yibai Pharmaceutical Co Ltd down 7.54 percent, followed by Wenyi Suntech Co Ltd losing 5.25 percent and Hebei Jinniu Chemical Industry Co Ltd down by 4.83 percent. So far this year, the Shanghai stock index is up 5.93 percent, while China’s H-share index is up 22.5 percent.

Shanghai stocks have declined 0.89 percent this month.

The top gainers among H-shares were China Merchants Bank Co Ltd up 2.64 percent, followed by China Vanke Co Ltd gaining 2.51 percent and China Communications Construction Co Ltd up by 2.46 percent.

The three biggest H-share percentage decliners were Air China Ltd which has fallen 2.50 percent, Great Wall Motor Co Ltd which has lost 1.4 percent and CRRC Corp Ltd down by 1.2 percent. About 8.11 billion shares have traded so far on the Shanghai exchange, roughly 50.3 percent of the market’s 30-day moving average of 16.13 billion shares a day.

The volume traded was 13.77 billion as of the last full trading day. As of 04:10 GMT, China’s A-shares were trading at a premium of 31.28 percent over the Hong Kong-listed H-shares.

The Shanghai stock index is below its 50-day moving average and above its 200-day moving average. The price-to-earnings ratio of the Shanghai index was 14.78 as of the last full trading day while the dividend yield was 2 percent.

So far this week, the market capitalisation of the Shanghai stock index has risen by 0.90 percent to 28.71 trillion yuan. In Hong Kong, the sub-index of the Hang Seng index tracking energy shares rose 1.1 percent while the IT sector rose 1.1 percent.

The top gainer on Hang Seng was Ping An Insurance Group Co of China Ltd up 2.43 percent, while the biggest loser was Wharf Real Estate Investment Co Ltd which was down 1.90 percent.

Asian shares stepped back from decade highs on Tuesday as Chinese stocks stumbled

Asian Stock Markets

Asian shares stepped back from decade highs on Tuesday as Chinese stocks stumbled for a second straight session, while the U.S. dollar trod water ahead of a crucial Senate vote on tax reform.

Investor confidence in China has been dented by rising bond yields as Beijing steps up its crackdown on shadow banking and other risky forms of financing. Higher borrowing costs threaten to squeeze corporate profits.

Mainland stocks have jumped 22 percent in 2017 .CSI300, with the gains concentrated in a handful of large index-weighted stocks. The index was down 0.3 percent while Shanghai's SSE Composite index slipped 0.2 percent at 0221 GMT.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.3 percent from last week’s high of 570.21 points. It was on track to end November in the black.

The index has been on an uptrend most of this year, posting a monthly loss only once in 2017.

Australian shares were flat while Japan's Nikkei .N225 rose 0.2 percent.

Wall Street had been mixed on Monday, with the S&P 500 .SpX off a touch, the Nasdaq .IXIC losing 0.1 percent and the Dow .DJI up 0.1 percent.

The dollar was a touch softer on the yen at 111.27 JPY=, and within spitting distance of a recent 2-1/2-month low, as bulls fret about potential delays in U.S. tax cuts.

The euro EUR= was steady at $1.1898, within reach of a two-month high.

The tweet came after a meeting with Senate Republican tax-writers on Monday ahead of a crucial vote on the Senate floor that could come as early as Thursday.

Separately, the U.S. Senate Banking Committee holds a hearing on Tuesday to confirm the nomination of Jerome Powell at the helm of the Federal Reserve. If confirmed, Powell will have to balance tightening policy against still sluggish wages and inflation.

The bond market is concerned the Fed will hike rates too far, keeping inflation too low and ultimately slowing the economy.

That has been a major force in the remarkable pace of curve flattening in recent weeks. The 2s/10s yield curve is only 58 basis points from inverting - a classic signal that recession is just around the corner. [US/]

In commodity markets, U.S. light crude CLc1 was off 29 cents at $57.82, having fallen more than a dollar overnight. Brent crude LCOc1 slipped 13 cents to $63.71, but not far from a near 2-1/2 year peak of $64.65 touched earlier this month.

Spot gold XAU= inched lower to $1,293.30.

South Korea's KOSPI Fell, Japan's Nikkei Ended flat,

China, Hong Kong and Taiwan markets are closed for holidays on Tuesday. Japan's Nikkei .N225 ended flat, held back by a stronger yen.

South Korea's KOSPI .KS11 fell 0.4 percent as investors took profits following the market's record-breaking rally this month.

North Korean leader Kim Jong Un supervised Monday's test of a new ballistic missile controlled by a precision guidance system and ordered the development of more powerful strategic weapons, the North's official KCNA news agency reported on Tuesday.

South Korea said it had conducted a joint drill with a U.S. supersonic B-1B Lancer bomber on Monday. North Korea's state media earlier accused the U.S. of staging a drill to practice dropping nuclear bombs on the Korean peninsula.

European blue-chip stocks .STOXXE fell 0.2 percent on Monday, with Italy's banking index sliding 3.4 percent, its biggest loss in nearly four months, after two lenders sought help to cover a capital shortfall.

Sterling GBP= retreated 0.2 percent to $1.2809 after British Prime Minister Theresa May's lead over the opposition Labour Party dropped to 6 percentage points in the latest poll to show a tightening race since the Manchester bombing and a U-turn over social care plans.

The dollar declined 0.4 percent to 110.88 yen JPY=. The dollar index .DXY, which tracks the greenback against a basket of trade-weighted peers, however, advanced 0.3 percent to 97.751.

Markets are awaiting economic indicators including French first quarter gross domestic product, German inflation data for May, and U.S. inflation for April later in the session.

In commodities, oil prices retreated, as concerns lingered about whether the extension of output cuts by OPEC and other producing countries will be enough to support prices.

U.S. crude futures CLc1 slipped about 0.1 percent to $49.78 a barrel. Global benchmark Brent LCOc1 fell 0.4 percent to $52.09. Gold XAU= rose 0.1 percent to $1,268 an ounce.

Gold Prices Rallied, The Dollar Rose

Gold prices rallied 0.2 percent to $1,231.24 an ounce, extending Friday's 0.3 percent gain.

U.S. Treasury yields dropped to 2.292 percent, building on Friday's loss when they ended at 2.333 percent, down from Thursday's close of 2.4 percent and their biggest one-day drop in more than three weeks.

Chinese shares added 0.35 percent, after the government soothed market fears of tighter regulation saying bank risks were "completely controllable."

That reassurance, as well as stronger retail sales and property investment data, helped offset weakness in factory output and fixed-asset investment growth.

Hong Kong shares gained 0.5 percent. Australian shares were down 0.2 percent. The euro was little changed on Monday at $1.093, holding Friday's 0.7 percent gain.

On Friday, the S&P 500 and the Dow Jones Industrial Average closed lower after growth in retail sales and consumer prices missed expectations, and worries deepened over the health of department stores after weak earnings reports.

The dollar rose 0.1 percent to 113.39 yen , failing to make up most of Friday's 0.5 percent loss.

The dollar index, which tracks the greenback against a basket of major trade-weighted peers, pulled back 0.1 percent to 99.151.