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China in Focus
January 7, 2014--AFTER A YEAR OF FEAR, DOUBT AND HOPE, market consensus for China's 2014 GDP growth has converged towards the mid 7% level, similar to that of 2013. This can be interpreted that the market has ratcheted down its expectations of what was once high growth to a more modest, but still healthy, level. China's economic data from the past several months suggest that the economy has stabilized and inflation has been maintained at a manageable level.
At the same time, positive developments in recent months on the reform front suggest that the government is focused on, and making progress with, rebalancing its economy to achieve a more sustainable and higher-quality growth trajectory.
The main difference we expect to see in China's economic growth in 2014 compared to 2013 is the mix of growth drivers. In 2013, fixed asset investment growth remained strong, mainly driven by infrastructure and property investment. Consumption growth has been stable while export growth was relatively weak. However, based on signals from the Third Plenum Session, in 2014, we expect contributions from fixed asset invest¬ments to gradually weaken as no major government investment is expected. Consumption is likely to expand at a stable pace of low to mid-teen levels and exports will improve compared to 2013 levels as the overall global economic recovery continues.
China's Shadow Banking Problem
January 7, 2014--China’s top officials appear to be moving to address the risks posed by a fast-growing-but-shadowy part of the country's financial system. The Chinese cabinet is seeking to increase government oversight of lending by companies that currently face little or no supervision, according to news reports based on an official document that was written last month.
Economists have long worried about China's so-called shadow banking system, in which banks and finance companies loan money to businesses and local governments at high interest rates outside the regulated financial system. Analysts worry that unregulated lenders, which themselves borrow money from regulated banks, have made too many dubious loans that could default and set off a broader financial crisis. In recent months, interest rates in China have surged from time to time in part because of the links between the unregulated and regulated parts of the financial system.
Rough ride for Mainland ETFs
January 6, 2014--Mainland ETF sponsors have been speeding up product launches in order to garner a greater share of the market.
This trend was highlighted by the fact that the total number of newly-isted ETFs grew from 12 in 2012 to 34 by the end of last year, according to statistics from Wind Information.
Of these, 26 of the IPO rookies were A-share equity-tracking ETFs and three were commodity-linked ETFs - including the country's first batch of gold ETFs-the HuaAn Gold ETF,the Guotai Gold ETF, and the E Fund Gold ETF.
Shadow Banking Risks Exposed by Local Debt Audit: China Credit
January 6, 2013--China's audit of local governments exposed an increased reliance on shadow banking, swelling the risk of default on 17.9 trillion yuan ($3 trillion) of debt.
Bank lending dropped to 57 percent of direct and contingent liabilities as of June 30 from 79 percent at the end of 2010, while bonds rose to 10 percent from 7 percent, National Audit Office data show. Trust financing surged to 8 percent from zero, while other channels that sidestep loan curbs accounted for the remaining 25 percent. The yield on five-year AA notes, the most common rating for local government financing vehicles, jumped by a record 158 basis points last year to 7.6 percent. That exceeds the 5 percent on emerging-market corporate notes, Bank of America Merrill Lynch indexes show.
Era of renminbi dawns as China's influence grows
January 6, 2014--"The Chinese currency, the renminbi, is not terribly well known at the moment, but over my lifetime it's going to become almost as familiar as the US dollar." So said George Osborne during a recent visit to Shanghai.
At first glance, this might seem unrealistic. The renminbi is hardly a global investment currency and barely registers on central bank balance sheets. So any change would require a profound shift in the financial landscape.
Bombay Bullion Association plans to buy 5% stake in MCX
January 2, 2014--Shares of the country's only listed bourse MCX shot up by almost 3% to Rs 492.5 on buzz of a jewellers' trade body is planning to buy 5% in the bourse along with a consortium that plans to bid for a controlling stake in the exchange.
The plan comes on the heels of the MCX board having directed the exchange's promoter Financial Technologies (FT) to cut its stake to 2% from 26% last month after it was found not fit and proper to be a shareholder on the bourse by commodity market regulator FMC.
S&P Dow Jones Indices' Market Attributes-Index Dashboard-Asia
December 31, 2013-- This month's highlights include:
A $10bn per month reduction in U.S. quantitative easing provided the major macroeconomic news of the month. U.S. equities gained on the news, U.S. bonds fell.
Japan’s TOPIX 150 was up 4% even as the Yen strengthened slightly. In China the CITIC 50 A-Shares Index dropped over 5% as the central bank was forced to react to a short term liquidity squeeze; further evidence of credit instability in the region pushed financials into the red for the December.
Gold continued its annus horribilis, falling a further 4% this month. However the broad commodities indices posted gains in December, led by natural gas (+12%), WTI crude (+7%) and cotton (+8%).
Hong Kong, China to Sign Cross-Border Funds Deal
Pact Could Lead to Billions of Dollars of Cross-Border Investments in Stocks and Bonds
December 30, 2014--Hong Kong and China will soon sign a deal where funds based in both markets can be sold to retail investors on either side, potentially allowing billions of dollars of cross-border investments in stocks and bonds.
A deal according "mutual recognition"to funds domiciled on both sides of the border may get the green light as soon as the first quarter of 2014, say fund managers, bankers, and strategists familiar with the talks.
China Says Local-Level Debt Soars, Stirring Fear
December 30, 2013-- The total debt of local governments in China has soared to nearly $3 trillion as the country's addiction to credit-fueled growth has deepened in recent years, according to the findings of a long-awaited report released on Monday by the central auditing agency.
In the report, which is likely to further raise concerns about China's debt problem, the National Audit Office found that local governments across the country had accumulated 17.89 trillion renminbi, or $2.95 trillion, worth of debt obligations as of the end of June. That was an increase of 12.7 percent from December 2012, when local government debt stood at 15.88 trillion renminbi, the report said.
South Korea exchange rushes to implement 'kill switch'
December 30, 2013--South Korea's exchange operator, Korea Exchange (KRX), is rushing to implement a "kill switch" system designed to minimise the fallout from trading algorithms going wrong after a local broker was brought to the brink of bankruptcy by erroneous electronic trades this month.
HanMag Securities, a local derivatives broker, faces collapse after suffering a loss of Won46.2bn ($4.3m), after entering thousands of erroneous trades in Kospi options. It is the first time a South Korean securities group faces bankruptcy due to erroneous electronic trades.
