A decent day for the major Chinese stocks, for the first since the post-Third Plenum euphoria wore off, it seems. Fourteen of the twenty gained on the day, with Dongfeng Motor by far the best performer, gaining 3.2% to close to HK$11.62. Sinopec, oddly enough, was the second best, up 1.36% to close at RMB4.48. This seems odd given the cost of the Qingdao refinery explosion and the loss of executives, but Chinese SOE executives are always disposable, and regularly rotated by the party machinery. One supposes it could have been worse. The Piper Alpha disaster cost 167 lives and £1.7 billion. Hopefully this will get safety regulations on Chinese oil and gas producers enforced with far greater stringency. The safety record in the mining industry does not inspire confidence elsewhere.
Only four stocks fell, with China State Construction doing worst, going down 1.01% to RMB2.95. SAIC Motor, China Life Insurance and Ping An Insurance all fell by less than 1%.
Nonetheless, the Shanghai Composite fell 3.73 (-0.19%) to close at 2,009.56. That barrier is awfully close.
The main news to affect China stocks was the news that local governments will be allowed to roll over debts from infrastructure work not yet producing the necessary revenues to pay off loans. Of course, revenue projections were likely to have been pie-in-the-sky, pluck-a-number-out-the-air – as long as they kept business running. But while this all keeps the show on the road a little longer, refinancing of the LGFVs demonstrates the degree to which access to credit is a political phenomenon. There is also the moral hazard aspect: if politically these projects cannot fail, then what is there to stop reckless borrowing?
A mixed day for the major stocks, then, with nine rising on the day and ten falling. Movement was moderate, with only China State Construction, SAIC Motor, China Shenhua, Ping An Insurance and China Telecom rising or falling by over 1%, and none of them by over 1.5%.
The Shanghai Composite Index closed at 2,109.39, up 11.86 points (+0.57%).
Readers may know that in Bleak House, Charles Dickens symbolised the opacity of law with the London fog (more likely smog) then endemic. The famous second paragraph goes:
Fog everywhere. Fog up the river, where it flows among green aits and meadows; fog down the river, where it rolls defiled among the tiers of shipping and the waterside pollutions of a great (and dirty) city. Fog on the Essex marshes, fog on the Kentish heights. Fog creeping into the cabooses of collier-brigs; fog lying out on the yards, and hovering in the rigging of great ships; fog drooping on the gunwales of barges and small boats. Fog in the eyes and throats of ancient Greenwich pensioners, wheezing by the firesides of their wards; fog in the stem and bowl of the afternoon pipe of the wrathful skipper, down in his close cabin; fog cruelly pinching the toes and fingers of his shivering little ’prentice boy on deck. Chance people on the bridges peeping over the parapets into a nether sky of fog, with fog all round them, as if they were up in a balloon, and hanging in the misty clouds.
The correlation with Chinese law, governance and business is obvious. A system which cannot enforce air quality fit for human habitation is not one in which you have confidence. And so the stock market declines.
Today a full fifteen stocks declined. SAIC Motor (-3.11%), China Railway Construction (-2.77%) and China State Construction (-2.52%) had the worst of it. China Telecom had the largest rise, up 2.09%. The Shanghai Composite Index declined 33.25 points (-1.58%) to 2,073.10. Alarm bells will be ringing as it nears the 2000 barrier (putting it back to 2006 levels). We will likely see share-buyback operations to shore up prices. But even this shows the not-so-invisible hand of the state.
A flood of red ink today, following the lower than expected flash PMI index (which nonetheless still came in at 50.5, indicating expansion). The plans of Tianjin and Dalian to put in place car lotteries to cut new purchases also put a spoke in the wheel of auto producers, with SAIC Motor the largest faller on the day, going down 5.4%. Dongfeng Motor‘s tie-up with Renault on the other hand lead to it rising 3.64%, easily the best performer on a day when seventeen out of the twenty major stocks fell. Other stocks taking a large hit were China State Construction (down 2.65%), CNOOC (down 2.52%) and China Life Insurance (down 2.06%). The euphoria of the Third Plenum sure seems far away now.
The Shanghai Composite Index finished down 35.21 points, or 1.6%, to close at 2,160.86.
Yesterday’s gains instantly vanished, in what was probably a swift bout of profit-taking and awareness that the rises were not market-driven. Only one stock rose, SAIC Motor climbing 0.14%. The largest fallers were New China Life Insurance (2%) and Aluminum Corp of China (1.99%). The four major banks were unscathed, with ICBC, China Construction Bank, Agricultural Bank, and Bank of China all flat on the day.
The Week’s Movers
On a poor week (where the Shanghai Composite Index fell 43.44 points, or 2.02%), only three stocks moved ahead, while a full fifteen fell. Sinopec rose by an impressive 5.75%, while Jardine Matheson (of Kong Kong) did worst, falling 3.94%.
As we saw in yesterday’s business briefs, with the third plenum of the Communist Party coming up (November 9-12), there has been a push to drive up the stock market to show the leadership is a good steward of the Chinese economy. This might be good news for investors, but continued government interference with publicly-listed companies (though the state often owns the parent groups) for petty political reasons does not augur well. Readers in any doubt how hard-wired the party is, even private companies, should read Richard McGregor’s excellent The Party: The Secret World of China’s Communist Rulers.
Of the day’s stocks, fourteen showed a rise, with five falling and SAIC Motor static. Of the risers, China Communications Engineering and Dongfeng Motor did best, rising 1.68% and 1.61% respectively. It’s unlikely this has anything to do with company performance. Jardine Matheson was the worst performer of the top twenty, falling 0.45% on news of subsidiary Jardine Cycle & Carriage having a 13% decline in revenues and a 31% fall in profits.
A poor day for China’s biggest publicly-traded companies, with sixteen out of twenty closing down. Only Sinopec, China Mobile, Noble Group, and CNOOC emerged unscathed. The biggest loser was SAIC Motor, down 3.29%, while the other major auto manufacturer, Dongfeng Motor, fell 2.78%. Sinopec came out the winner with an increase of 2.16%, thanks to buying more than 6m of its own shares. (With the Communist party leadership meeting shortly, it wants a rising stock market to illustrate its claims of good economic stewardship).