Shanghai Plunges 69%, HK Drops 50%

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

The two leading indexes in China, SCI and CSI 300 dropped 69% in one year of trading and are down 66% for the year and Hang Seng index in Hong Kong dropped to a 3-year low and lost nearly 50% from a year ago. Hang Seng index reached its peak at the end of October last year.

[R]6:00AM New York, 6:00PM Hong Kong – Hong Kong stocks drop to a 3-year low. Shanghai indexes plunge 69% from its peak a year ago.[/R]

Market Sentiment

The two leading indexes in China SCI and CSI 300 dropped 69% in one year of trading and are down 66% for the year and Hang Seng index in Hong Kong dropped to a 3-year low. Ping An, the second largest insurance company in China is likely to record a large loss as its investment in Belgian-Dutch bank Fortis lose most of its value.

Shanghai Composite Index, once the world’s most expensive index plunged 69% I one year of trading. The SCI closed at 6,092.06 on October 16, 2007 and closed on the same day this year at 1,909.94.

The CSI 300 index has dropped from 5,877.02 on October 16, 2007 to 1,833.26 on the same day this year. The index last traded at this level on December 14, 2006.

The SCI index at the peak traded at 49 times earnings, the most expensive index at the time when measured on the multiple of earnings. The SCI index a year later trades at 14 times earnings, though trading at the cheapest valuation in recent times, still trades at a premium. The index trades at two times the earnings of most European indexes and 10% premium to the S&P 500 index.

In Hong Kong trading Hang Seng Index fell 4.40% or 676.31 to 14,554.21, declining 1.6% for the week, down 50% from a year ago. China Enterprises Index of Hong Kong listed mainland shares, or H shares, declined 4.8% to 7,007.53. In Shanghai trading CSI 300 Index gained 0.7% or 12.36 to 1,833.26.

Hong Kong Association of Banks Agrees to Lehman Buy-Back Proposal

The Taskforce of the Hong Kong Association of Banks reported that distributor banks involved have agreed to buy-back Lehman Brothers mini-bonds as proposed by the HK government.

Ernst & Young has been appointed as the independent financial adviser responsible for the buy-back process.

China Releases Regulations on New Capital Accord

China Banking Regulatory Commission today released five guideline ranging from risk exposure, loan monitor and account credit that are precedent to the introduction of the New Basel Capital Accord, or Basel II, to be implemented by the end of 2010.

Notice on the regulations has been served to local authorities, policy banks, state-owned commercial banks, incorporated commercial banks and postal savings bank.

The Commission noted that standards and specifications in the guidelines must be implemented from the beginning of this month.

The New Basal Capital Accord emphasizes on risk and capital management and requires financial institutions to have higher capital reserves to insure risk in lending and investment.

The CBRC will introduce more regulations to ensure that domestic standards are compatible and add to the value of the international financial system.

Separately, Xinhua News reported that CBRC says that there hasn’t been a massive inflow and outflow of qualified foreign institutional investor’s funds from the country’s A-share market.

Gainers & Losers

Financial stocks regained on the hopes that government will allow banks to offer margin lending according to Chinese regulators. Local media reports suggested that China will permit Citic Securities, Haitong Securities and others to offer margin loan on a trial basis and also encourage companies to return higher percentage of their earnings to shareholders.

China Life rose 3% to 19.70 yuan, China Construction Bank Corp fell 6.7% to HK$3.50 but rose 1% in Shanghai trading and China Pacific Insurance edged 0.4% to 12.37 yuan. Haitong Securities gained 2.3% to 18.60 and China Securities added 2.4% to 18.72 yuan. Bank of China dropped 7.8% to HK$2.38 in Hong Kong trading.

China Unicom dropped 6.7% to HK$9.8 on the worries that the recent merger with China Netcom, the fixed line operator may drag earnings. China Mobile fell 5% to HK$66.1.

PetroChina dropped 6% and CNOOC declined 6.2% after crude oil prices fell below $70 a barrel.

Zijin Mining in Hong Kong trading dropped 7.5% after metal prices fell and investors sold stocks ahead of the weekend.


Property developers fell on the worries that the economic conditions in Hong Kong may weaken further in the next two quarters. Sun Hung Kai Properties Ltd fell 7.1%, Wharf Holdings Ltd declined 9% and Cheung Kong Ltd dropped 4.7%.

Shipping lines declined and the shipping freight rate index, the Baltic Dry Index, lost 6.8% yesterday. China Shipping Container Lines slid 2.9% to HK$1.02.