Markets experienced a week of thin trading ahead of the week-long holiday which started on Thursday. The Shanghai Composite Index gained on Monday as gains for tech stocks negated the detrimental effects of a record plunge in industrial profits.
However, the benchmark index moved lower on Tuesday amidst thin trading. A reduction in the tax on purchase of small vehicles helped the Shanghai Composite rebound on Wednesday. The impact of government measures to boost the economy flowed into Friday and Hong Kong stocks posted gains following Thursday's holiday.
Alibaba Group Holding Limited BABA and One97 Communication, an Indian startup and Paytm's parent company, announced that Alibaba and Ant Financial have agreed to increase their investment in Paytm. China Unicom Ltd. CHU recently signed a pact with Telefonica Brasil S.A VIV to share their international data center capacities and cloud applications
Last Week's Developments
Last Friday, the Shanghai Composite Index declined 1.6%, erasing gains for the week. Fears that the country's economic slowdown was deepening and the government was cutting back on measures to prop up stock markets led to the losses. Trading volumes remained low ahead of the week long holiday starting Oct 1.
Eight stocks fell for every one that gained and trading values plummeted 33% below the 30-day average. Capital outflows touched $141.66 billion, higher than the earlier record high of $124.62 billion recorded in July. Tech stocks, the highest gaining stocks of the week took the heaviest losses amongst the industry groups.
The CSI lost 1.6%. Sub-indexes of tech and industrial stocks declined by a minimum of 2.7%, emerging as the largest decliners among the industry groups. The Hang Seng declined 0.4% while the Hang Seng China Enterprises Index advanced 0.5%.
Markets and the Economy This Week
The Shanghai Composite Index rebounded on Monday, gaining 0.3% and recovering from a decline of nearly 1.6%. This reduced losses for the quarter, which had amounted to 28% at that point. Gains for tech stocks managed to negate the detrimental effects of a record plunge in industrial profits. Trading volumes remained low ahead of the week-long holiday starting on Oct 1.
The Hong Kong exchange was closed on the occasion of the Mid-Autumn festival. Meanwhile, four stocks gained for each decliner as turnover plummeted before the holiday starting Oct 1. The CSI 300 increased 0.3%, powered by a 3.6% surge in the gauge for tech stocks.
These gains helped negate news of a record fall in profits of industrial companies. Profits in Chinese industrial companies dropped 8.8% from the year-ago level in August. This was the sharpest decline experienced since Oct 2011. Also, profits declined 1.9% through January to August year on year. Yuan's depreciation in August hurt profits of export oriented companies last month.
On Tuesday, the Hang Seng slumped to its lowest point in two years, losing 3%. The Hang Seng China Enterprises Index also declined 3%, experiencing its largest loss in a month. The effects of a fall in industrial profits flowed into Tuesday while a plunge in commodities dampened investor sentiment further. The Shanghai Composite Index lost 2% amidst thin trading.
Raw materials experienced the lowest level of returns in August in around 16 years. This was a consequence of oversupply given that demand is falling with the lowest rate of growth predicted for China in 20 years. The CSI 300 declined 2%, weighed down by energy and material stocks.
The Shanghai Composite Index increased 0.5% on Wednesday even as turnover remained 55% lower than the 30-day average. Stocks of auto companies led gains following a reduction in the tax on purchase of small vehicles. However, the Shanghai Composite suffered the largest quarterly losses among all global benchmarks, plummeting 29%.
Sub-indexes of energy, material and tech stocks plunged by a minimum of 34% on a quarterly basis. These stocks were the largest decliners among the 10 industry groups. The Hang Seng advanced 1.4%, reducing quarterly losses to 21%. Meanwhile, the Hang Seng China Enterprises Index gained 1.9%, cutting quarterly losses to 28%.
These gains came on the back a reduction in purchase tax on vehicles with an engine size of 1.6 liters or lower from 10% to 5% starting from Oct 1 to the end of 2015. Additionally, the government reduced the minimum down payment required to purchase homes for first time buyers from 30% to 25%.
Mainland markets closed for a week long holiday starting Thursday. Meanwhile, the final Markit/Caixin PMI increased from its earlier flash reading of 47 to 47.2. This was however lower than August's reading of 47.3. The official PMI reading came in at 49.8, recovering from August's reading of 49.7, the lowest in three years.
Hong Kong's markets were closed on Thursday for the National Day holiday. On Friday, the Hang Seng gained 2.7% on the back of the reduction in down payments for first time home buyers. The Hang Seng China Enterprises Index increased 3.3%, boosted by the reduction in taxes on small vehicles.
Stocks in the News
Alibaba Group Holding Limited and One97 Communication announced that Alibaba and Ant Financial have agreed to increase their investment in Paytm.
Ant Financial, Alibaba's payment arm, initially invested $575 million in Paytm in Feb 2015 for a 25% stake in One97 Communications. After the completion of the latest transaction, Alibaba Group will become a direct investor in Paytm.
The terms of the deal have not been undisclosed. However, Alibaba will reportedly invest $680 million to buy 20% of Paytm. Also, this will lower Ant Financial's stake from 25% to 20%.This investment will help Paytm speed up scale and compete with Snapdeal, Flipkart, and Amazon AMZN .
China Unicom recently signed a pact with Telefonica Brasil to share their international data center capacities and cloud applications including Infrastructure as a Service (IaaS) with virtual servers and multi-cloud solutions. The agreement will help both the companies serve their multinational clients who are aiming at international expansion.
Both China Unicom and Telefonica Brasil expect significant economies of scale as a result of this collaboration. Earlier this year, the two companies had signed an agreement to source smartphones based on shared specifications.
Yingli Green Energy Holding Company LimitedYGE or Yingli Solar announced that it has signed several agreements with Qingdao New Energy Solutions Inc. to supply 130 megawatts (MW) of high quality solar panels.
The panels will be used in utility scale solar projects, industrial rooftop systems as well as BIPV agricultural solutions in Zhejiang, Inner Mongolia, Shandong and other provinces in China. Yingli Solar has begun to deliver the first 30 MW and expects to complete the delivery by the end of Sep 2015. Yingli Solar will supply the remaining 100 MW of solar panels by the end of the second quarter of 2016.
JinkoSolar Holding Co., Ltd.JKS will provide solar modules of 49.8 MW to TSK Electrónica y Electricidad, S.A also known as TSK. These modules will be utilized for a solar plant in the state of Durgango in Mexico, which will be the biggest solar facility in the country.
The plant in Durgango will be the first PV solar power production facility which will be hooked to the National Power System. Named Durgango TAI, the plant is presently undergoing the second stage of the first phase of construction. All of the five phases of construction are projected for completion within 2015. TSK is overseeing the solar project while Eosol Energy de Mexico, S.A.P.I. de C.V. or Eosol is developing Durgango TAI.
ReneSola Ltd.SOL has said that it has bought back convertible notes worth $36 million in notional terms during 3Q15. These notes had a put option on Mar 15, 2016 and were due on Mar 15, 2018. As of date, Renesola has outstanding convertible bonds worth $26.1 million.
The company also bought back around 807,000 ADSs during 3Q15. These repurchases follow an announcement of a share repurchase program of a maximum of $20 million out of outstanding ADSs made on Sep 23, 2015. Renesola is targeting repurchases of these outstanding ADSs within a period of 12 months.
Performance of Most Actively Traded US-listed Chinese Stocks
The table given below shows the price movements of 10 Chinese companies with the highest three-month average trading volume on U.S. exchanges. Price movements over the last five days and during the last six months have been included.
Last 5 Day's Performance
Next Week's Outlook:
Markets experienced a short but eventful trading week, alternately weighed down by disappointing data and boosted by stimulus measures. According to market watchers trading volume was declining before the week long holiday starting on Oct 1. Further, dismal economic data has reduced optimism for investors. They believed that in the absence of active government support, a slow recovery was taking place.
A decline in industrial profits dominated most of the week and joined the series of economic reports which have been dampening investor sentiment for some time now. However, the move to cut taxes on small vehicles and reduce down payments for first time home buyers lifted the spirits of investors. Additionally, an improvement in PMI numbers lifted global equities, even as mainland markets remained closed.
Markets will take a week long break and volumes would possibly increase substantially. It seems that support measures announced by the government hold the key to market movement in the days ahead. Investors will look for such indications before placing their bets once trading resumes after the long break.
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