Posted inRegulation

Chinas brokerage suspension

Mainland market volatility that is expected to characterise 2015 was clear on Monday after a 7.7% plunge in the Shanghai index, driven by price declines in shares of Citic Securities and Haitong Securities.
by Fund Selector Asia

The Shanghai Composite Index tanked after the China Securities Regulatory Commission on January 16 suspended these brokerages from lending money and stocks to new clients for three months.

Funds that had exposure to both Citic Securities and Haitong Securities took a hit in their returns, according to their latest portfolios available from FE Analytics. 

Four funds had exposure to both: Allianz China A-Shares; Fullerton China A Share; Hang Seng China A-Share Focus Fund; and JPMorgan China New Generation Fund.

Citic Securities featured in the portfolio of 13 funds, while Haitong Securities was held by nine funds. The total number of funds with exposure to one or the other were 18.

Key laggards

Among funds with exposure to both brokerages, Hang Seng China A-Share Focus Fund was the biggest decliner, with a 9.7% drop in returns from January 16-19. The fund had a 5.1% and 3.4% weighting in Citic Securities and Haitong Securities, respectively.

The JPMorgan China New Generation Fund had a 4.3% weighting in Haitong and 3.3% in Citic.

The Fullerton portfolio featured both Citic and Haitong with a 7.1% an 5.8% weighting, respectively (as of November 30). 

The return of Allianz China A-Shares fell by 7.1%, close to the overall fall in the Shanghai Composite Index.

As per the latest portfolio (31 December), Allianz China A-Shares had both Citic Securities and Haitong Securities among its top three holdings, with a 8.8% and 6.2% weighting, respectively.

One fund – JP Morgan China Pioneer Fund, even though it had exposure only to Citic Securities (3.2%), also plunged significantly, recording an 8.2% decline. 

A look at the performance of the four funds that had exposure to both Citic and Haitong for the three-day period January 16-19:

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Volatility arrives- a key risk?

The fall in the Shanghai index underscores the industry opinion that 2015 will be a year of strong market volatility.
 
In fact, Hong Kong’s Securities and Futures Commission recently said that volatility has emerged as a key risk in Chinese markets, despite a surge of 53% in 2014.
 
The regulator said the expected interest rate hike in the US this year will likely roil markets, even though it is a gradual move.  
 
Echoing that view was Aidan Yao, senior emerging Asia economist at AXA Investment Managers.
 
Yao warned that large capital outflows, triggered by the US Federal Reserve’s rate hike or by RMB depreciation along with defaults, could cause panic in the financial system.
 
Recently, Chinese developer Kaisa Group Holdings raised concerns because it missed a $23m interest payment on its dollar-denominated bonds.
 
Yao said a sharp correction in the equity markets caused by a rapid unwind in leveraged positions and margin trades could be among other risks.
 
Overall, Yao forecast that China’s GDP growth will decelerate to 7.1% this year, but lower oil prices will deliver a sizable boost to the economy, adding 0.2% to 2015 growth.
 
China’s economy expanded 7.3% in the final quarter of last year, failing to meet the government’s 7.5% target.
 
——————————————————————————-

Funds registered for sale in Singapore and/or Hong Kong with exposure to Citic Securities:

Fund Name                                                         Portfolio weighting

——————————————————————————-

HS Financial Sector FlexiPower                                 9.03%

Allianz China A Shares                                               8.83%

BOCOM International – Dragon Core Growth          6.90%

Fullerton China A Share                                             5.80%

HS China A Share Focus                                            5.10%

Mirae Asset China Sector Leader Equity                   4.40%

Jupiter – JGF China Select                                          4.05%

BNP Paribas Flexifund Equity China A                     3.63%

Goldman Sachs China Opportunity Portfolio             3.40%

JP Morgan China New Generation                             3.30%

JP Morgan China Pioneer                                           3.20%

HSBC China Dragon                                                  2.70%

Goldman Sachs Asia Portfolio                                   2.50%

…and with exposure to Haitong Securities:

Fund Name                                                         Portfolio weighting

——————————————————————————-

Fullerton China A Share                                           7.10%

Allianz China A Shares                                            6.20%

JP Morgan China New Generation                           4.30%

Baring Eastern Trust                                                 4.20%

Baring Asia Growth                                                  4.20%

HS China A Share Focus                                          3.43%

Lion Global China Growth                                       3.30%

BOCIP China Value                                                 2.90%

Allianz RCM Oriental                                              2.00%

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