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China Market Updates (18 Apr 2016 - 24 Apr 2016)

Published time:[28 Apr, 2016 17:43] From:E Fund Management (HK) Co., Limited

18/04/2016-24/04/2016

Equity Market Review


● The rising momentum of global stocks has weakened while the price of commodities remained high
● The technology and banking sectors of U.S. stocks braced for earning reports
● U.S. economic data released last week was mixed

Last week, the rising momentum of global stocks has weakened while the price of commodities remained high.

Although oil-producing countries failed to reach deal in Doha, the oil price rallied last week, with the June WTI crude oil futures rising 4.87%. Most of other commodity futures also gained. The copper futures in London rose nearly 5% last week, the biggest weekly gain since early March. The Aluminum futures also went up 4.7% for the week, the biggest weekly gain since November 2014. Silver futures rose 3.6% while the gold futures dropped slightly 0.4% for the week.

The technology and banking sectors of U.S. stocks braced for earning reports. The Nasdaq Composite index closed down last week as the worse-than-expected earnings reports of tech giant Software and Alphabet weighed on the technology sector. For the week, the S&P 500 index advanced 0.5%, the DJIA index increased 0.6% and the Nasdaq Composite index dropped 0.7%. The rising oil price supported the energy sector. The energy and bank sectors rose 5.2% and 5.1% respectively, while the public utilities and the consumer service sectors slumped 3.2% and 3.1%. 

U.S. economic data released last week was mixed. Homebuilding in the U.S. slowed 8.8% in March, and housing permits, which represent future starts, fell 7.7%. U.S. jobless claims unexpectedly fall 6000 to 247000 last week, the lowest level since 1973. The existing-home sales soared 5.1% in March, which is better than expectation.
 
The European stocks gained with the raw materials sector and the automobile sector leading the upside. The British FTSE 100 index rose 0.26%, the German DAX 30 index gained 3.39% and the French CAC 40 index went up 1.58%. ECB left the deposit rate at negative 0.4% and its monthly asset purchases at 80 billion unchanged, which is in line with market expectation. We should pay attention to FOMC meeting and the BOJ meeting to be held this week. The Yen market dived on talks of BOJ negative rates on loan last week.

The Hong Kong stocks increased last week, with the HSI up 0.71% and the HSCI up 0.1%. The energy and financial sectors advanced 2.74% and 1.53%, while the public utilities sector and the consumer service sector slumped 2.5% and 2.43% respectively. 

Mainland China stocks posted biggest weekly loss in 3 months amid concerns over the change in monetary policy direction and the risk of bond defaults. Last Friday, the Shanghai Composite index slumped 2.31%, closing at 2972.58, and the Shenzhen Component index slumped 4.13%, closing at 10164.74. The China A-shares rebounded slightly last Friday, however, for the week, the Shanghai Composite index dropped 3.86%, the Shenzhen Component index went down 5.42%, and the ChiNext dropped sharply 7.48%. The insurance and bank sectors performed relatively stable, meanwhile, the cyclical stocks such as non-ferrous metal stocks and the coal stocks are resilient due to the rising commodities prices. The technology sector also rebounded. We expect the market will continue to be volatile in short term. We suggest investors paying attention to companies’ earnings result and their power to execute their promised plans. We suggest choosing high-quality stocks with reasonable valuation and stable earnings or the growth potential.

Bond Markets Review


 Liquidity remained under pressure, bond market continued to experience adjustment
● Bond yield presented obvious upward tendency, liquidity pressure led to increasing sales on highly liquid bonds, and the market indicated fluctuation, among which short-term interest rate bonds adjusted a lot and drove yield curve to increase
   
Although PBoC injected a large amount of money into market to stable liquidity, the overall liquidity still tight and capital interest rate rose continuously. Confronting the maturity of a large sum of MLF last week, PBoC put in 3-month MLF with 83.5 billion RMB and 6-month MLF with 79 billion RMB respectively last Monday to hedge against pressure from MLF withdrawal. At the same time, PBoC net injected 680 billion RMB into the market through 7-day reverse repurchase into the open market. The purpose for liquidity stabilization is obvious, while if PBoC still relies on short-term instruments to offset liquidity pressure, it may cause unstable liquidity expectation in the future. In addition, with getting closer to the time of replacing business tax with value-added tax, under the current proposed regulation, the tax reform will increase costs for capital transfer and impose negative impacts on capital and bond market.

Last week, bond yield presented obvious upward tendency, liquidity pressure led to increasing sales on highly liquid bonds, and the market indicated fluctuation, among which short-term interest rate bonds adjusted a lot and drove yield curve to increase. From bond yield performance last week, except from the 10-year bond yield increased slightly by 1.58 bps and achieved 2.93%, there was a clear upward trend for yields of other tenors. Especially for 7-year treasury bond yield which rose 16 bps to 2.99% and excessed 10-year bond yield. From current tight liquidity, more focus on replacing business tax with value-added tax and all kind of credit events, market sentiments were relatively prudent. In addition, various factors, including inflation expectation drove by increasing real estate sales, stable macro data and expanded infrastructure investments, imposed pressure on bond market.

Primary Markets Express


● Chinese photo app maker Meitu plans to raise up to $700 million in an initial public offering in Hong Kong at the end of the year
● Ant Financial, the affiliate of Chinese e-commerce giant Alibaba that runs Alipay, has closed a funding round of over $4 billion valuing the company at close to $60 billion dollars, a source close to the deal told CNBC
● Wanda Group said it plans to fold Legendary Entertainment and Chinese movie-making subsidiary Wanda Pictures into its publicly listed movie theater chain business, Wanda Cinema Line Co

● Chinese photo app maker Meitu plans to raise up to $700 million in an initial public offering in Hong Kong at the end of the year. The company, which also makes mobile phones in addition to several apps to edit and retouch photos, has chosen China Merchants Securities, Credit Suisse and Morgan Stanley to manage the IPO. Meitu, formally known as Xiamen Meitu Technology Co Ltd, is in the process of raising pre-IPO funds that could value the company at $3.7 billion and expects its valuation to rise to up to $5 billion by the time of its listing.
● Ant Financial, the affiliate of Chinese e-commerce giant Alibaba that runs Alipay, has closed a funding round of over $4 billion valuing the company at close to $60 billion dollars, a source close to the deal told CNBC. Previous media reports had put the funding at $3.1 billion, but the latest round is significantly higher. This makes Ant Financial the second-most valuable private technology firm behind U.S. ride hailing app Uber, which is worth over $62 billion, and ahead of Chinese smartphone maker Xiaomi, which has a valuation of $45 billion.  
● Wanda Group said it plans to fold Legendary Entertainment and Chinese movie-making subsidiary Wanda Pictures into its publicly listed movie theater chain business, Wanda Cinema Line Co. Legendary has co-financed such blockbusters as The Dark Knight and Jurassic World as well as producing its own slate of hits (Pacific Rim, 2013; Godzilla, 2015) and misses (Crimson Peak, 2015; Seventh Son, 2015). Upcoming tentpoles include the role-playing game adaptation Warcraft, due out in May, and Chinese co-production The Great Wall, coming in early 2017. 
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