Top News of the Week
China to Start Stock Index Futures Trading in Mid-April
Starting April 16, the long-awaited stock index futures will begin trading on the China Financial Futures Exchange in Shanghai. The index futures will reference the Shanghai-Shenzhen 300 Index, which covers 300 major stocks listed on the Shanghai and Shenzhen stock exchanges. The first batch of futures contracts will expire in May, June, September and December of 2010. The futures exchange will require a 15% deposit and charge a 0.05% commission per trade. Trading will be suspended if daily fluctuation exceeds 10% in either direction.
The approval for the trading of stock index future came after years of heated debates among regulators wary of the potential negative effects of speculative trading. Retail investors, however, are still largely kept out of the trade, due to a minimum capital requirement of CNY 500,000 to open a trading account. On top of that, investors have to satisfy other eligibility requirements, which include passing an exam on the futures trading ABCs and proving that they have completed at least 20 synthetic stock index futures trading or executed at least 10 commodity futures trades over the past three years.
The trading of stock index futures is significant in China, as for the first time, investors will be able to express their negative views on the stock market. Previously, with no index futures nor short selling, bearish investors had no tools to put their view into trading strategies and make profits. China is expected to allow margin trading and short selling soon as well, as regulators recently approved 6 large brokers for a pilot project.
Market Recap
The Chinese stock market was under pressure this week amid concerns that persistent drought in southwestern China will push up food prices and lead to higher inflation. Investors were also worried that the export sector will face more trade frictions as China refuses to budge on the issue of currency appreciation. The Shanghai Composite Index ended the week flat at 3,060 points, while the Shenzhen Composite Index fell 1% to 12,240.
Macro and Industry Updates
Top Lender ICBC to Boost Capital after Reporting 2009 Results: ICBC's 2009 results showed net profits rose by 16.3% year over year to CNY 129.4 billion. New loans made in 2009 grew by 24.2%, much faster than the expansion rate of 10.4%, 12.2% and 12.2& respectively in the past three years. The bank's non-performing loan ratio shrank to 1.54%, and as of the end of 2009, its capital adequacy ratio and tier 1 ratio were 12.4% and 9.9%, at the top end in the Chinese banking sector.
Nonetheless, the bank surprised the market with its plan to raise capital by issuing as much as CNY 25 billion convertible bonds in the A-share market and issuing new shares in the Hong Kong market that won't exceed 20% of its outstanding H-share stock base. After the capital replenishment, the bank’s tier 1 ratio is expected to exceed 12% and no further fundraising plan will be needed over the next three years.
China Railway Wins $4.8-billion Railway Contract with Indonesia: Hong Kong-listed China Railway Group said it has won a contract to design and build a railway line for coal transportation in the Sumatra Island of western Indonesia, and will operate the line for 24 years. In recent years, Chinese railway companies have won a series of contracts in the Middle East, Southeast Asia and South America. They often team up with Chinese banks to provide a full package with engineering and financing solutions, which gives them an edge over competition.
Air China Raised Stake in Shenzhen Airline to 51%: By injecting new capital into ailing Shenzhen Airlines, Air China will raise its stake to 51% from 25%, and take effective control of the smaller carrier. This means that Air China will finally be able to expand its market share in southern China, for years dominated by rival China Southern Airlines, the country's largest airline by fleet size.
Chinese Automaker FAW Group to Invest in Africa: FAW will invest $55 million into a $100-million joint project with China-Africa Development Fund to build auto manufacturing plants in Africa and to improve auto distribution and service network. Africa currently accounts for 33% of FAW's vehicle exports. The other investor in the project, China-Africa Development Fund, is a $5 billion fund established by China in 2007 to help Chinese firms invest in Africa.
Contributions from Iris Tan and Zhao Hu.
