Is this the week that China’s stockmarket bubble was pricked?
The last two days have seen massive falls in the prices of several high flying, almost unknown Chinese companies in the Hong Kong market.
The volatility came after the Shanghai market bounced back strongly at the start of the week, ending several days of growing uncertainty.
The market bump was put down to a string of upbeat announcements from China’s State Council (it’s cabinet) about reforms in the securities and finance sector, more spending on urban infrastructure, especially railway projects, and a new multi-year plan for manufacturing.
But we also had yesterday more confirmation that China’s huge manufacturing sector is sluggish – the first report of the monthly HSBC/Markit survey for May of that sector produced a reading of 49.1%, up from the final reading of 48.9% for April. That’s still below the line between expansion above a reading of 50) and contraction (under that line).
The survey’s subindex measuring factory output fell to its weakest in 13 months. Readings for new orders, new export orders, employment and inventories were also weak
Annabel Fiddes, economist at Markit Economics said in commentary. “Softer client demand, both at home and abroad, along with further job cuts indicate that the sector may find it difficult to expand, at least in the near term." She said the May results point to a further deterioration in operating conditions in Chinese manufacturing.
But as weak as the Chinese economy looks, it will pay to keep a close eye on the Chinese and Hong kong sharemarkets where we are starting to see enormous falls in some of the outrageously valued, but little known stocks.
Yesterday saw Goldin Financial Holdings and Goldin Properties Holdings, controlled by a ‘billionaire’ called Pan Sutong, plunge more than 50% in Hong Kong trading Thursday for no apparent reason. Before yesterday’s rout, the two stocks had surged more than 300% in 2015 for the biggest gains in the main Hang Seng Index.
Those falls followed the more suspicious 47% plunge the day before in the price of a company called Hanergy Thin Film Power Group in 24 minutes. That saw the shares suspended. Media reports said a reason for the sharp fall was the fact that the chairman failed to attend the company’s annual meeting.
Media commentators say the share price rises for the three companies had boosted their market values to $US30 billion and made them among the biggest listed Goldin Financial shares, the bigger of the two, closed down 41% yesterday, while Goldin Properties lost 41% as well ( its shares had jumped 450% hmid-March to its peak on Tuesday.
The Financial Times said that "collectively, Goldin’s two units have lost $20.3bn from their market capitalisations over two days." Since the Hong Kong market’s opening on Wednesday to Thursday’s close, Goldin Properties’ market capitalisation declined from $12.7bn to $6.6bn, while Goldin Financial slid from $29.9bn to $15.7bn.
Hanergy Thin Film shares remained suspended yesterday, with no sign of a statement last night.
The falls didn’t worry investors in China – the Shanghai market jumped almost 2%, but the Hong Kong market was unsettled and closed off 0.2%.
That doesn’t worry investors so much as they believe the government will ride to their rescue with more stimulus – after three interest rate cuts and two reductions in bank reserve asset ratios and the ordering of banks to continue funding even the most bankrupt of local government projects, that belief on the part of Chinese investors doesn’t look misplaced.
And that view is supported by the statements about reform coming at a rapid pace from the government and the State Council. The council ordered China’s banks to bailout those local government projects and on Wednesday revealed plans to remake and upgrade the internet across China to create a more tech friendly environment, lower costs, increased speeds and make it available to more people
“The government will push telecommunications companies to lower the fees they charge for Internet access and it will aim to bring down the average fees charged for mobile data and fixed broadband,” the ‘guideline’ from the State Council ended. Normally that would sound like bad news for China’s giant telcos (but good news for its giant equipment companies), but the share prices of many telcos and related groups rose.
And there was a bigger announcement from State Council made Tuesday, but only publicised on Wednesday and yesterday and also on Wednesday, which is called “Made in China 2025” which was described as “the country’s first ten-year action plan focusing on promoting manufacturing."
“The plan proposed a “three step” strategy of transforming China into a leading manufacturing power by the year 2049, which marks the 100th anniversary of the founding of the People’s Republic of China,” the statement said.
"Nine tasks have been identified as priorities: improving manufacturing innovation, integrating technology and industry, strengthening the industrial base, fostering Chinese brands, enforcing green manufacturing, promoting breakthroughs in ten key sectors, advancing restructuring of the manufacturing sector, promoting service-oriented manufacturing and manufacturing-related service industries, and internationalizing manufacturing.
And 10 sectors were targeted for growth, from robotics, to medical technology, to new types of cars, farm equipment and new materials.
All interesting, but a lot of talk and designed to avoid commentary on the major problem, the slowing pace of activity in the economy and the rising concern about deflation, which has already held Chinese manufacturing in its grip for the past 38 months.
