There’s really only one story in town today, with the People’s Bank moving to inject liquidity into banks running short of cash after rises in the inter-bank lending rate (which reached ten percent). As Simon Rabinovitch of the FT explains:
During the cash crunch in June, central bank officials explained that they had allowed the money market to tighten as a warning to banks to improve their liquidity management. Several banks had become overly reliant on the interbank market as a cheap source of funds and were using the cash to finance risky off-balance sheet loans.
The central bank has since guided money market rates to levels roughly 150 basis points higher than their average before the cash crunch. With China’s stock of credit soaring to about 200 per cent of gross domestic product, from 130 per cent just five years ago, analysts believe the government is trying to encourage companies and investors to reduce their debt loads.
This has caused financial stocks to plummet, with ICBC down 1.38%, China Construction Bank down 4.03%, Agricultural Bank 2.38% and Bank of China losing 2.24%. There’s a reason the state-owned banks have P/E of such low ratios.
Only China Mobile and Noble Group finished the day up, both by around half a percent.
The Shanghai Composite Index closed down 43 points (2.02%) to close at 2,084.79. Over the past week it has lost over 5% of its value (from 2,131.74 – 2,082.85); over the past year it has lost over 3%. Regular Chinese savers and investors desperately need somewhere other than property to derive some gains from China’s booming economy, but the stock market isn’t it. The recent moves to gradually liberalise bank rates are to be welcomed, but come in the face of strong opposition from the Big 4 state-owned banks, who have no incentive to compete.
|Name||Price||Change||Mkt. Cap||52wk high||52wk low||EPS||P/E|
|China Construction Bank||4.05||-0.17 (-4.03%)||1.01B||5.19||3.8||CN¥0.85||4.79|
|Agricultural Bank||2.46||-0.06 (-2.38%)||798,994M||3.28||2.38||CN¥0.50||4.9|
|Bank of China||2.62||-0.06 (-2.24%)||731,369M||3.26||2.48||CN¥0.53||4.93|
|China Mobile||79.85||+0.40 (0.50%)||1.61B||91.8||74.9||HK$8.17||9.77|
|Noble Group||1.03||0.00 (0.49%)||6,826M||1.27||0.785||SGD0.04||28.65|
|China State Construction||3.17||-0.10 (-3.06%)||95,100M||4.18||2.9||CN¥0.62||5.15|
|China Railway Construction||4.81||-0.11 (-2.24%)||59,344M||6.49||3.95||CN¥0.84||5.71|
|China Railway Group||2.72||-0.05 (-1.81%)||57,936M||3.41||2.3||CN¥0.44||6.2|
|SAIC Motor||13.56||-0.75 (-5.24%)||149,507M||19||11.83||CN¥2.05||6.61|
|China Life Insurance||14.4||-0.57 (-3.81%)||407,012M||22.7||12.88||CN¥0.97||14.9|
|Dongfeng Motor||12.42||-0.20 (-1.58%)||107,012M||13.28||9.48||HK$1.37||9.05|
|China Shenhua||15.69||-0.41 (-2.55%)||312,068M||25.7||15.51||CN¥2.25||6.97|
|Ping An Insurance||38.95||-1.95 (-4.77%)||308,334M||53.27||31.69||CN¥3.45||11.29|
|China Telecom||3.8||-0.06 (-1.55%)||307,543M||4.46||3.48||HK$0.26||14.75|
|China Communications Construction||4.05||-0.08 (-1.94%)||65,508M||5.79||3.8||CN¥0.81||5|
|Bank of Communications||3.94||-0.10 (-2.48%)||292,595M||5.68||3.65||CN¥0.84||4.68|
As we saw last week, every single major stock fell. Some declines over the week were precipitous: SAIC Motor fell by over 14%, China Life Insurance by over 12% and China Railway Construction by over 10%. No sector was spared. Only conglomerate Noble Group fell by less than 4.75% (falling 0.96% to close at SG$1.03. Telecoms were perhaps least bad as a group, with China Mobile falling 5.84% to HK$79.85, and China Telecom going down 5.94% to HK$3.80. Obviously, with the banks facing a credit/cash crunch (and that phrase enough to put the fear of god into most investors), the finance sector did badly, with China Life Insurance the worst hit, going down 12.46%, while China Construction Bank was the worst hit of the big four banks, falling 8.58%.