Bond Spreads Rising Over Credit Risk Fears
Although China's economic slowing, confirmed by macroeconomic figures released on October 20, has strengthened expectation for further loosening of monetary policy, and a real spring for the bond market should be nearing, that market, despite the good news, has dropped sharply, due to bubbles accumulated earlier. Meanwhile, the default risk behind worsening performance by Chinese firms is attracting investor attention. The bond market, which is expected to ascend in the long-term, is currently facing challenges.
Exotic derivatives cost CITIC Pacific dearly
The share price of Chinese conglomerate CITIC Pacific (00267.HK) plunged by 55% on Tuesday, one day after the company warned of a nearly $2 billion losses from leveraged foreign exchange forward transactions. In the meantime when two senior finance directors who resigned were accused of trading without approval, investors cast doubts on the company's internal control and risk management.
China and Emerging Markets May Draw Talent from Waning Wall Street
China's industry will be more attractive to Chinese financiers. Due to downsizing in the US, Chinese employees there will also be looking for jobs. Under the circumstances, coming back to China may become their best choice. At least China's overall economic and financial situation is still better than the US and Europe. Now many Asians are considering returning to their emerging markets, as they are more likely to find jobs there, even though the financial markets in these countries are far from their expectations. This may trigger a series of talent competitions among domestic financial institutions.
Conservative Voices Urge Pull-back from Western Financial Markets
The investments made by Chinese institutions in western financial firms are not smelling rose-like. They mostly seem to have been the victims of bad timing, bad advice, or just plain bad luck. And while most of the problems still amount to book losses and may yet yield value, they add up to a considerable number of billions of dollars, and this has strengthened the voices of conservatism in Beijing who urge a retreat behind the old walls. In this climate, whether China will allow itself to join in the international effort to unclog the credit markets remains problematic.
CIC Rescues Investment But Still Faces Criticism at Home
Disagreement exists in Beijing on whether it is a proper time for China to acquire assets on Wall Street or whether China should buy the US national debt to support the US government's rescue package. This new issue offers yet another reason to people antipathetic to China's overseas financial participation.
PBoC Allows Urgent MTN Issuing to Bolster the Market
Huadian's second issue of MTN in 2008, just two days after the central bank again allowed the issuance of MTN, indicates government efforts to boost the financial market. The central bank first launched MTN in April this year, but suspended it after two months due to opposition from other government agencies, such as the National Development and Reform Commission (NDRC) and China Securities Regulatory Commission (CSRC).
Shorting on the Chinese Market: Stabilizer or Distorter?
From the long term point of view, short selling may help to improve the efficiency and stability of the A-share market. Or not. But without extensive information disclosure protected by law, shorting will only add to volatility and discourage the type of investment that will bring real stability to the market.
Lehman Brothers' Minibonds Teach Hong Kong Investors a Big Lesson
The earthquake on the Wall Street, triggered by the bankruptcy of Lehman Brothers, has been shaking the financial sector in Hong Kong in the last two weeks. Thousands of retail investors holding minibonds of Lehman Brothers, at the edge of losing their lifelong savings, have filed complaints to the regulators and even staged protests, in a bid to urge the government to take action upon some intermediaries' mis-selling, and to hold regulators accountable for failing in supervision and investor education and protection.
SOEs May be Allowed to Issue Bonds for Stock Buybacks
The Chinese government is searching for ways and means to intervene in and boost the countries' stock markets. A group established by China Securities Regulatory Commission (CSRC) is urgently consulting with People's Bank of China (PBoC). State-owned enterprises under the central government and listed companies may be allowed to raise money by issuing bonds to increase their shareholdings or buyback their own shares.
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