China Initiates Wider Stress Test; Stocks Rise

Chandrasekhar Atreya
09 Aug, 2010
New York City

Stocks in China region gained after trading volatile in the session. China regulators start stress tests that include sharp fall in home prices and a decline in earnings at steel and cement makers. SFC in Hong Kong permits yuan-dominated fund. China cancels preferential power prices.

[R]5:00 PM Hong Kong, China – Stocks in China region gained after trading volatile in the session. China regulators start stress tests that include sharp fall in home prices and a decline in earnings at steel and cement makers. SFC in Hong Kong permits yuan-dominated fund. China cancels preferential power prices for energy intensive industries.[/R]

Shanghai stocks traded lower in the morning after government issued more measures to reduce manufacturing capacities in certain industries and but indexes recovered later in the day to close higher.

Hong Kong stocks fluctuated on concern that economic growth in the US may falter after the latest monthly data showed weaker than expected hiring.

The Hang Seng Index in Hong Kong gained 0.57% or 122.79 to 21,801.59. The CSI 300 Index in China gained 0.71% or 20.58 to close at 2,918.24 at close of the day.

China regulators have called for stress tests on loans for a range of industries like cement and steel whose fortunes are closely tied to the property markets. These tests, part of a broader investigation into bank’s ability to withstand steep drop in housing prices.

The China Banking Regulatory Commission said on its Web site, tests differed from bank to bank and formed part of its continual efforts to assess the risks in this sector. It also said the hypothetical scenarios examined did not reflect the regulator’s perception for the property sector nor did they herald any change in policy.

China’s rapidly moderating economic growth may prompt the country to switch to a more supportive policy stance in the third quarter, according to the National Association of Financial Market Institutional Investors.

The associated predicted that the central bank may reduce the reserve requirement ratio, the share of deposits a bank must set aside as reserves, in the next two months.

Hong Kong’s Securities & Futures Commission said Friday it has authorized the first yuan-dominated fund for sale to retail investors in Hong Kong to support the initiative to develop the city into an offshore yuan center.

Haitong Asset Management, the Hong Kong unit of Haitong Securities, said it will issue a yuan-dominated fund in Hong Kong following the regulatory announcement.

China cancelled all preferential power rates enjoyed by energy-intensive industries as of July 14, a move that could help the country’s effort to save energy and reduce emissions and also phase out obsolete capacity.

The cancellations involve more than 15 billion yuan in power charges from industries in 22 provinces and autonomous regions, the National Development and Reform Commission said Friday.

Insurers can invest an extra 400 billion yuan in the stock market from August 31 under a new rule that stimulated investors in the stock market on Friday. The China Insurance Regulatory Commission said insurers can invest up to 20% of their gross assets in stocks and funds invested in the equities market from August 31.

“Though the money freed by the new rule may not necessarily flow fully into the stock market, it is a positive signal for the lukewarm market,” said an investment officer with a major insurer in Shanghai on Friday.

More than half of China’s existing residential structures will be demolished and rebuilt in the next 20 years because of poor construction quality, according to a senior researcher from the Ministry of Housing and Urban-Rural Development.

As part of its efforts to hedge against a risk of the dollar’s or euro’s depreciation in the future, China bought 456.4 billion yen more debt than it sold in June, according to figures from the Ministry of Finance in Japan.

More than 2,000 companies including Aluminum Corp of China Ltd, Hebei Iron & Steel Group need to shut outdated factories by September or lose financial support, according to the Ministry of Industry in China.

Companies that fail to meet the September deadline will be barred from obtaining loans, and will not get approval for new investments and land access, the Ministry of Industry and Information Technology said in a statement yesterday on its Web site.

China is set to auction 600,000 tons of cotton from state reserves from August 10, the China Cotton Association said on its Web site today. The minimum offset price will be 16,500 yuan a ton the site said.

Sale of domestically-made autos surged 42.65% year-on-year in the period January to July, the China Association of Automobile Manufacturers said in Beijing today.

Shanghai Movers

Sinoma Science & Technology Co added 5% to 42.42 yuan after saying its first half profit surged 241% to 82.1 million yuan.

Shanghai Tunnel Engineering Co gained 2.7% to 10.76 yuan and Jinan Iron & Steel Co rose 1% to 3.91 yuan after the steelmaker said first half profit surged to 205.4 million yuan compared to a loss in the prior year.

Industrial & Commercial Bank of China, the country’s biggest lender, lost 0.5% to 4.24 yuan and Construction Bank lost 0.4% to 4.85 yuan.

Anhui Conch, the nation’s largest cement maker, added 1.8% to 20.10 yuan.

Tangshan Jidong Cement Company gained 3.6% to 18.90 yuan.