China Capital Markets Research

China's recent outbound M&A has been suffering with more and more acquisitions failing due to national security concerns, Ant Financial's missed acquisition of MoneyGram being the latest. Why does national security factor into these decisions and why will it remain a crucial consideration in the future?

Two weeks after the 19th Communist Party of China (CPC) national congress, the Chinese state council set up the Financial Stability and Development Committee (FSDC), as the institution to ensure the stability of the financial system and provide solutions for future development.

In the venture capital industry, a ‘unicorn’ refers to any technology start-up company which has reached a valuation of over USD $1 billion, as determined by private or public investment. The term was devised by venture capitalist Aileen Lee, founder of CowboyVC, a venture capital fund based in Palo Alto. She discovered that only 0.07% of software start-ups founded in the 2000s would ever reach a $1bn valuation, thereby being as rare as finding a unicorn.

Qudian lnc, the Chinese micro lending company, has filed for a U.S. IPO at the NYSE earlier last month. It plans to raise up to USD $750 million in capital to spend on strategic acquisitions, marketing and borrower engagement. In only a few years, Qudian has become an eye catching internet lending company with a valuation of over $6.9 billion USD. Qudian’s remarkable success in such a short period of time, shows how profitable the cash loan market can be, as well as the incredible opportunities for transformation that can arise when collaborating with internet giants like Alibaba. 

The equity market cross-connects between Hong Kong and Shanghai, and Hong Kong and Shenzhen have begun to show signs of growing maturity.

MSCI, the influential provider of stock market indexes, has made the long-awaited decision to add Mainland Chinese A shares to its emerging markets index. 222 stocks from the Shanghai and Shenzhen exchanges will be added to the index. These 222 shares will represent just 0.7% of the emerging markets index, which is tracked by and estimated $1.6 trillion in funds.

Historically speaking, it has been very difficult for Chinese investors and institutions to invest their money overseas. The Chinese government has several reasons for tightly regulating capital outflows, the most important of which is controlling the value of the yuan. However, as a continuation of China’s broad plan to become more integrated into the globalized economy, the government has been encouraging cross-border investment through programs that allow Chinese investors to invest overseas, and programs that allow foreign institutions to invest in the mainland.

The Chinese bond markets are becoming more accessible through regulatory initiatives and greater foreign investor participation.

Following more stringent regulation on hydrocarbon emissions and new economic stimulus, 2016 has been characterized by a notable shift in the Chinese commodities market from extraction to processing. The new trend can be seen in rising indices of oil refineries, steel, aluminium and copper in tandem with a cut of supply of crude and coal. This phenomenon will have far reaching implications for construction companies, tech firms, China’s commodity exchanges and the macro economy as a whole in 2017.

On December 31st the State Administration of Foreign Exchange (SAFE) of China announced more stringent rules on individual purchases of foreign currencies, alarming the Chinese citizens with increased restrictions on forex-related investments at the start of the New Year.

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