China’s A-H share gap widens


The bullish sentiment onshore comes amid expectations of state support
Chief Investment Office10 Sep 2019
Photo credit: AFP Photo


MAINLAND CHINA & HONG KONG

Mainland Chinese stocks are outperforming their offshore-listed peers as domestic investors bet the country’s economy will withstand the trade war with the US.

The Shanghai Composite Index has rallied more than 21% this year, compared with a 4.3% advance by the Hang Seng China Enterprises Index in Hong Kong. The Shanghai measure is trading near its highest level relative to the H-shares gauge since late 2017.

The bullish sentiment onshore comes amid expectations of state support ahead of the 70th anniversary of the People’s Republic of China (PBOC) on 1 October – even as foreign traders grow pessimistic in the face of a slowing global economy and a sliding yuan. After markets closed on Friday (6 September), the central bank lowered the amount of cash banks must hold as reserves to the lowest level since 2007.

The Hong Kong market is more sensitive to flows of foreign funds, which will pull out of Emerging Markets amid global uncertainty. Such sensitivities have not deterred bullish onshore investors from snapping up shares in Hong Kong’s stock market for 37 straight days as of Monday, the longest stretch since late 2017.

The latest easing may help sustain gains. The reserve requirement ratio for all banks will be lowered by 0.5%pts, taking effect on 16 September, PBOC said Friday. The PBOC also cut the reserve ratios by one additional percentage point for some city commercial banks, to take effect in two steps on 15 October and 15 November.

The onshore gains defy a depreciating yuan that has weakened 3.5% this year. It fell past the key 7.00 per dollar level amid an escalation in the trade war. It is not all gloom for H-shares. China’s A-shares are now nearly 30% more expensive than their Hong Kong-listed peers. – Bloomberg News.

The Shanghai Composite Index climbed 0.84% to 3,024.74 while the Hang Seng Index slipped 0.04% to 26,681.40.

 

REST OF ASIA

How low can the Bank of Korea (BOK) go? Will it join the club of central banks with interest rates at or very near zero?

With the BOK looking increasingly likely to lower its benchmark interest rate again in response to a deteriorating economy and global outlook, these are some of the questions economists are asking. The rate is already sitting at 1.5%, only a 0.25%pts above a record low.

Economists have judged 1% to be the BOK’s “effective lower bound”, or the point at which lower rates would be no longer effective. But the BOK and Governor Lee Ju-yeol have never specified a level, and many BOK watchers have started to question whether 1% is the floor.

The limits of interest rate policy are coming into focus worldwide as the global economy slows, given that many benchmark rates remain well below long-term norms. Bank of England (BOE) Governor Mark Carney recently said the effective lower bound for the UK is a little above 0% – not far away from the BOE’s current policy rate of 0.75%.

The Reserve Bank of Australia’s (RBA) Philip Lowe said he sees the RBA’s limit close to the levels reached by peers such as Canada and the US after the Global Financial Crisis: around 0.25-0.5%. The RBA’s benchmark is now at 1%.

As a country without a major global currency, the effective lower bound for Korea is higher than for those nations with a major currency, Lee said after holding rates last month. With the benchmark rate at 1.5%, the central bank does have some policy room but less so than before, and cutting rates below the lower bound requires caution, Lee said.

The BOK in July said the potential growth rate is now 2.5-2.6%, down from 2.8-2.9%. The economy is expected to grow about 2% this year, the least since the Global Financial Crisis. – Bloomberg News.

Australia’s S&P/ASX 200 Index slipped 0.19% to 6,635.40 at the open on Tuesday (10 September). It strengthened 0.01% to 6,647.96 the previous session.

South Korea’s Kospi Index surged 0.35% to 2,026.67 early-Tuesday morning. It added 0.52% to 2,019.55 the previous session.

The Taiwan Stock Exchange Weighted Index (Taiex) rose 0.19% to 10,801.14.


GENERAL DISCLOSURE/DISCLAIMER 

This information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only.  This publication is intended for DBS Bank and its subsidiaries or affiliates (collectively “DBS”) and clients to whom it has been delivered and may not be reproduced, transmitted or communicated to any other person without the prior written permission of DBS Bank. 

This publication is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to you to subscribe to or to enter into any transaction as described, nor is it calculated to invite or permit the making of offers to the public to subscribe to or enter into any transaction for cash or other consideration and should not be viewed as such.

The information herein may be incomplete or condensed and it may not include a number of terms and provisions nor does it identify or define all or any of the risks associated to any actual transaction. Any terms, conditions and opinions contained herein may have been obtained from various sources and neither DBS nor any of their respective directors or employees (collectively the “DBS Group”) make any warranty, expressed or implied, as to its accuracy or completeness and thus assume no responsibility of it. The information herein may be subject to further revision, verification and updating and DBS Group undertakes no responsibility thereof.

All figures and amounts stated are for illustration purposes only and shall not bind DBS Group. This publication does not have regard to the specific investment objectives, financial situation or particular needs of any specific person. Before entering into any transaction to purchase any product mentioned in this publication, you should take steps to ensure that you understand the transaction and has made an independent assessment of the appropriateness of the transaction in light of your own objectives and circumstances. In particular, you should read all the relevant documentation pertaining to the product and may wish to seek advice from a financial or other professional adviser or make such independent investigations as you consider necessary or appropriate for such purposes. If you choose not to do so, you should consider carefully whether any product mentioned in this publication is suitable for you.  DBS Group does not act as an adviser and assumes no fiduciary responsibility or liability for any consequences, financial or otherwise, arising from any arrangement or entrance into any transaction in reliance on the information contained herein.  In order to build your own independent analysis of any transaction and its consequences, you should consult your own independent financial, accounting, tax, legal or other competent professional advisors as you deem appropriate to ensure that any assessment you make is suitable for you in light of your own financial, accounting, tax, and legal constraints and objectives without relying in any way on DBS Group or any position which DBS Group might have expressed in this document or orally to you in the discussion.

If this publication has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of the Information, which may arise as a result of electronic transmission. If verification is required, please request for a hard-copy version.

This publication is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Singapore: This publication is distributed by DBS Bank Ltd (Company Regn. No. 196800306E) ("DBS") which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore (the "MAS").