Top news of the week
China to allow more foreign stock market investments
In a move to further open up the local stock market to foreign investors, Chinese regulators on Friday unveiled plans to lift the ceiling on how much money a qualified foreign institutional investor (QFII) is allowed to invest in China. The quota for each QFII will be raised to $1 billion from $800 million, but the QFIIs are not allowed to transfer or trade the unused quota. The minimum investment requirement for a QFII stays at $20 million. Regulators also plan to reduce the lock-up period for some foreign asset managers, such as pension funds, to three months from one year.
The overall quota for all QFII investment remains unchanged at $30 billion. At present, there are 87 QFIIs registered under the programme with a total $15 billion investment in the Shanghai and Shenzhen stock exchanges, but they only account for a tiny portion of the Chinese stock market. According to statistics from the stock exchanges, the total value of shares available for trading on the Chinese stock market amounted to $1,490 billion at the end of trading on 4 September 2009.
The new plan is perceived as a gesture that the Chinese government is keen to increase capital supply to the stock market in the hopes of soothing investor sentiment. Investing in the Chinese stock market is definitely not for the faint hearted, especially given the past few weeks during which the Shanghai index posted several daily swings of 5% or more in both directions.
Bank regulators recently spooked the market by announcing plans to curb lending after asking banks to deduct from supplementary capital any subordinated and hybrid bonds issued by other lenders. This means banks may have to either cut back on lending or raise new capital to meet the 12% capital adequacy ratio as required by regulators. On Friday, however, in a move welcomed by the market, regulators said they may give the banks a few years to implement the new requirement, alleviating concerns about an immediate steep fall in bank loans.
Market recap
A record-high purchasing managers' index (PMI) for August and positive
signals from the securities and banking regulators last week combined to
stop the stock market from sliding further. After losses for four
previous weeks, the Shanghai Composite Index closed last week flat at
2,862, while the Shenzhen Composite Index dropped 0.6% to 11,520.
Macro and industry updates
August PMI at 16-month high
Industrial activitiy has continued to expand in China after PMI rose from 53.3 in July to 54 in August. This is the best reading since April 2008. The index, which dipped to a low of 38.8 last November, has remained above 50 for the past six months. According to statistics from the China Federation of Logistics and Purchasing, industrial output, new orders and employment all showed improvement in the past month.
Bank of Communications to buy 51% of China Life CMG
Bank of Communications, China's fifth-largest bank, has obtained regulatory approval for the acquisition of China Life CMG, which makes it China's first lender to control an insurance business. The bank will buy the entire stake currently held by China Life, but did not disclose the amount it will pay. Until recently, banks were not allowed to engage in non-banking financial services including insurance, but the ban was lifted to allow Chinese banks to diversify their revenue stream. Bank of Communications is said to be preparing to officially launch its insurance business before the end of this year.
Google China chief to depart
Google global vice president and China president Kaifu Lee has resigned from his position and announced plans to set up a new venture fund to help Chinese entrepreneurs. Lee joined Google to develop the company's operations in China in 2005, building up the engineering and sales teams for the market. Media reports indicate that recent efforts by the Chinese government to censor content on the internet may have hampered Google's operation in the Chinese search market.
Contributions from Iris Tan.
