Welcome to the SCMP's live China markets. The intense volatility in Chinese markets into 2016 due to the implementation of the circuit breaker has roiled world financial markets. Investors are increasingly focused on the broader question of how this episode might affect the wider economy of the country. We'll bring you the key levels, trading statements, price action and other developments as they happen.
Here is a summary of market movements so far today:
- Hong Kong's Hang Seng extends Wednesday's sell-off and ends down 1.8 per cent at 18,542.15, the lowest settlement since June, 2012
- Shanghai Composite tumbles 3.2 per cent to 2,880.80, the lowest close since Dec., 2014
- Shenzhen Composite sinks 4 per cent at close
- PBOC injects 400 billion yuan into money markets via reverse repos, largest of its kind in three years
4:54 pm By Xie Yu
Statistics show A-shares investors are tightening their purse strings for more clues. The outstanding margin lending balance through brokerages, recorded by the Shanghai and Shenzhen bourses stood at 991.56 billion yuan (HK$1.18 trillion) by Wednesday, marking the lowest level since October 22.
4:34 pm By Laura He
Asian stock markets mostly declined Thursday. Japan's Nikkei Average slid 2.4 per cent to close at 16,017.26, after falling into bear market territory on Wednesday. South Korea's Kospi Composite lost 0.3 per cent to 1,840.53, while Australia's Samp;P/ASX 200 finished modestly higher at 4,864.00, up 0.5 per cent.
In the oil market, crude futures dropped further in Asian trade, after WTI crude plunged to the lowest level in nearly 13 years on February contract's expiration day on Wednesday. March WTI crude, the current front-month contract, lost 0.5 per cent to US$28.18 a barrel. March Brent crude dropped 0.7 per cent to US$27.7 a barrel.
4:24 pm By Xie Yu
All the sectors on A-shares market saw a broad-based decline. Utilities, transport and aerospace tech companies recorded the biggest losses.
In Hong Kong, mining companies and automotive manufacturers were the biggest losers.
4:20 pm By Xie Yu
Investors should stay prudent under current market conditions and "do not rush to catch the falling knives", China International Capital Corporation said a note on Thursday.
"The brief rebound earlier this week made some people believe the market is reviving and it was time to buy cheap (stocks). But actually the situation is turning worse, not better, with the oil price and Hong Kong dollar falling. The global markets are panicking as a big sell-off is sweeping Asian (Hong Kong and Japan in particular), European, and US markets."
4: 16 pm By Xie Yu
The Hang Seng Index finished 1.82 per cent lower, or 344.15 points lower, to 18,542.15. The H-share Index, tracking mainland based companies, lost 2.24 per cent, or 179.80 points to close at 7,835.64.
Hong Kong dollar bounced back and traded at 7.8180 against US dollar at 4 pm, after hitting an eight-and-a-half year low of 7.8294 at midnight.
The one day chart of the Hong Kong market. Hang Seng Index (yellow line), H-share index (purple line). The percentage at the end shows the difference from the opening, not the previous close. Click to enlarge the chart.
3:08 pm By Xie Yu
The mainland markets closed sharply lower, as the benchmark Shanghai Composite Index tumbled 3.22 per cent, or 95.89 points to end at 2,880.80. The CSI300 Index fell 2.93 per cent, or 92.94 points 3,081.44.
The Shenzhen Composite Index dropped 4.01 per cent, or 75.32 points to 1,800.99. The Nasdaq-style ChiNext lost 4.18 per cent, or 92.24 points to 3,081.44.
The one-day chart for the mainland market. Shanghai Composite Index (yellow line), Shenzhen Composite Index (purple line), CS1300 Index (green line) and ChiNext (blue line). The percentage at the end of the chart represents the difference from the opening, not from previous close. Click to enlarge the chart.
2:19 pm By Xie Yu
Hong Hao, chief strategist at Bocom International, said:
"Currency volatility soars (in Hong Kong stocks) and suggests market stress. Interventions in mainland assets such as the RMB and A-shares have prevented market price from adjusting towards China's deteriorating fundamentals, and forced volatility to manifest in Hong Kong assets. Potential unwind of structural products as the HSCEI (Hang Seng China Enterprises Index) falls towards 7,000-8,000 can induce further short-term market stress. But these leveraged positions are weak hands, and their capitulation will eventually give a better entry point."
1:54 pm By Xie Yu
The Hang Seng Index lost 1.30 per cent, or 245.81 points, at 18,640.49. The H-share Index, tracking mainland companies, fell 1.65 per cent, or 132.18 points to 7,883.26.
1:54 pm By Xie Yu
The mainland markets gave up all the gains from the morning session, as the Shanghai Composite Index traded down 1.06 per cent, or 31.56 points, to 2,945.13. The CSI300 fell 0.94 per cent, or 29.94 points to 3,144.44.
The Shenzhen Composite Index retreated 1.21 per cent, or 22.64 points to 1,853.67. The Nasdaq-style ChiNext moved 0.85 per cent, or 18.71 points lower at 2,185.93.
12:42 pm By Enoch Yiu
Charles Li, chief executive of Hong Kong Exchanges amp; Clearing, said the exchange may launch a third board or revamp the GEM (the Growth Enterprise Market board) to lure more new listings.
12:42 pm By Laura He
The People's Bank of China injected 40 billion yuan into the financial system on Thursday via reverse repurchase agreements (reverse repos), following its recent moves to ease a seasonal liquidity squeeze ahead of the Lunar New Year holiday.
The PBOC offered 11 billion yuan worth of seven-day reverse repos, at an interest rate of 2.25 per cent, and 29 billion yuan worth of 28-day reverse repos, with an interest rate of 2.6 per cent, in its open market operations, the central bank said on its website.
The moves bring the PBOC's net injection of funds to 315 billion yuan this week.
On Tuesday, the Chinese central bank also added 150 billion yuan of liquidity through the standing lending faciliy (SLF), a short-term lending tool.
The PBOC usually injects funds to alleviate the seasonal cash crunch before China's week-long Lunar New Year holiday, which starts Feb. 8 this year.
12:12 pm By Jessie Lau
Hong Kong's Hang Seng Index closed the morning session higher at 18,945.60, up 0.31 per cent or 59.30 points.
The Hang Seng China Enterprises Index rose 0.21 per cent or 16.94 to finish at 8,032.38 at the midday break.
Below is the midday chart of the Hong Kong market. Hang Seng Index (yellow), H-share index (purple). The percentage at the end shows the difference from the opening, not the previous close. Click to enlarge the chart.
11:37 am By Jessie Lau
The Shanghai Composite index closed the morning session at 2,991.78, up 0.51 per cent or 15.09 points. The CSI 300 gained 0.65 per cent or 20.69 points to 3,195.07.
The Shenzhen Composite index rose 0.78 per cent or 14.68 points to 1,890.98, and the Nasdaq-style ChiNext advanced 1.45 per cent or 31.90 points to 2,236.55.
Below is the midday chart for the mainland market. Shanghai Composite Index (yellow), Shenzhen Composite Index (green), CS1300 Index (purple) and ChiNext (blue). The percentage at the end of the chart represents the difference from the opening, not from previous close. Click to enlarge the chart.
11:09 am By Jessie Lau
The Hang Seng Index rose 1.32 per cent or 248.51 points to 19,134.81, and the Hang Seng China Enterprises index gained 1.29 per cent or 103.55 points to 8,118.99.
11:09 am By Jessie Lau
The Shanghai Composite index dropped 0.02 per cent or 0.69 points to 2,976, while the CSI 300 gained 0.09 per cent or 3.01 points to 3,177.39.
The Shenzhen Composite index rose 0.63 per cent or 11.83 points to finish at 1,888.14, and the Nasdaq-style ChiNext gained 1.24 per cent or 27.44 points to 2,232.09.
10:39 am By Xie Yu
A January fund manager survey by Bank of America Merrill Lynch found:
"Just 12 per cent believe a global recession will occur in the next 12-months, investors remain OW (overweight) equities amp; UW (under weight) bonds, and stubbornly long tech, Eurozone amp; Japanese stocks (assets now most vulnerable to a redemption/recession shakedown).
Investors raise cash, cut growth and profit expectations, and rotate defensively (selling stocks, resources, industrials, banks amp; EM (emerging markets), and rotating to healthcare, staples, cash amp; bonds)."
10:32 am By Enoch Yiu
A research report by Bank of America Merrill Lynch said:
"Selling pressure against Hong Kong dollar intensifies with FX (forex) option reporting a cumulative notional volume of US$15 billion over 3 months."
"We revise our USD/HKD forecast to 7.85 for 2016 as a whole and revise our 3M (3-month) HIBOR (Hong Kong Inter-bank Offered Rate) forecast up."
10:17 am By Jessie Lau
The Hang Seng Index rose 1.35 per cent or 254.80 points to 19,141.10, and the Hang Seng China Enterprises index gained 1.38 per cent or 110.28 points to 8,125.72.
However, The Shanghai Composite Index fell 0.93 per cent or 27.80 points to 2,948.89, and the CSI300 lost 0.83 per cent or 26.25 points to 3,148.13.
The Shenzhen Composite Index fell 0.66 per cent or 12.32 points to 1,863.98, and the Nasdaq style ChiNext dropped 0.09 per cent or 2 points to 2,202.64.
10:10 am By Enoch Yiu
Offshore yuan continued falling Thursday morning, trading at 6.6033 at 10 am. The currency has fallen for three days in a row. It lost 0.15 per cent and 0.13 per cent separately on Wednesday and Tuesday. On Monday, the offshore rate rose 0.5 per cent, following a 1 per cent gain last week after the intervention of the People's Bank of China.
Meanwhile, the onshore yuan traded unchanged at 6.5778. The onshore rate was also flat on Wednesday. It rose 0.01 per cent on Tuesday.
The spread between the onshore and offshore yuan has narrowed down to 255 basis points, down from a record 1,400 basis points on January 7.
10:01 am By Ben Wescott
Global investment bank Barclays announced Thursday that it will dramatically wind back its Asia business operation, closing a number of equity services in the region.
In an email to clients on Thursday, the bank said it would be closing its cash equity research, sales and trading, and convertible bond trading businesses in all Asian countries.
"Our prime services and synthetics business will continue to operate as before across the region for financing and execution," the email said.
The move had been anticipated for a couple of weeks, with media reports saying chief executive Jes Staley was trying to trim costs.
Further cuts are expected to be announced in Barclay's operations in continental Europe and Latin America on Thursday, as the business focuses on the US and British markets.
Read an expanded version of the story here on scmp.com.
9:59 By Enoch Yiu
Hong Kong dollar bounced back to trade at 7.8080 in early trade Thursday morning, after hitting 7.8294 at midnight, which was the lowest in eight and a half year.
9:40 am By Enoch Yiu
The People's Bank of China set Thursday the yuan's mid-price against the US dollar at 6.5585, 7 basis points weaker than on Wednesday, when it set the mid-price 18 basis points stronger.
Meantime, it set the yuan's mid-price against the euro stronger by 241 basis points to 7.1386, and the yuan's reference rate for every 100 yen weaker by 203 basis points at 5.6037. The currency's mid-price against the pound was set 260 basis points weaker at 9.3247.
Traders are allowed to trade up to 2 per cent either side of the mid-price for the day.
9:34 am By Jessie Lau
Hong Kong stocks opened higher on Thursday. The Hang Seng Index traded up 1.02 per cent or 192.83 points at 19,079.13 in early trade, and the Hang Seng China Enterprises index gained 0.42 per cent or 33.39 points to 8,048.83.
On the mainland, the Shanghai Composite Index fell 1.42 per cent or 42.30 points to 2,934.39, and the CSI300 lost 1.20 per cent or 38 points to 3,136.38.
The Shenzhen Composite Index dropped 1.61 per cent or 30.27 points to 1,846.04, and the Nasdaq style ChiNext moved down 1.10 per cent or 24.26 points to 2,173.31.
9:24 am By Jessie Lau
Hong Kong stocks futures traded higher in the pre-trade session on Thursday morning, as the Hang Seng Index futures spot January contract gained 1.45 per cent or 273 points to 19,120, while the H-share index futures gained 1.32 per cent or 106 points to 8,111.
Overnight, all major US indices closed lower , with the Dow Jones Industrial Average finishing down 1.56 per cent at 15,766.74, the Samp;P 500 1.17 per cent down at 1,859.33. The Nasdaq Composite finished down 0.12 per cent at 4,471.69.
Elsewhere in Asia, Tokyo's Nikkei 225 rose 0.58 per cent to 16,510.99 on Thursday.
Read an expanded version of the story here on scmp.com.
Read Wednesday's China Markets Live - Hong Kong's Hang Seng sinks to close below 19,000 for first time since 2012 here on scmp.com.
2016 looks set to be an interesting year for bridging finance as it will be heavily influenced by changes in the wider property market. Buy-to-let often goes hand in hand with bridging finance. Most buy-to-let transactions need to be completed quickly and bridging finance offers the kind of speed and efficiency investors need. It is therefore unsurprising that the state of the buy-to-let market has a direct impact on the success of the bridging sector.
2015 saw a lot of upheaval for the buy-to-let industry. Chancellor George Osbornes announced in his second Budget of the year that landlord tax relief would be cut caused huge headaches for the sector. The change to the way landlords are taxed is not set to come into play until April 2017, however, the fact that it is even on the horizon will no doubt cause some landlords and indeed, some would-be landlords, to question whether or not this industry is right for them.
Osborne sent further shockwaves through the sector in December when, in his Autumn Statement, he revealed plans to increase stamp duty on buy-to-let properties. The new rates are set to come into effect this spring.
And, of course, 2015 was the year the regulator and the Bank of England made their intention to scrutinise the sector clear. On numerous occasions, we were told the industry was being closely monitored and speculation of further regulation was rife.
So what will 2016 bring? I dont think we can be so naive as to think the challenges detailed above wont deter some people from entering - or staying in - the buy-to-let sector. However, I dont think its all doom and gloom. There is a still a shortage of new homes being built and many would-be buyers are renting for longer than they first anticipated. Furthermore, there is a definite shift in the way the younger generation views home ownership, with many young people considering renting as a viable permanent option with the result that they have lost interest in buying.
I expect lending to continue at high levels and think the sector will show its resilience once more and continue to prosper as a result. In turn, therefore, demand for bridging finance from property investors will continue, meaning that 2016 should be a positive year for the short-term lending sector.
Attributed to Ying Tan, Managing Director of The Buy to Let Business.
In the spirit of the new year, we decided to take our Ouija board out of the attic and venture a few predictions for 2016 in financial services regulation. The financial regulatory agencies have been relatively quiet for the last few weeks, but we expect to see significant regulatory activity in 2016. So, we have consulted the spirit of FinReg Nostradamus and assembled a list of some of the regulatory actions that we expect to see this year.
- Incentive Compensation Rules: The financial agencies 2011 proposed rules regarding incentive compensation were never finalized, and the agencies are reportedly engaged in discussions regarding the framework of the incentive compensation rules and intend to release a new proposed rule this year. Key issues that the new proposed rule will likely address include triggers for required clawback of compensation and the scope of clawback powers, mandatory compensation deferral requirements and time periods, and application of the rules to alternative compensation arrangements, such as carried interest.
- Net Stable Funding Ratio: Although the Basel Committee on Banking Supervision (Basel Committee) finalized the net stable funding ratio (NSFR) standards of Basel III at the end of 2014, proposed regulations that implement the NSFR have yet to be issued by the US federal banking agencies. The agencies and industry representatives have been engaged in ongoing discussions with respect to the NSFR regulations. Considering the NSFR standards are required under Basel III to be fully implemented by January 2018, barring any unexpected delays, we should see proposed NSFR regulations in the first half of 2016.
- Consumer Financial Protection Bureau (CFPB): A number of rulemakings from the CFPB are expected this year, including long-awaited rulemakings on debt collection and prepaid accounts. We also expect proposed rules on mortgage servicing and on short-term lending (eg, payday and auto title loans) based on the framework that the CFPB released in 2015. Also on the CFPBs regulatory agenda for 2016 are mandatory arbitration clauses, checking account overdraft programs, and larger participants in the consumer installment loan and title loan markets.
- Anti-Money Laundering Requirements for Investment Advisers: We expect that the Financial Crimes Enforcement Network will finalize its proposed rules from August 2015 that establish anti-money laundering (AML) program and suspicious activity reporting requirements on certain investment advisers. The lack of AML and customer identification program requirements was noted by the Financial Action Task Force (FATF) in its 2006 evaluation of AML standards in the United States, and FATF is expected to undertake another US evaluation in 2016.
- Marketplace Lending: The Department of the Treasury and the State of California have expressed interest in the rapidly growing peer-to-peer or marketplace lending industry. Because most of the marketplace lenders are not licensed at the state level, there is concern about sufficient regulatory oversight. At the same time, the regulatory agencies recognize that marketplace lenders can often provide access to low-cost credit to traditionally underserved markets. We expect continued regulatory interest in this area and possibly more formal proposed regulations or guidelines (although any such regulatory action would likely occur toward the end of 2016).
- More Changes to Basel Regulatory Capital: This is a safe prediction, inasmuch as the Basel accord is a continuing work in progress. The Basel Committee has initiatives in progress on, among other things, the capital treatment of securitization exposures, modifications to the Standardized Approach, and the Fundamental Review of the Trading Book. Hence, we expect to see further significant developments from the Basel Committee in 2016.
- Additional Capital Requirements for the Largest US Banks: Continuing our thoughts on regulatory capital, there will be ongoing discussions, and possibly a final rule, regarding total loss-absorbing capacity (TLAC) and long-term debt (LTD) capital requirements for US banking organizations designated as globally systemically important banks (GSIBs). Currently, eight US banks have been designated as GSIBs.
- Legislative Action on Dodd-Frank: We are neither placing nor taking bets on this item, given the virtually total unpredictability of the current congressional legislative process. But, given that we are now going into a presidential election year, if anything happens in Congress on this front, it will consist of regulatory fixes around the edges, and it will happen earlier, not later, this year.
Payday and auto title loans have become more common over the past decade. These loans typically involve small amounts (generally $500 or less) for short periods of time (such as the borrower's next payday). An auto title loan is similar, but uses a car title as collateral rather than the post-dated check or access to a checking account required by payday loans. If borrowers are unable to pay back the loan amount in full at the end of the term, they can make an interest-only payment to delay repaying the loan. This process (referred to as a renewal, rollover, or refinance) increases total fees without decreasing the principal of the original loan.
While small-dollar loans can serve a needed role in a community by assisting a borrower experiencing financial difficulty, payday and auto title loans often involve very high interest rates and fees and can increase financial strain for families already burdened. According to Texas Appleseed (a highly respected advocacy group for equal access to justice), depending on the type of loan, the average cost to repay a $500 loan ranges from $600 to $1,274. If an individual refinances a loan, the average total cost can jump to over $3,800! In 2014, Texans borrowed more than $1.6 billion in new loans from payday and auto title lending establishments and paid over $1.4 billion in additional fees.
Texas is classified as a permissive state with little or no regulation of payday loan businesses. Even among permissive states, however, one study found that Texas had the highest costs, at over $23 for every $100 borrowed for a two-week period and close to $234 for every $100 borrowed after refinancing. According to the Texas Fair Lending Alliance, Texans can pay almost double the amount of fees compared to borrowers in other states. The average annual percentage rate (APR) in Texas in 2014 ranged from 242 percent to 617 oercent, depending on the type of loan. It is an understatement to say that these rates are significantly higher than other types of short-term lending, such as credit cards which typically have APRs of 12 percent to 30 percent.
To put this issue in perspective, a recent study by CreditCard.com found that the average credit card debt in the Dallas-Fort Worth area is close to $4,900. Assuming the borrower could pay 15 percent of their balance off each month, it would take approximately 14 months to pay off the debt and a total of $382 in interest. If this same amount had been taken out as a payday loan (or multiple payday loans of smaller amounts), a borrower would have paid around $1,150 in fees to pay off the loan on-time with no refinances. However, according to the Pew Charitable Trusts, it takes the average payday borrower five months to pay off a payday loan. With refinancing fees, this would mean a borrower could end up paying over $11,000 in fees to borrow the initial $5,000. In other words, a borrower could easily end up spending 3 to 30 times the amount in fees than they would have paid in interest on a credit card.
Payday and auto title lending have additional costs well beyond the fees associated with the loans. Oftentimes, the fees and short-term due dates cause families to become mired in a cycle of debt where they are paying large amounts on rollover fees but never come any closer to retiring the original loan. Defaults can seriously damage credit, not only making it more difficult to get low-cost loans in the future, but also impairing the ability to find a job or affordable housing since employers and landlords increasingly make decisions based on credit history. In fact, according to the Center for Responsible Lending, one in seven job seekers with "blemished credit" were passed over for a job following a credit check. Also, the community as a whole can suffer as lending drains away resources that would normally be spent in the local economy and causes an added strain on social services from families caught in a cycle of debt.
Recently, there has been a movement among Texas cities to regulate payday and auto title lenders and currently 26 cities in the state of Texas have passed local ordinances, including Austin, Dallas, Houston, and San Antonio. There has also been substantial reform effort in the legislature led by former Speaker of the House Tom Craddick, but to date it has not been successful. Many of the local ordinances require these businesses to register with the city, limit the amount of the loan and the number of refinances allowed, and include a provision that payments should be used to lower the amount of principal owed. Communities are also working to encourage the development of low-cost alternatives to payday and auto title loans. Credit unions, banks, non-profits and even employers have all become involved in the attempt to provide viable alternatives to payday loans through offering micro-consumer loans at reasonable rates.
In addition to city ordinances and alternative loan programs, community education is crucial. Many borrowers are attracted to payday loans because of the advertised ease of access, but do not truly understand the commitment they are making. Borrowers also choose a payday loan because alternatives such as borrowing from family or friends, selling assets, or cutting expenses are viewed as even more unpleasant. Nonetheless, borrowers are often driven to these alternatives in order to pay off the original payday loan. In addition to the debilitating harm to individual families, these lending structures cause a quantifiable drag on the entire economy. One of the best ways to protect families and the economy from abusive loan practices is to raise awareness as to the true costs of these loans as well as the alternatives that exist.
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.