China Capital Markets Research

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. 

Chinese investors continue to join the market rally at an unprecedented pace. Records were broken as 1.6 million accounts were opened from March 23rd and March 27th and only slightly less in the following week – 1.5 million...more than the population of a small city..., well a small city outside of China.

As China's bull market continues, new accounts are being opened and trading volume is growing. One unexpected outcome is that existing capital markets technology is being stress tested and it doesn't seem to be coping that well...

China’s capital markets are maturing. Futures and margin trading had already been launched, but this week we saw equity options for the first time in China. The new derivatives trading commenced with big fanfare, with main regulators as well as top government officials present at the opening ceremony, emphasizing the importance of the event.

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