Shanghai Drops 4%, Hong Kong Falls 5%

123jump.com Staff
15 Oct, 2008
New York City

China foreign exchage reserves rose to $1.9 trillion, the largest of any nation. Trade surplus contributes $27 billion a month and depositors looking for stable currency convert foreign currency into yuan denominated deposits. Benchmark index in Shanghai dropped 4% and in Hong Kong fell 5%.

[R]6:00AM New York, 6:00PM - China foreign currency reserves rise to $1.9 trillion at the end of September. Stocks in Shanghai and Hong Kong dropped 4% and 5% on the global economic worries.[/R]

Market Sentiment

In Hong Kong trading Hang Seng Index declined 4.96% or 834.58 to 15,998.30, and the China Enterprises Index of Hong Kong listed mainland shares, or H shares, fell 6.42% or 541.40 to 7,894.06. In Shanghai trading CSI 300 Index dipped 4.05% or 20.15 to 1,914.36.

Daily turnover on main-board stood at HK$52.2 billion from HK$81.7 billion yesterday.

China’s Forex Reserves Rise

The People Bank of China reported yesterday that China’s foreign exchange reserves increased 32.9% from a year ago to $1.91 trillion through September. The reserves had grown as much as 35.73% from a year ago in June.

China holds the largest foreign exchange reserves among all nations.

The forex reserve build up has been on the decline since the beginning of the year as the central bank tightened its monetary policy to prevent the economy from overheating.

In September, reserves grew by $21.4 billion from increases of $36 billion and $39 billion in July and August correspondingly.

Notwithstanding the decline in the September figure, the average monthly increase in the first nine months was $41.9 billion, higher than the average gain of $38.5 billion last year.

China’s trade surplus has been expanding at $27 billion a month in the third quarter.

Investors are converting deposits to yuan denominated assets which area insulated from the turbulence on the credit markets.

The central bank says China’s financial system remains stable with outstanding local currency loans expanding by 14.5% to Rmb29.65 trillion in September.

Total outstanding loans in foreign currencies increased 31% to $269.2 billion in the period. In addition, local currency transactions on the inter-bank market soared to Rmb9.49 trillion a month ago.

Hong Kong Calls For Statutory Minimum Wage

Hong Kong chief executive Donald Tsang in addressing to the legislative body said that he plans to introduce a statutory minimum wage for all Hong Kong workers during the current legislative session.

Tsang added that though the global credit market crunch was worse than the Asian financial crisis of 1997, Hong Kong was well poised to weather the challenges.

Hong Kong recently reported that it was prepared to use its foreign currency reserves to shrug off the effects of global credit crunch.

The city monetary authorities guarantee all bank deposits and will review how capital adequacy ratios are calculated, including raising the supervision of liquidity risk management.

The government recently offered subsidies for public housing rents, utilities bill and cash allowances for retirees. The government plans to offer cash payment of HK1,000 a month to senior citizens.

Gainers & Losers

Hong Kong market indices dropped in today’s trading on profit taking after a two-day rally. The sell off was heightened by lingering worries of a global economic slowdown as freight charges declined and oil prices retreated.

Commodities, financial stocks and shipping lines fell.

But China Eastern Airlines jumped 5.4% on reports that the Shanghai government has approved the proposed merger with Shanghai Airlines.

Ping An Insurance dropped 7.4% on its exposure to troubled Benelux bank Fortis which has lost 78% of its value and nationalized by the governments of Belgium, France and Holland.

Financial stocks dropped on profit taking. ICBC slipped 5.9% and China Construction Bank lost 6.7%.

Shipping lines declined as the Baltic Dry Index, which measures freight charges for raw materials, slumped 8.5%. China Cosco declined 10.5% and China Shipping Development plummeted 13.6%.

CNOOC shed 6.3% after crude oil prices slid 3.2% to $73.63 per barrel. PetroChina also dropped 6.5%.