Last week in China, the China Securities Regulatory Commission (CSRC) prohibited listed companies from raising capital earmarked for investment in the following four industries: Internet Finance, Video Games, Film and TV, and Virtual Reality. The new prohibition is an attempt to steer money into the real economy, which is defined as industries producing tangible products and services. Permissions for mergers, acquisitions, and refinancing in those ‘unreal industries’ have been halted, as well.
China plans some new rules for the Qualified Domestic Institutional Investor program to further facilitate the cross-border investment and help the fundraising environment.
It will come as no surprise to the avid watchers of the Chinese stock market that China’s start to 2016 has not been a success by any means. The CSI 300 index of blue chip stocks plummeted by 5% on Thursday 7th January, prompting the newly implemented circuit breakers to kick in and suspend trading for 15 minutes in order to remediate market volatility.
The RMB-USD exchange rate has two different values: the onshore value, determined by the PBOC at markets opening, and the offshore value, which is market-driven and used in Hong Kong. These two rates were usually almost identical, until August 2015 when a surprise depreciation by the Chinese central bank caused an even deeper depreciation in the offshore value, with the spread between the two starting to become significant, especially towards the end of the year when the yuan continued to lose value in comparison to the US dollar.
When the Shanghai Stock Market first opened after the New Year’s holiday, everything quickly turned for the worst: a fast, large rout emerged, with the CSI300 Index losing 5 percentage points by 1 am. Then it stopped for 15 minutes, as trades were paused. After the break ended, the index kept going down, down in fact 7% on the previous trading day in just two minutes. At this point negotiations stopped again, but this time for the rest of the day.
Shanghai police have arrested 2 executives from a HK-owned High Frequency Trading (HFT) fund for irregular futures trading. This is actually the first public arrest of a non-mainland fund since the crackdown of HFT started a few weeks ago. According to the authorities, the case is still under investigation and two foreign nationals are involved in the case.
As in anything in the financial industry, there are winners and losers, although you could not be faulted for seeing more of the latter recently in China than the former. The market was up last week slightly, as it seems to be starting to shaking off the downward trend. It may not matter though, as there has been serious damage done.
The booming A-share market in China has attracted a lot of attention and capital over the past few months. Yet, the past few weeks have not been pretty as the market has fallen by over 40%. The government is pulling out all the stops to stop the decline.
UBS reported that it had purchased an additional 4.99% stake in its Mainland securities business from the International Finance Corporation, increasing its stake to 25% from 20%. The raised stake is a positive sign showing global investment banks are confident in China's capital markets.
A growth enterprise board in China is a part of stock exchange that has lower listing requirements and allows smaller, often high-tech enterprises to trade shares and gain access to a transparent funding channel. ChiNext, a part of Shenzhen Stock Exchange, is the southern city's growth enterprise board, has been very successful at attracting investors and issuers. Beijing also has its New Third Board, and now Shanghai, Eastern China's innovation center, will provide a venue for small high-growth companies to raise money on the capital markets.
Want to unload that bad debt on your books? Now you can on Taobao. Cinda Asset Management, one of China’s Big 4 state-owned bad asset managers, has partnered with Taobao to sell RMB 4 billion-worth of creditor’s rights on the e-commerce company's asset disposal platform. This is seen as another potentially very successful cooperation between finance and internet industries as a large asset owner will have access to many new buyers through Taobao’s powerful channel.
At a recent conference, the Asset Management of China (AMAC) declared that there are 713 hedge funds in Zhejiang province alone – a surprisingly large number, considering some of the statements by international experts as recent as 2014 that there are no more than ten hedge funds in China. Futures trading is also up 30% on the main exchanges in China - a strong correlation.
Xiaomi teamed up with E Fund Management to offer a new money market fund last week. The fund will be available on the wealth management app installed on the Xiaomi operating system and will be similar to products offered by Alibaba and Tencent in that it offers higher-than traditional bank deposit rates and allows nearly instant liquidity.
Globally there have been few examples, if any, of traditional financial institutions getting full use of customer big data to provide a mass-market asset management product. There are of course specialized hedgefunds and wealth management products that track market sentiment, but few beyond that. In China however, Internet giant Baidu and now, more recently, E-commerce tycoon Alibaba group are both changing the fintech landscape by how they are leveraging big data to bring new products to market.