Clement Tan

By Clement Tan

June 20 (Bloomberg) — China rejected a global shipping alliance to protect companies navigating a choppy market. The decision will probably hurt cargo firms’ earnings, including its own.

The Commerce Ministry’s June 17 announcement spiking a deal between the world’s top three container carriers — known as the P3 and led by Copenhagen-based A.P. Moeller-Maersk A/S (MAERSKB) — may undermine recovery in an industry still reeling from the 2008 financial crisis. Overcapacity and low charter rates are likely to stay, jeopardizing earnings, including at China Cosco Holdings Co. (1919) and China Shipping Container Lines Co. (2866), the country’s two biggest.

China’s move “is a hollow victory for Asian liners,” said Paul Dewberry, an analyst at Bank of America Corp.’s Merrill Lynch, in a June 17 note. “This commoditized, fragmented and loss-making industry is in need of P3-type development to force consolidation. The resulting abandonment of P3 by its members will ultimately only prolong the current industry slump.”

Maersk, Mediterranean Shipping Co. and CMA CGM SA agreed last June to establish an operational pact with the aim of reducing costs on Asia-Europe, trans-Atlantic and trans-Pacific routes. Container lines have been battling industry overcapacity after a boom in ship orders collided with the global financial crisis, triggering the worst slump in prices for the carriage of cargo since containerization became global in the 1970s.
Continue reading “China Scuttling P3 Pact Seen to Prolong Shipping Slump”

By Clement Tan

HONG KONG, Nov 28 (Reuters) – Investors looking to exploit the widest gap in three years between the performance of mainland and offshore Chinese stocks could well get their fingers burnt.

H-shares, or Chinese stocks listed in Hong Kong, are trading at their biggest premium to mainland-listed A-shares since October 2010, as offshore investors cheer Beijing’s bold economic reform plan unveiled this month.

The H-share benchmark index surged 7 percent last week alone, its biggest weekly gain in nearly two years, outperforming a 2 percent rise for the CSI300 index of leading A-share listings during the same period.

Qualified foreign investors may see the gap as an opportunity to switch into the A-shares of dual-listed Chinese companies whose H-shares have outperformed. This strategy could backfire, however, as the contrasting liquidity situations in the two markets suggest the gulf could remain for some time.

“Theoretically, you could go long A-shares and short the H-share market, but I wouldn’t be in any hurry to do that now,” said Hong Hao, chief equities strategist at Bank of Communications International.

“With liquidity so tight in the mainland and improving in Hong Kong as global funds start to allocate more money to offshore equities, you are going to end up getting squeezed on both sides,” Hong said.

Continue reading “Wide gap for China mainland, offshore stocks may be hard to bridge”

By Clement Tan

HONG KONG, Oct 9 (Reuters) – When it comes to mainland Chinese stocks this year, small is hot.

Up nearly 80 percent in 2013, Shenzhen-listed penny stocks have outperformed a moribund broader market in a big way. But fears are growing that the market is looking ripe for a correction.

Retail investors chasing outsized returns have aggressively pushed small-cap stocks higher, which is much harder to do on large-cap stocks. There are signs that institutional investors are also in the game, prodding penny stocks to record highs.

However, concerns are growing that stock valuations have gone too far ahead of earnings. Investors would also be disappointed if their high expectations of major economic reforms are not met when the ruling Communist Party holds its key policy meeting in November.

The Nasdaq-styled ChiNext Composite Index of mainly high growth, high tech counters listed in Shenzhen and only came into being in 2010, is now trading at 55 times its price-to-earnings (PE) ratio.

This is almost four times the 14.8 times PE ratio that the CSI300 of the biggest Shanghai and Shenzhen A-share listings, which is down about 3 percent on the year. Mid-cap counters have also similarly outperformed.

“It’s definitely a bubble for some of these small-caps, but not true for all of them,” Heather Hsu, CLSA-Fortune Securities A-share strategist, told an investment conference in Hong Kong late last month.

Continue reading “Bubble trouble brewing for shiny China penny stocks”

By Clement Tan and Lu Jianxin

HONG KONG/SHANGHAI, Aug 16 (Reuters) – A mysterious surge in Chinese stock markets that lifted major indexes sharply early on Friday evaporated in the afternoon – and it appears likely the entire rally stemmed from a trading mistake.

The Shanghai Composite Index and the CSI300 Index started the day lower and then inexplicably began roaring up in the mid-morning, pulling Hong Kong shares up with them.

At the peak, the Shanghai benchmark was up 5.6 percent and the CSI300 was 4.4 percent ahead. But afternoon tumbles left them down 0.6 percent and 0.8 percent, respectively, for the day.

Continue reading “Flash rally for China shares crashes; trading fluke blamed”

By Clement Tan

HONG KONG, Aug 7 (Reuters) – Chinese companies still able to report healthy profits could see their shares trim sharp gains if earnings disappoint, narrowing a yawning gap with firms struggling to cope with Beijing’s drive to consolidate industries plagued by overcapacity.

The signs are starker in onshore markets where sectors such as technology and pharmaceuticals, which are still generating healthy profits, have significantly outperformed the lumbering industrials and materials firms plagued by inefficiency.

Slowing growth in China is now a top concern for global investors, who have steadily cut exposure to emerging markets and braced for the risk of a possible hard landing in the world’s second-largest economy.

A sub-index of information technology components on the CSI300 index of the leading A-share listings has surged almost 40 percent on the year, while sub-indexes for energy and materials have each plunged nearly 30 percent.

The large divergence raises the risk that investors are paying too high a premium in chasing earnings growth.

Continue reading “Earnings disappointment may stall chase for outperforming China stocks”

By Clement Tan

HONG KONG, July 17 (Reuters) – China’s surprise move to expand the size and reach of investment quotas represents the boldest reform yet this year in allowing foreign investors more access to its financial markets.

The measures unveiled by the top securities regulator on Friday are the latest in a series of steps Beijing has taken in recent months to fire up flagging investor interest, allowing foreign firms to move funds more freely into China and expanding another pilot programme to London, Singapore and elsewhere.

The China Securities Regulatory Commission (CSRC) almost doubled the quota of the Qualified Foreign Institutional Investor (QFII) scheme to $150 billion. The plan, introduced in 2002, allows investors to bring foreign currency into China to buy domestic stocks, bonds and money market instruments. Continue reading “China plays the long game in latest investment quota expansion”

By Clement Tan and Umesh Desai

HONG KONG, July 5 (Reuters) – China Rongsheng Heavy Industries Group, China’s largest private shipbuilder, appealed for financial help from the Chinese government and big shareholders on Friday after cutting its workforce and delaying payments to suppliers.

Analysts said the company could be the biggest casualty of a local shipbuilding industry suffering from overcapacity and shrinking orders amid a global shipping downturn. New ship orders for Chinese builders fell by about half last year.

Hours after China Rongsheng made its appeal in a filing to the Hong Kong stock exchange, where the company is listed, Beijing vowed to bring about the orderly closure of some factories in industries plagued by overcapacity.

The statement by the State Council, or cabinet, laid out broad plans to ensure banks support the kind of economic rebalancing Beijing wants as it looks to focus more on high-end manufacturing. It did not mention any specific industries or companies and there was no suggestion it was referring to Rongsheng.

Continue reading “China Rongsheng, symbol of shipping downturn, seeks govt help”

By Clement Tan

HONG KONG, July 2 (Reuters) — China’s financial system is more “robust” than widely thought and the recent cash crunch does not signal any systemic risk, according to a senior investment executive of one of the largest asset managers in the mainland.

Until Beijing pledged last week to ensure adequate funding, borrowing costs in the mainland spiked to record highs and stocks tanked, raising fears of a banking crisis that could compare with the 2008 one in the United States.

“In a few months time, people are going to look back on this and realize it’s all noise,” said Andrew Tan, chief investment officer at Hong Kong-based Harvest Global Investment, the international arm of Harvest Fund Management. The mainland-based parent manages more than $50 billion across asset classes in Asia.

Continue reading “China cash crunch not sign of a banking crisis, says large Chinese fund”