London set for a role in yuan transactions

Date Jan 17 2012 15:00:43 Source:SHMET

HONG KONG/beijing - London is set to become a major offshore trading center for the yuan, as Britain teams up with Hong Kong to develop such business. 

The Hong Kong Monetary Authority (HKMA) and the UK Treasury on Monday agreed to launch a private-sector forum to strengthen links between Hong Kong and London in such areas as clearing and settlement, market liquidity and the development of new yuan-denominated products, the HKMA said in a news release. 

The forum will have representatives from financial institutions in Hong Kong and London, including HSBC Holdings PLC, Standard Chartered PLC, Bank of China Ltd, Deutsche Bank AG and Barclays PLC. It will meet twice a year, and the first meeting will be held in Hong Kong in May, it said. 

China and Britain agreed in September to cooperate on the development of the offshore yuan business and develop London into an offshore yuan market. 

UK Chancellor of the Exchequer George Osborne said in Hong Kong on Monday that the intention was to "establish London as a new hub" for the yuan. 

"It's clear that there is scope for a substantial expansion of the yuan market in the coming years," he told a meeting of Asian finance officials and executives. 

He added that London was perfectly placed to be a gateway for Asian investment and banking to Europe and as a bridge to the United States. 

Osborne said establishing London as an offshore center for yuan-denominated settlements will benefit China's economic development as well as Britain's. 

China's rapid growth had provided opportunities that Europe should seize as it struggled to emerge from the sovereign debt crisis. Britain's merchandise exports to China rose 20 percent in 2010, a measure of the importance of Asia to Britain's long-term economic growth, said Osborne, who is visiting Hong Kong, Beijing and Tokyo to strengthen business ties, especially in financial services, infrastructure and innovation. 

The HKMA plans to extend the operating hours of the yuan real-time settlement system to 15 hours by the end of June, to accommodate London and other European markets to settle offshore yuan payments. 

"The fact that China will open its third yuan offshore market in London is a strategic decision for the world's second-largest economy to increase the convertibility of the yuan and evolve the yuan into a reserve currency globally," said David Wang, executive director of the Royal Bank of Scotland (China) Co Ltd. He said a deeper economic partnership and a stronger willingness to cooperate underpin the establishment of such an offshore market. 

China and Britain aim to increase annual bilateral trade to $100 billion from the current level of $50 billion to $60 billion. 

"The move is necessary, given China's growing investment in the UK and the wider eurozone, as well as its increasing trade with the region," said Daniel Chan, chief economist at BWC Capital Markets. 

Kevin Lai, an analyst at Daiwa Securities Capital Markets Co Ltd, said that internationalization of the yuan will require more than one offshore yuan business center. 

"However, the lack of a natural funding pool could undermine efforts to establish London as a new hub for the offshore yuan business," he said. 

Hong Kong's yuan liquidity pool, which grew significantly over the past two years, meant that it was well-placed to help with the development of the offshore yuan market in London, Chan said. 

The new cooperative agreement "means that London recognizes Hong Kong as the major yuan trade settlement center", said Andrew Fung, executive director of Hang Seng Bank. 

Nicholas Kwan, head of research at the Standard Chartered Bank (Hong Kong) Ltd, warned that competition between the two financial centers would likely increase. 

"As time passes, the development of offshore yuan businesses may (lead to) market competition that both parties may not have anticipated. We must monitor market developments closely." 

Report by SHMET

China stocks open higher on Tuesday

Date Jan 17 2012 14:59:57 Source:SHMET

BEIJING - Chinese shares opened higher on Tuesday, with the benchmark Shanghai Composite Index up 0.02 percent, or 0.34 points, to open at 2,206.53.

The Shenzhen Component Index opened at 8,835.88, up 0.1 percent, or 8.4 points.

The National Bureau of Statistics is scheduled to release the annual economic data on Tuesday.

Report by SHMET

Securities regulator to relax rules on listing

Date Jan 17 2012 14:58:03 Source:SHMET

HONG KONG - The mainland's securities regulator plans to relax controls on Hong Kong and overseas listings for mainland companies and will push for issues of yuan-denominated shares in the offshore yuan market, China Securities Regulatory Commission (CSRC) Vice-Chairman, Yao Gang, said on Monday.

Speaking at the Asian Financial Forum in Hong Kong, Yao said the standards to list so-called H-shares are too high and the approval process is time-consuming.

"Current H-share listing rules were set more than a decade ago, and there haven't been changes throughout these years," Yao said.

"This year, the CSRC will conduct a comprehensive revision of overseas listing rules," he added.

"The revision will simplify procedures and lower thresholds, providing good conditions for small to medium-sized and privately-owned mainland companies to list overseas."

The market capitalization of Hong Kong-listed H-share and red-chip companies accounted for more than half of the special administrative region's stock market capitalization, Yao said.

Overseas IPOs by mainland companies raised $15.3 billion last year, down 58 percent from 2010 and a three-year low, Bloomberg data show.

There were 59 such deals last year, compared with 124 in 2010.

In Hong Kong, IPOs by mainland companies raised $13.1 billion last year, a 59 percent decline from 2010, according to Bloomberg data.

The CSRC will also push for yuan-denominated share sales and enlarge the quotas for yuan investment on the mainland.

A pilot program that allows offshore yuan to be transferred back to the mainland to invest in capital markets, known as the renminbi qualified foreign institutional investor (RQFII) program, will also be expanded, Yao said.

The CSRC had already approved RQFII quotas for 21 mainland financial institutions to launch related RQFII investment products, he added.

"In addition to funding investment products, the RQFII enlargement can also take the form of yuan-based exchange-traded fund listings on the Hong Kong bourse that can track the A-share index's market trend," Yao said.

Since the CSRC, the People's Bank of China (the central bank) and the State Administration of Foreign Exchange jointly announced the implementation of the RQFII quota of 20 billion yuan ($3.17 billion) in December, a flurry of RQFII investment products have flooded Hong Kong. The local securities regulator, the Securities and Futures Commission, has already approved 17 RQFII investment products that have used quotas of nearly 17 billion yuan, Chairman Eddy Fong said.

Report by SHMET

Investors shrug off wave of newly unlocked shares

Date Jan 17 2012 14:57:21 Source:SHMET

SHANGHAI - A new wave of unlocked shares, including those of blue-chip companies, failed to depress the domestic stock market on Monday, as investors took a sanguine view of the supply surge. 

The Shanghai Composite Index fell a modest 1.7 percent to 2,206 points and had a turnover of 42.9 billion yuan ($6.8 billion). 

According to the financial data provider Wind Information Co Ltd, up to 8.94 billion restricted shares of 24 companies were released for trading on the Shanghai and Shenzhen stock exchanges on Monday. The shares had a combined value of about 42.84 billion yuan, calculated on the basis of Jan 13 closing prices. 

Topping the scale of newly unlocked shares was Agricultural Bank of China Ltd (ABC), which went public in July 2010. 

It announced that 5.1 billion of its non-tradable A shares would be unlocked and released to the market on Monday on the Shanghai Stock Exchange, a company statement showed. 

Based on the closing price of 2.65 yuan on Jan 13 - below its IPO price of 2.68 yuan - the shares had a combined value of 13.5 billion yuan. 

The bank suspended trading on Monday for a shareholders' meeting, which analysts said made it harder to gauge market reaction. 

For ABC, shareholders of the current tranche include 27 strategic investors, 15 of which are State-owned enterprises, such as China Life Insurance (Group) Co and China National Tobacco Corp. 

Except for those held by the government, all ABC shares have been made tradable. 

The statement showed that the unlocked shares represented less than 2 percent of ABC's existing share capital, after the expiry of an 18-month lock-up. 

The last such release came six months ago when the same amount of A shares was unlocked. 

Meanwhile 12.4 billion restricted H shares that cornerstone investors had were unlocked, but key investors such as Qatar Holding LLC and Temasek Holdings (Private) Ltd held the shares for a long time. 

"Financial indicators show the bank's solid fundamentals, especially in emerging industries" and the development of business with small and medium-sized enterprises, Zhang Yidong of Industrial Securities Co Ltd wrote in a research note. 

"The bank can ride the boom of county-level economic development transition in the coming years, and that is why we rated its shares 'retain'," Zhang said. 

Fu Jia, an analyst from Temasek Holdings, did not see a strong chance of ABC shares being dumped after the lock-up period ended. 

For instance, China Life, the biggest strategic investor, held about 1.19 billion Shanghai-traded shares when the bank went public in 2010. 

But Fu pointed out the current figure had risen to 1.2 billion, indicating buying rather than selling, despite the end of the lock-up. 

"Many investors maintain a long-term commercial relationship with the bank. The relatively low prices of bank shares reflect worries over rising bad loans, but the 'Big Four' banks generally do not run the risk of toxic assets," Fu said. 

Report by SHMET

China to approve more qualified foreign investors

Date Jan 17 2012 14:56:48 Source:SHMET

BEIJING - China will move faster to approve qualified foreign institutional investors that want to put money into Chinese investment funds, said a senior official with the China Securities Regulatory Commission. 

"Funds open to public investment look for value and long-term investments and have been the most important institutional investors in the capital market," said Wang Lin, head of the commission's fund supervision department. 

"We place a big priority on cultivating institutional investors and will continuously improve the investment environment for foreign ones." 

Wang said 69 Chinese fund-management companies were operating by the end of 2011. The value of the separate accounts they managed came to 122.4 billion yuan ($19.35 billion) and the value of the social-security funds they managed came to 301.7 billion yuan. 

Wang said 24 of the funds had been around for more than 10 years by the end of 2011. Although the Chinese capital market has been volatile recently, especially in 2011, the funds' average rate of return over a decade was 235.39 percent, and the annualized rate of return was 12.86 percent. 

Dai Xianglong, chairman of the National Council for Social Security Fund, said on Saturday that China should gradually increase the amount of investment it allows to be made by qualified foreign institutional investors and eventually get rid of the limit it places on such investment. 

Dai said similar funds in the United States and in European countries have invested in stock markets, with some funds having invested about 50 percent of their assets in stocks. 

In China, such companies usually invest about 30 percent of their assets in that manner. The country's laws prohibit them from investing more than 40 percent in stocks. 

Wang also said fund management companies should chose investment strategies that take advantage of their strengths and mitigate their weaknesses. 

They can study clients' requirements and study markets to find products that yield steady returns and come with little risk. 

"Fund-management companies all regard an increase in scale to be an important goal and seek to offer a full range of financial products," said Dou Yuming, CEO of Fullgoal Fund Management Co Ltd. 

"Besides, they excessively depend on banks to sell those types of products. And the final result can be that fund companies compete with each other by sharing more revenues with banks rather than innovating to promote their products to the public." 

"Homogeneous competition is not good for the fund industry or for investors because it cannot create value," Dou said. 

Dou urged regulators to relax approvals for fund products so that companies can have more choices and avenues for differentiation. 

Report by SHMET