Just over the last five trading sessions, the Shanghai composite index, Chinas main stock market index, fell nearly 271 points or 6.6 percent, from 4091 to 3820. Since May 29th , when Jin Renqing, Chinas Ministry of Finance, pulled the plug on the Chinese stock market rally by announcing a rise on stamp tax, most of the Asian equity markets have been facing and undeniable amount of negative days.
[B]Recap Of The Week?s Top Stories?[/B]
During the last week, we had a lot of volatility across the most important Asian equity markets. Just over the last five trading sessions, the Shanghai composite index, China?s main stock market index, fell nearly 271 points or 6.6 percent, from 4091 to 3820. Since May 29th , when Jin Renqing, China?s Ministry of Finance, pulled the plug on the Chinese stock market rally by announcing a rise on stamp tax, most of the Asian equity markets have been facing and undeniable amount of negative days. Investors are concerned that the last quarter weakness in the US economy may spill over into Asian exporters and most traders preferred to reduce exposure in riskier assets.
[B]Profits in China?s industrial sector climbed 42.1 percent[/B]
Despite the big pullback in the stock market, China ?s economy continues to advance at a faster pace than in any other major economy. A government issued report showed that profits in the industrial sector climbed 42.1 percent when compared to a year ago. In addition, the National Bureau of Statistics said today that combined net income increased to 902.6 billion yuan ($119 billion) and sales jumped 27.4 percent to 14.2 trillion yuan. The PBOC is widely expected to maintain their tightening campaign to keep inflation under control and with the Chinese economy experiencing such a rapid growth policy makers are publicly expressing their concern regarding future inflationary pressures. Premier Wen Jiabao hopes to decrease the risk of overcapacity by mandating limits on bank lending and by ordering state owned firms to distribute dividends. However, the most recent growth figures show that price stability is clearly at risk and the current economic situation demands more drastic measures to tackle all inflation dragons.
[B]Another Step In Stabilizing China?s Financial Markets[/B]
Officials at the China Financial Futures Exchange introduced a new futures contract that would track the CSI 300 Index. Major investment hubs the world over have offered these products, primarily used to hedge adverse price movements in the underlying, for some time. The exchange laid out the standard rules for the contract?s trading. A few of the noteworthy attributes were: a 6 percent daily limit that would hold trading for 5 minutes followed by 10 percent limit; a limit of 600 contracts per investor for each contract month; and a clear allowance for the exchange to liquidate traders positions under certain circumstances. Each contract is valued by multiplying the index?s point level by 300 yuan; and to trade the contact, investors need to put up 10 percent of its overall value. Consequently, this will not be an investment vehicle for the average trader, rather a product that will be utilized by bigger institutions. While some regulatory officials are uncertain over how the product may affect the underlying equities market, it should help to protect against major losses and excessive volatility since short selling is not permitted in Chinese stocks. The exchange has not offered a date for when the contract will begin trading.
[B]Chinese Yuan Expected To Move In “Stable and Gradual” Rate[/B]
Further indications that government officials are keeping a “stable and gradual” approach when it comes to the yuan exchange rate policy surfaced in the overnight. Talking to reporters at the World Economic Forum in Singapore, Assistant PBoC Governor Yi Gang stated that the “central bank of China has the responsibility to keep the exchange rate at more or less a stable level.” The indications come amid growing pressure from global trade partners, including Europe and the US, in revaluing the underlying yuan currency and confirm no forthcoming action by Chinese officials. Incidentally, adding that the “mechanism is more toward a market oriented direction” Yi?s comments helped to pare back speculation in the Chinese yuan, kicking the rate against the US dollar up to 7.6212 in the overnight session.
[B]Yuan could be 5 percent stronger in one year’s time[/B]
On Friday, June 29, the yuan appreciated to 7.6145 to the dollar on the over the counter market and is now up by 1.4 percent since January 07 when the RMB was trading at 7.8100. One year onshore yuan forwards traded at 7.26 to the dollar, anticipating the yuan will be almost 5 percent stronger in one year’s time.