China: Stocks plunge to 13-month low amid capital outflow concern

China's stocks tumbled to the lowest levels in 13 months amid concern capital outflows may accelerate as the economy slows and after some of the nation's most-accurate forecasters predicted further declines for equities. 

PHOTO: BLOOMBERG

JAN 26, 20162:59 PM

[SHANGHAI] China's stocks tumbled to the lowest levels in 13 months amid concern capital outflows may accelerate as the economy slows and after some of the nation's most-accurate forecasters predicted further declines for equities.

The Shanghai Composite Index plunged 5.2 per cent to 2,784.88 at 2:24 pm, heading for the lowest close since December 2014, as turnover shrank. Industrial and technology companies led declines. China Shipbuilding Industry Co. and Hundsun Technologies Inc. slumped more than 8 per cent. Hong Kong's Hang Seng China Enterprises Index decreased 3.2 per cent.

Huang Weimin, whose Chinese stock-index futures wagers returned more than 6,200 per cent last year, says the Shanghai gauge could drop another 15 percent in the first half as slowing economic growth and a weaker yuan fuel capital outflows. Outflows jumped in December, with the estimated 2015 total reaching a record US$1 trillion, more than seven times higher than the whole of 2014 based on Bloomberg Intelligence data dating back to 2006.

"The pressure for capital outflow and yuan's devaluation is still quite big," said Dai Ming, a fund manager at Hengsheng Asset Management Co. in Shanghai, adding that he's cutting equity holdings. "We haven't seen signs of a pick-up in the economy and the first and second quarters could be challenging." The Shanghai index's 43 per cent rout since June has been accompanied by an economy losing momentum, similar to the global financial crisis, when the gauge lost more than two-thirds of its value from peak to trough over the course of a year. The index will bottom once it falls to 2,500 this year, said Michael Every, head of financial markets research at Rabobank Group in Hong Kong. That represents a further 15 per cent decline from Monday's close.

Thomas Schroeder, the managing director of Chart Partners Group Ltd. who predicted in October that a rebound in Chinese stocks wouldn't last, says the Shanghai Composite will drop to 2,400.

Mr Huang, whose timely bets on the direction of share prices propelled his Yourong Fund to the top of the country's performance rankings, advised investors to sell shares as the stock market could come under pressure this year from both the economic slowdown and a potential surge in the supply of new shares. With 660 Chinese companies waiting to sell shares via initial public offerings, Mr Huang said the additional supply could divert funds from existing shares.

China's gross domestic product growth is seen slowing to 6.5 per cent this year, from last year's 6.9 per cent. The nation's top leadership has signaled in recent months it may tolerate further moderation as officials tackle delicate tasks such as reducing excess capacity, but nothing that could threaten President Xi Jinping's goal of at least 6.5 per cent growth through 2020.

Capital outflows increased to US$158.7 billion in December, the second-highest monthly outflow of the year after September's US$194.3 billion, according to estimates compiled by Bloomberg Intelligence.

The CSI 300 Index declined 4.9 per cent. Measures tracking industrial and technology stocks lost at least 5 per cent for the biggest decline among 10 industry groups. Citic Heavy Industries Co. tumbled 9.3 per cent, while Yonyou Network Technology Co slumped 9.8 per cent.

PetroChina Co paced losses for energy producers, dropping 4 per cent as oil prices dropped below US$30 a barrel. China Coal Energy Co and Datong Coal Industry Co slid more than 5 per cent.

The Hang Seng Index lost 2.1 per cent, dragged down by financial and oil shares. The gauge slumped 13 per cent this year as the city's dollar peg came under pressure and short-term interest rates spiked.

Trading volumes in Shanghai were 31 per cent below the 30- day average for this time of day. Margin traders reduced holdings of shares purchased with borrowed money for a record 17th day on Monday in Shanghai, with the outstanding balance of margin debt on the city's exchange falling to 573.1 billion yuan ($87 billion) for the lowest level since Sept 30.

BLOOMBERG

    
 

China's state media warns Soros on betting against yuan, HK dollar

China's state media has warned billionaire investor George Soros against betting on falls in the value of the Chinese yuan and Hong Kong dollar , amid widespread worries over the health of world's second-largest economy. 

PHOTO: BLOOMBERG

JAN 26, 20162:06 PM

[BEIJING] China's state media has warned billionaire investor George Soros against betting on falls in the value of the Chinese yuan and Hong Kong dollar , amid widespread worries over the health of world's second-largest economy.

China's fourth-quarter economic growth slowed to the weakest since the global financial crisis, increasing pressure on a government struggling to regain investors' confidence after perceived policy missteps jolted global markets. "Soros' challenge against the renminbi (yuan) and Hong Kong dollar is unlikely to succeed, there is no doubt about that,"the People's Daily overseas edition said in a front-page opinion piece on Tuesday.

China's economic fundamentals remain sound, despite slower growth, volatility in its stock market and the yuan's depreciation against the US dollar, said the opinion piece, written by a researcher at the commerce ministry.

Mr Soros told Bloomberg TV on Thursday he sees a hard landing for China's economy contributing to global deflation.

In his comments to Bloomberg, Soros said he had been betting against the S&P 500, commodity-producing countries and Asian currencies, while buying US government bonds. He did not specifically mention the yuan and Hong Kong dollar.

China's economic growth slowed to 6.8 per cent in the fourth quarter, bringing the full-year growth to 6.9 per cent in 2015 - the poorest showing in 25 years.

The Xinhua news agency also warned against speculation on China's stocks and currency, saying that smart, far-sighted investors should seize the opportunities from China's economic restructuring. "Some people believe that the Chinese capital market is experiencing a major crisis, of which they try to take advantage with speculative actions and even vicious shorting activities,"Xinhua said in a commentary published on Saturday.

China has been constantly improving its market regulatory system and legal system, it said. "As a result, reckless speculation and vicious shorting will face higher trading costs and possibly severe legal consequences." China's central bank has pledged to keep the yuan basically stable against a basket of currencies while Hong Kong's central bank has said it had no plans to change the Hong Kong dollar's peg to the US dollar, despite recent market volatility.

REUTERS

    
 

China stock chartist sees Shanghai Composite retreating to 2,400

Thomas Schroeder, the chartist who predicted in October that a rebound in Chinese stocks wouldn't last, is sticking to a call that the selloff has further to go. 

PHOTO: REUTERS

JAN 26, 20167:25 AM

[SINGAPORE] Thomas Schroeder, the chartist who predicted in October that a rebound in Chinese stocks wouldn't last, is sticking to a call that the selloff has further to go.

The Shanghai Composite Index will drop to 2,400, according to Mr Schroeder. Any bounce will likely be short-lived as the moving average convergence-divergence line, a measure of momentum, is trending lower, he said. A two-day rally in the Shanghai gauge - which closed at 2,938.52 on Monday - is just setting the stage for further declines, according to Mr Schroeder.

"There's more pain ahead," said Mr Schroeder, the Bangkok-based founder and managing director of Chart Partners Group Ltd. "There's still some final stages of weakness that we have to go through in the next quarter or two."

The Shanghai Composite slid into a bear market on Jan 15 for the second time in seven months, while the Hang Seng China Enterprises Index of mainland shares traded in Hong Kong has tumbled 15 per cent this year.

Chinese policy makers are fighting to stem capital outflows and further currency weakness, with the resulting financial-market volatility heightening concern that the nation's deepest economic slowdown since 1990 will worsen.

After Mr Schroeder said in October that the Shanghai gauge would rebound to as high as 4,100 and then tumble to 2,400, the measure rose to a December peak of 3,651.77 before resuming declines. The rally was short-lived due to a renewed slump in commodities, according to Mr Schroeder.

Mr Schroeder predicted in August that the Chinese equity rout will worsen, with the Shanghai Composite probably sliding below 3,100 within two months. The measure dropped to an intraday low of 2,850.71 on Aug 26.

Tom DeMark, another chart watcher who correctly predicted the selloff in China's equity market last year, now expects the Shanghai Composite to fall to within a range of between 2,500 and 2,600 before bottoming.

"We still have yet to see capitulation," Mr Schroeder said. "The Chinese yuan, Shanghai Composite and Hong Kong H-shares are weak."

BLOOMBER
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Asia stocks, oil tumble as recovery comes to halt

JAN 26, 201611:12 AM

[HONG KONG] Asian markets plunged on Tuesday as a two-day rally fuelled by stimulus talk came to an abrupt end with sharp losses in US and European markets and oil prices tanking again.

There had been a glimmer of hope that the worst start to a trading year on record may be brightening, with a surge across all assets spurred by a European Central Bank pledge Thursday to further ease monetary policy.

A report suggesting the Bank of Japan (BoJ) was considering similar moves fanned the optimism, with crude surging about 15 per cent over the two days and equities seeing blistering gains.

But analysts said the euphoria subsided as the realisation set in that the oil market is far too oversupplied for its weak demand, with China's economy continuing to struggle.

"Obviously investors are working through some potentially difficult issues in their minds about the state of the world economy," John Carey, a Boston-based fund manager at Pioneer Investment Management, told Bloomberg News.

"It might be a while before we emerge from this period of uncertainty." Leading the stock market sell-off was Tokyo's Nikkei, which shed 1.8 per cent by lunch, while Hong Kong was more than two percent lower and Shanghai sank 1.5 per cent. Seoul was 1.5 per cent lower while there were also hefty losses in Manila and Taipei.

Sydney was closed for a public holiday.

After ECB boss Mario Draghi's comments on stimulus last week, dealers will be closely following the rhetoric coming out of the US Federal Reserve when it ends its policy meeting Wednesday, which will be followed by the BoJ's Friday.

The Fed's gathering comes after its last session saw interest rates hiked for the first time in almost a decade, citing confidence that the US and global economies were picking up.

With markets from Asia to the Americas seeing trillions of dollars wiped off their valuations since then, experts are keen to find out policymakers' current views.

The BoJ faces more pressure to act as the Japanese economy struggles to get back on track, with the government's promised jump in inflation still a distant prospect and economic growth still paltry.

On crude markets US benchmark West Texas Intermediate was 1.9 per cent lower in early Asian trade - extending the near six per cent drop on Monday. Brent gave up 1.6 per cent after diving more than five percent the previous day.

"The decline is not very surprising because oil fundamentals still remain weak," said Daniel Ang, an analyst with Phillip Futures in Singapore.

"We're looking at strong oversupply and not so outstanding demand," he told AFP. "It is going to be very difficult to maintain higher prices." Analysts said the 15 per cent jump in prices on Thursday and Friday was driven by a combination of speculative moves and expectations that the looming blizzard hitting the US East Coast would drive up demand for heating oil sharply.

AFP

    
 

Hong Kong, Shanghai: Stocks turn down at open

PHOTO: REUTERS

JAN 26, 20169:57 AM

[HONG KONG] Shares in Hong Kong and Shanghai resumed their downward spiral Tuesday morning after a two-day rally as a recovery in oil prices came to a juddering halt.

The Hang Seng Index sank 1.40 per cent, or 271.30 points, to 19,340.14 in the first few minutes.

And the benchmark Shanghai Composite Index lost 1.05 per cent, or 30.79 points, to 2,907.72, while the Shenzhen Composite Index, which tracks stocks on China's second exchange, slid 1.16 per cent, or 21.38 points, to 1,824.40.

REUTERS

    
 

Trader who made 6,200% on China futures says go short or get out

JAN 26, 20168:11 AM

[BEIJING] Huang Weimin, the hedge fund manager whose Chinese stock-index futures wagers returned more than 6,200 per cent last year, has some advice for investors in 2016: Sell your shares now, before it's too late.

The 45-year-old former worker at a state-owned company, a virtual unknown until last year, has become a star of the Chinese futures market after a slew of timely bets on the direction of share prices propelled his Yourong Fund to the top of the country's performance rankings. He's carried the winning streak into 2016, returning 35 per cent through Jan 22 after selling stock-index futures just days before the market's worst-ever start to a year.

Huang, who opened the Yourong Fund in 2014, says China's benchmark Shanghai Composite Index could drop another 15 per cent in the first half as slowing economic growth and a weaker yuan fuel capital outflows. While he's sticking with bearish futures bets to take advantage of further losses, he says the average Chinese stock investor would be better off shifting into cash.

"I'm not optimistic about this year," said Huang, a self-taught trader who manages more than 100 million yuan (S$21.8 million) in the Yourong Fund and separate client accounts that use similar strategies. "My advice is to hold cash, wait and watch." Many of China's 99 million investors appear to be doing just that. Volumes in the nation's US$5.6 trillion cash equities market slumped to the lowest level in three months last week, while trading of stock-index futures has dropped about 99 per cent since June. A bungled government attempt to introduce market circuit breakers in the first week of 2016 deepened investor pessimism after the mechanisms sparked panic instead of restoring calm.

Huang's ability to profit from the turbulence has made him a standout in China's hedge-fund industry, which has struggled to cope with price swings that reached the most extreme levels since 1997 last year. More than 700 funds were forced to liquidate prematurely in 2015, and this year's 18 per cent slump in the Shanghai Composite has left many more on the brink of shutting down.

The Yourong Fund was the best performer last year among 310 private Chinese futures funds tracked by Shenzhen Rongzhi Investment Consultant Co. Huang's closest rival was up just over 1000 per cent, while more than a fifth of his peers posted losses, according to Shenzhen Rongzhi, which collects performance figures directly from the financial institutions where funds hold their trading accounts to ensure the data's authenticity.

To make money last year, Huang had to be nimble. He was bullish for much of the first half, building long positions in stocks and equity-index futures as the Shanghai Composite surged to seven-year highs. After trimming his equity exposure in May, he bet against the market in the second half of June as shares tumbled.

When volatility increased at the end of that month, Huang turned to short-term wagers. A short-term bet on Everbright Securities Co that he sold the following day, for example, produced an 11 per cent return on June 30 as the market posted a brief rally, he said in an interview with Bloomberg News last week from China's southern Fujian province.

Huang moved in and out of the market over the next two months, making one of his most profitable bets in late August after positioning for losses in stock-index futures before a rout that sent the Shanghai Composite down as much as 25 per cent in just two weeks.

"It's like surfing," said Huang, who became a full-time investor in 2006 after quitting his job at a state-owned company. "You have to dance on top of the waves." Aside from good timing, Huang's outsized returns were made possible by the built-in leverage of futures. The purchase or sale of a futures contract typically requires an initial deposit, known as margin, that's just a fraction of the value of the underlying assets. That means even small price changes can lead to big profits - or losses - for holders of the derivatives.

Huang sees China's stock market coming under pressure this year from both the economic slowdown and a potential surge in the supply of new shares.

Gross domestic product growth fell to 6.9 per cent in 2015, the weakest pace since 1990, as an estimated US$1 trillion of capital flowed out of the country last year and the yuan posted its biggest annual drop in two decades. Despite six interest rate cuts by China's central bank, the latest economic indicators for December showed growth is still slowing.

"When you add a lot of cold water into the pot, the firewood we have is for sure not enough,'' Huang said.

With 660 Chinese companies waiting to sell shares via initial public offerings, Huang said the additional supply could divert funds from existing shares. The impact could be even bigger if policymakers follow through on plans for a registration system, which would reduce the government's ability to control the pace of offerings.

There are signs that Chinese shares are poised for a rally. The Shanghai Composite's relative strength index was 33 on Friday, near the threshold of 30 that some traders use as a signal of recovery. Li Yuanchao, China's vice-president, said in an interview in Davos last week that the government is willing to keep intervening in the stock market to make sure a few speculators don't benefit at the expense of regular investors.

The government's intervention has made life more difficult for Huang. He had to pare back his positions last year, particularly in bearish contracts, after authorities cracked down on what they saw as excessive speculation in the stock-index futures market and vowed to go after "malicious" short sellers.

Still, none of that seems to have hurt Huang's knack for calling the markets. Cai Zhongyu, a retired electronics institute worker in Shanghai who's been following the trade recommendations dispensed by Huang in online chat groups since 2009, said she made a 300 per cent return last year "all thanks to him." "He always got it right on the market direction," Cai, 55, said by phone. "You have to admit that." Cai was among more than 90 admirers of Huang who travelled to the coastal city of Xiamen to hear him give trading tips and his market forecasts in December. After an extraordinary 2015, his outlook for this year was decidedly more modest.

"I'll just be following the market and do a few trades as it falls, like ants biting on a bone," Huang said. "If I get 5 to 6 per cent each time and end the year with 50 per cent to 60 per cent, I'd be happy."

BLOOMBERG

    
 

China steel cut plan risks 400,000 jobs, instability: Institute

China's plan to slash crude steel production capacity could eliminate 400,000 jobs and may fuel social instability, according to the state-run metals industry consultancy. 

PHOTO: REUTERS

JAN 26, 201612:36 PM

[BEIJING] China's plan to slash crude steel production capacity could eliminate 400,000 jobs and may fuel social instability, according to the state-run metals industry consultancy.

Steel production capacity will be cut by 100 million to 150 million tons, China's State Council announced Sunday without specifying a time frame. That will translate into as many as 400,000 lost jobs, said Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute, according to a report by the official Xinhua News Agency Monday. China will raise funds to help dismissed workers, Xinhua said.

China's leaders have vowed to reduce excess industrial capacity and labour in state enterprises even as they battle the slowest growth in a quarter of a century. They are grappling with a delicate balancing act as they strive to restructure the economy away from investment-led growth without tipping it into a deeper slump.

"This is a positive sign for China's adjustment to a slower, more efficient, economy, but we should wait to see how many of these job cuts are real," said Andrew Collier, an independent China analyst and former president of the Bank of China International USA. "The high levels of debt in China would be better used to support real and growing businesses." Even more workers will be affected across related industries, Li said, according to Xinhua, and could potentially become a destabilizing force. "Large-scale redundancies in the steel sector could threaten social stability," Li was quoted as saying by the state-run agency.

China's steel producers have faced slumping steel prices and the industry lost an estimated US$12 billion in 2015, according to Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore. The industry faces a long period of restructuring and consolidation with excess capacity of about 300 million tons, he said.

Coal production capacity also is to be cut on "a relatively large scale," according to the State Council statement Sunday.

BLOOMBERG

    
 

US crude below US$30 as prices extend losses

US crude fell back below US$30 a barrel as world oil prices extended their losses in Asia on Tuesday after worries about the global supply glut returned to the fore. 

PHOTO: AFP

JAN 26, 201610:46 AM

[SINGAPORE] US crude fell back below US$30 a barrel as world oil prices extended their losses in Asia on Tuesday after worries about the global supply glut returned to the fore.

After plunging to 12-year lows, prices soared late last week on hopes that plans for further economic stimulus measures in the eurozone and Japan would perk up demand.

But the rally fizzled out Monday on stubborn oversupply fears.

At around 0215 GMT, US benchmark West Texas Intermediate for delivery in March was down 58 cents, or 1.91 per cent, at US$29.76 and Brent crude for March was trading 50 cents, or 1.64 per cent, lower at US$30.00.

Both contracts fell Monday.

"The decline is not very surprising because oil fundamentals still remain weak," said Daniel Ang, an analyst with Phillip Futures in Singapore.

"We're looking at strong oversupply and not-so-outstanding demand," he told AFP. "It is going to be very difficult to maintain higher prices." A strengthening US currency also helped depress demand for dollar-priced oil, which becomes more expensive for holders of weaker units.

The dollar climbed ahead of a meeting on Thursday of US central bank policymakers, with investors looking for signs of further hikes in US interest rates.

"The market would like to know exactly when they could expect the next interest rate increase. That's what's keeping the dollar very strong," Mr Ang said.

The market is also anticipating the return of Iranian oil exports, which would further add to the oversupply.

A day after Western economic sanctions were lifted last week, Iran announced a major boost in oil production, with the National Iranian Oil Company saying it had ordered output to increase by 500,000 barrels per day.

AFP

    
 

Emerging currencies suffer as oil prices head south

Emerging market currencies suffered in Asian trading on Tuesday as another drop in oil prices and a regional equity sell-off pushed investors into safer assets. 

PHOTO: REUTERS

JAN 26, 20161:22 PM

[TOKYO] Emerging market currencies suffered in Asian trading on Tuesday as another drop in oil prices and a regional equity sell-off pushed investors into safer assets.

The oil-linked Malaysian ringgit and South Korean won were among the top losers against the dollar as crude fell back below US$30 a barrel owing to a global supply glut, weak demand and overproduction.

The ringgit fell 0.35 per cent against the greenback and the won slumped 0.47 per cent after data showed South Korea's economic growth slowed in 2015 following a soft fourth quarter and the sharpest annual decline in exports since the global financial crisis.

The Indonesian rupiah, the Taiwan dollar, and Thai baht also retreated.

"Global risk aversion was reignited following a drop in oil prices," Kim Dae Hun, a Seoul-based currency trader at Busan Bank, told Bloomberg News.

"While South Korea's growth data won't have a significant impact on the exchange rate immediately, sluggish economic fundamentals support a weaker won in the long term." In Tokyo trading, the dollar weakened to 118.18 yen from 118.33 yen in New York, while the euro was also down at 128.17 yen against 128.39 yen.

Traders tend to shift their investments into the yen as it is considered a safe bet in times of uncertainty and turmoil.

The euro slipped to $1.0845 from $1.0851.

Dealers are now awaiting the first policy meetings of this year by the US and Japanese central banks.

First up is the Federal Reserve and while it is expected not to ease monetary policy - having lifted interest rates just last month - investors will be poring over what it has to say about the recent worldwide volatility.

Then on Friday the Bank of Japan wraps up its first policy meeting of the year.

Economists are divided on the likelihood of more action after governor Haruhiko Kuroda moved at the weekend to temper talk of a stimulus increase.

In an interview with Bloomberg in Davos, Switzerland, Kuroda said the BoJ was ready to act "if the underlying inflation trend is seriously affected".

Marcel Thieliant from research house Capital Economics said: "The recent strengthening of the yen and the plunge in the Nikkei were similar in magnitude to last summer," when the Bank of Japan decided against further loosening monetary policy.

"A slowdown in underlying inflation will be needed to convince policymakers that more easing is required."

AFP