China Capital Markets Research

The latest Chinese manufacturing PMI is 50.6, declining by 0.3 point from March. From May 2012 to April 2013, this PMI figure has hovered the important line of 50 which is the watershed between economic growth and shrinkage. It signals that the growth of Chinese manufacturing economy is still fluctuating, largely because of the transformation and reformation of Chinese manufacturing industries during this period. The trend is expected to continue in the future so we will likely see continued fluctuations.

China's PMI over the recent past

There are two main sub-industry categories that QFIIs seem to be investing in in China's A-Share market: the mechanics and food & drink manufacturing industries. During the first quarter of 2013, there was a slight decline of 1.55% in the QFII shareholdings in the mechanics manufacturing industry and a 5.78% increase in the food & drink industry.

 

Wealth management refers to a type of financial analysis, financial planning and management service that banks provide to high net worth individuals. Banks have the obligation to return certain profit by managing customers' funds in an agreed period of time.

The trust industry is currently the fastest growing segment in China's asset management industry so far in 2013. In Q4 2012, the total trust AUM was about US$1.195 trillion. At the end of Q1 2013, this number had reached about US$1.395 trillion representing a growth rate of about 16.7%. That growth rate is actually faster than the growth rate of bank loans / deposits, market growth of the securities market, bonds, funds and insurance industry.

 

Kapronasia's latest report Trading China - A Look at the Issues and Opportunities in China's Capital Markets is now available in the research reports section of the Kapronasia website. The report, sponsored by Equinix, is a detailed look at the challenges and opportunities in China's capital markets. The report is free, but does require registration to download. For more information on the report, please look in the research reports section of the website above. 

The Hedge Fund Association, in conjunction with Bloomberg, hosted the HFA - Bloomberg Shanghai Hedge Fund Panel Discussion: International Hedge Funds and Direct Investment in China, in Shanghai on January 5th, 2013. During the event, three experts shared their insight into the challenges and opportunities in China’s hedge fund industry in 2013. I had the opportunity to attend on behalf of Kapronasia and summarized some of my conclusions from the event here:

Margin trading is an important part of financial markets, especially for derivatives although the use of margin trading is still somewhat controversial in certain markets. In China, margin trading is relatively new and the phenomenon and behaviors observed in the markets from the use of margin trading are quite different from those of western markets. In order to better understand the markets, its worth taking some time to analyze the differences and provide suggestions to utilize the opportunities from the development of Chinese margin trading market development.

In the past we haven’t spent too much time looking at the development of China’s financial futures market, but if you were to ask any China capital markets observer what some of the most important reforms of the past few years included, the introduction of the financial futures market would be one of them.

The CSRC’s latest figures show that 57 funds obtained QFII (Qualified Foreign Institutional Investor) licenses in the first 10 months of 2012, far more than any previous year since the program’s inception in 2003. This is a positive signal that foreign investors are more keen to invest in China. Moreover, on Nov. 14th, 2012, Chinese regulators decided to expand the quota by 200 billion yuan to specifically attract RQFII investments; it is predicted that the quota will soon be used up and likely regulators will continue to increase the quota amount.

Earlier this week, Burberry announced lower than expected earnings which largely disappointed and somewhat scared markets. Their slowdown is global, but a key challenge was declining luxury spend from Chinese consumers – which is seen by many as a bellwether for the rest of a general industry slowdown. We’ve talked about luxury spending in China in the past, but it’s worth considering the implications of a potential slowdown in the luxury industry and the implications if the slowdown is indeed an indicator of a shift in the habits of China’s wealthy.

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