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China's Market News: Bond Issuance Complicated By Rising Credit Risks

China's Market News: Bond Issuance Complicated By Rising Credit Risks

2016-04-28 16:34:00
Renee Mu, Currency Analyst
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This daily digest focuses on market sentiment, new developments in China’s foreign exchange policy, changes in financial market regulations and Chinese-language economic coverage in order to keep DailyFX readers up-to-date on news typically covered only in Chinese-language sources.

- The increasing defaults of recent have begun to slow down the issuance of new bonds in China.

- The average ratio of bank non-performing loans to total loans increased to 1.47% in 2015.

- The Shenzhen-Hong Kong Stock Connect is likely to launch in two months, which would increase the chances of China’s A-shares joining the MSCI Index.

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Hexun News: Chinese leading online media of financial news.

- The increasing default rate in corporate bonds has lifted companies’ costs of borrowing of recent. As of April 27th, Chinese firms have delayed or cancelled at least 103 bonds with a total value of 100.9 billion yuan, approximately 3.4 times the amount from 2015. Credit risks have been rising and extended from private-owned companies to state-owned enterprises. As of today, 11 Chinese entities have defaulted on 22 bonds, and this likely isn’t the end of that theme. For instance, the probability of Xining Special Steel, a major steel producer, defaulting over the next 12 months is 5.7%. This is even higher than the 5.61% probability of Dongbei Special Steel, which has already defaulted.

- Earnings growth of Chinese commercial banks has been slowing down; yet the banking sector is still the sector showing the highest profits. The profit of the 16 listed banks in 2015 was 1.27 trillion yuan, representing 52.1% of the total profits of the 2680 listed companies that have already released their annual reports. At the same time, banks’ non-performing loans (NPL) continue to pile up. The total NPLs of the 16 listed banks reached 994.2 billion yuan. The average NPLs-to-total loans ratio of those listed banks climbed to 1.47% in 2015. In specific, the ratio of State-Owned China Agriculture Bank even hit 2.39%.

Chinaforex News: a news agency administrated by SAFE

- A launching plan for Shenzhen-Hong Kong Stock Connect (SHSC) is likely to release within the next two months according to UBS (China). 505 stocks listed on Shenzhen Stock Exchange and 218 stocks listed on Hong Kong Stock Exchange will be included in this program. This means that 70% of mainland A-shares (by market value) and 84% of Hong Kong stocks (by market value) will be tradable for investors in foreign markets.

Additionally, launching the SHSC will help to increase the chance for China’s A-shares to be included in the MSCI Emerging Market Index. China started to apply for MSCI inclusion in 2013, but the petition has yet to be approved. Such an inclusion would be considered as a landmark, as recognition of China’s capital markets on the global stage could attract even more foreign investment into China. UBS (China) said that an introduction of SHSC before MSCI’s decision in June will increase the probability of inclusion to greater than 50%.

China Finance Information: a finance online media administrated by Xinhua Agency.

- The city of Tianjian launched a program designated to develop Yuan business with Singapore after it approved by PBOC. Firms in Tianjian are now allowed to borrow Yuan-denominated loans from Singaporean banks and while also being able to issue Yuan-denominated bonds in Singapore. Citizens in Tianjin are allowed to conduct cross-border Yuan settlement under the current account with individuals or entities in Singapore.

Written by Renee Mu, DailyFX Research Team

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