China - Market Direction 01 (May 12 - Jul 15)

[winston]

Mainland shares rose on reports regulators may no longer require banks to maintain loan-to-deposit ratios currently capped at 75 percent, thereby helping to release up to 7 trillion yuan (HK$8.78 trillion) as loans.

[winston]

Bullish mainland insurers pour money into A-share market by Jennifer Li

Mainland insurance companies have injected about 240 billion yuan (HK$299.05 billion) into the securities market within one month, reflecting their bullish sentiment toward the A-share market in the long run.

The insurers' investments in A shares surged to 1.13 trillion yuan as of November 31, up 26.61 percent from 892.52 billion yuan a month earlier. The portion of equity has thus increased to 12.65 percent from 10.14 percent in their asset allocation, China Insurance Regulatory Commission data shows.

Insurance firms hold a prudent and positive view on A shares, which may be maintained up to the Spring Festival, a source in the commission said.

Holding 8.95 trillion yuan, mainland insurers were earlier accused of being slow to react in the face of investment opportunities. The abrupt money injection this time shows they are assured of a slow but bullish performance of A shares, senior management of a Shanghai-based insurance firm told China Securities Journal.

"It is a consensus reached by major players, after seeing continuous government stimulus such as the interest rate cut," a source said.

Considerable insurers' capital was reportedly allocated in the shadow banking business, which may incur a loss if there is another rate cut next year.

So insurers are eager to diversify and pour more money into securities.

More insurance capital is expected to be invested in A shares, which will be a key driver to push up mainland blue chips in the coming year, the source said.

Source: The Standard HK

[winston]

Gearing for change in tune with the mainland

The Shanghai Composite Index, which can be relied upon to keep our eyes busy, closed at 3,157 points on Friday. That was up 2.7 percent.

But look where it's been. In August 2009 it hit a high of 3,468 but fell to 1,849 in June 2013. It has been going up sharply again over the past few months.

High volatility is typical in the mainland stock market. Last Monday, the index hit a high of 3,189. But, as brokerage firms tried to cut down the gearing by lowering clients' margin ratio, the index fell 8 percent to 2,934 on Wednesday.

It's not uncommon to see very high gearing for Shanghai A shares.

If you deposit one million yuan (HK$1.24 million) a broker may let you buy shares worth up to three times as much, and when a price rises sharply in a short time this high gearing style may maximize your profit in the short term.

But when a stock price falls on heavy profit-taking a drop of 33 percent in the stock price will wipe out all your capital.

Brokers in Hong Kong may allow you to buy 50 to 100 percent more if you are holding blue chips. This contributes substantial margin interest income.

For second- to fourth-line shares, many brokers do not count them as collateral when clients want to buy more shares on a margin. They may agree to lend, but the margin facility may be only 10 percent of the values of the shares.

Previously you would see many examples of the owner of a small listed company putting shares as collateral to borrow money for investment. When the price tumbled substantially or the trading was suspended, the brokers holding this collateral could become owners.

We should start to adapt to the style of mainland investors. High gearing will mean higher volatility and higher risk. Sooner or later, investors, brokers and the regulator will learn lessons.

Meanwhile, I still see upside in insurance, mainland banks, brokers, infrastructure and A50 ETF but don't use any margin. Use idle cash to buy so you can hold the shares in a volatile market.

Source: Dr Check, The Standard HK

[winston]

Questions ring out on A-share future

In 2015, A shares are set to be investor favorites. For though the Shanghai Composite Index beat the rest of the world in rising more than 50 percent last year, it is still 48 percent below its 2007 high.

Stocks are further supported by loose monetary policy and possible supportive measures from Beijing.

But are all investors oriented toward A shares? Overseas-listed Chinese shares in the MSCI China Index rose only 6 percent last year, far below the Shanghai index. But the price-to- earnings ratio of overseas-listed Chinese shares in the MSCI index is only 9.7 times, lower than that of major markets

Overseas-listed Chinese stocks performed more weakly than A shares, with Hong Kong investors keenly aware of the gap as prices of A shares are higher than those of H-share counterparts.

And most investors in Chinese stocks listed overseas are from overseas. They are wary and do not take heavy punts.

Is there a bubble giving A-share gains? Foreign participation in A shares is not high, as most investors are mainlanders. But it is too early to judge because A shares are likely to join the MSCI in the second quarter. Then foreigners might increase their share.

If the move fails, then A shares will continue to be dominated by mainland investors. And the same mistakes as those made in 2006-07 will recur, and the Shanghai Composite Index may rise 200 percent in a year and drop back to where it began in less a year.

Source: Andrew Wong Wai-hong, The Standard HK

[winston]

3 Chinese Stocks Poised to Beat Sector Leaders

Avoid the same-old-thing investment strategies to gain an advantage in 2015

By Eric Johnson

Source: InvestorPlace

http://investorplace.com/2015/01/chines ... KsodtKUd1Y

[winston]

It’s Amateur Hour in the Booming Chinese Stock Market

As Chinese retail investors pour back into the world’s hottest stock market, they’re leaving their fingerprints all over the place. The most telltale sign: The Chinese equivalent of penny stocks, assets that have long held an allure for amateurs, are trouncing the benchmark index.

Shares in China’s CSI 300 Index that were quoted below 5 yuan (81 cents) at the end of September have since jumped an average 63 percent. That compares with a 35 percent gain for all index stocks and 11 percent for those priced above 50 yuan.

That outsized rally reflects the growing market impact of inexperienced investors in a country where new stock accounts are opening at the fastest pace since 2007 and individuals comprise about 80 percent of equity trading. While professional investors measure a stock’s worth relative to the company’s assets or earnings prospects, it’s the price appearing on computer screens that matters most to people like 35-year-old housewife He Mei. As she sees it, the math is simple -- low price equals low risk and lots of value.

“Expensive stocks are risky,” she said by phone from the southwestern city of Chengdu, the capital of Sichuan province. “Any drops will result in huge losses.”

He says she recorded a return of about 60 percent in her 300,000 yuan account since China cut interest rates in late November, versus 37 percent for the CSI 300. She bought her most profitable stocks at prices below 20 yuan and says she won’t touch shares above 50 yuan. She declined to provide transaction details to Bloomberg News, saying she’s uncomfortable sharing private financial documents.

Funds Struggle

The advance in low-priced equities, which is unique to China among the world’s five biggest markets, ratchets up pressure on the nation’s authorities to educate a new class of investors who had until recently avoided stocks in favor of real estate and banks’ wealth-management products.

It also poses a challenge for institutional investors struggling to keep up with gains in the $5 trillion market and contain risks at the same time. Chinese equity mutual funds have returned an average 14 percent during the past three months, trailing the CSI 300 by 29 percentage points, while China-focused hedge funds tracked by Evestment gained just 7.9 percent in the fourth quarter, the latest data available, versus the equity index’s 44 percent advance.

“Sophisticated investors will generally buy companies, not stocks,” Vincent Chan, the Hong Kong-based head of China research at Credit Suisse Group AG, said in an interview. “But for A-share investors, stocks are just stocks so they buy them when they’re still going up.”

Relative Value

The biggest winners in the current rally are already turning expensive on traditional valuation metrics. Lanzhou LS Heavy Equipment Co. (603169), a machinery maker that started trading at 1.68 yuan on Oct. 8, has since surged more than 12-fold and now has a oprice-to-earnings ratio of 227, more than 14 times that of the CSI 300.

Aluminum Corp. of China Ltd., whose mainland-traded A shares were priced at 3.88 yuan at the end of September, has gained 57 percent even after the company lost money in the year ended Sept. 30 and analysts predicted further losses in 2015. The firm’s domestic shares are valued at an 89 percent premium to their Hong Kong-listed counterparts.

While stocks priced below the equivalent of $1 in the U.S. are often associated with tiny companies and market manipulation, in China some of the nation’s biggest firms trade below that level. Aluminum Corp. of China, also known as Chalco, is the country’s largest producer of the metal and has a market value of about $11 billion.

Expensive Shares

“I’m not sure how long this rally will last,” Zhu Lixu, an analyst at Xiangcai Securities Co., said by phone from Shanghai. Some Chinese investors “tend to ignore important fundamentals,” Zhu said.

Individuals have been piling back into equities on speculation President Xi Jinping’s government will revive economic growth from near the weakest level since 1990 and improve the efficiency of state-owned companies. The number of funded stock accounts in China has increased to 54.1 million from a four-year low of 52.4 million in September, while traders opened 2.7 million new accounts in December alone.

Some individual investors, of course, try to be more selective than just focusing on the price. Shawn Gao, a 27-year-old bank manager in Chengdu, looks for shares that will benefit from government policy changes while using volume and momentum data to help guide his decisions. Even he admits, though, that he’s sensitive to the absolute price level, staying away from stocks priced above 20 yuan.

State Media

What looks cheap to Chinese investors who focus on a stock’s price may actually be expensive. Equities in the CSI 300 index (SHSZ300) trading below 5 yuan are valued at an average 25 times estimated earnings for the next 12 months, versus 13 times for the overall index, according to data compiled by Bloomberg.

The market impact of individuals who ignore corporate fundamentals is driving away some of the region’s institutional investors, who are concerned speculative price moves will hurt performance, said David Gaud, a Hong Kong-based money manager at Edmond de Rothschild Group, which oversees about $158 billion.

“The market would need more institutionals and less leveraging on the retail side,” Gaud said. “This is not liquidity which is of good quality at the end of the day.”

That’s challenging efforts by Chinese authorities to increase the role of professionals in the world’s second-largest stock market, even as programs such as the Shanghai-Hong Kong exchange link make it easier for arbitragers to take advantage of price differences between the two markets.

China’s state media, which four months ago helped revive public interest in shares with a series of stories advocating equity investment, are now encouraging citizens to analyze company performance and pay more attention to risks.

Security Guard

“Investors should not focus solely on the change of stock price, but have to understand the market environment, the companies’ leadership, profitability and growth potential,” the People’s Daily, which is published by the propaganda department of the ruling Communist Party, said in an editorial this month.

Yuan Shuai, a security guard for Beijing’s subway system, illustrates the challenge for authorities as they try to influence investor psychology. The 26-year-old, who visited a GF Securities Co. (000776) outlet in the Chinese capital’s Xicheng district to open a trading account on Dec. 31, said he only buys shares trading below 10 yuan.

“I feel cheap stocks are less risky -- big drops won’t result in huge losses for me,” Yuan said. “I don’t know too much about investing, but the stocks my friends recommended have been soaring in the past few weeks.”

http://www.bloomberg.com/news/2015-01-1 ... arket.html

[behappyalways]

A red flag in China's unstoppable market rally
http://www.cnbc.com/id/102328056?__sour ... =102328056

[winston]

This "red hot" market is up 40% in the past three months. Here's what could be coming next.

by Chris Kimble

CLICK ON CHART TO ENLARGE

When it comes to “Red Hot” stock markets around the world, the overwhelming winner the past 90-days is the Shanghai index, up more than 40%.

Even though the S&P 500 is doing well and is just under 3% away from all-time highs, its performance compared to the Shanghai index over the past 90-days is pretty cool, as it under performed by -37% (See chart below).

The red hot performance has now created the following conditions in the chart above…

The index is now touching the top of multi-year falling channel, at its 38% Fibonacci retracement level based upon the 2007 highs/2008 lows and it created a bearish wick last week at (1) with momentum at the highest level since 2007.

CLICK ON CHART TO ENLARGE

One thing is perfectly clear at this time, the trend is “UP” in the Shanghai index. (Above support and all key long-term moving averages).

I attempt to find prices zones where reversals “can” take place (See TB&M Strategy). Time will tell if this will become an important inflection zone for the world’s hottest stock market.


Source: Kimble Charting Solutions

http://thecrux.com/trader-alert-this-re ... ee-months/

[winston]

CHINESE STOCKS ARE ABOUT TO BREAK OUT

Just as Steve predicted, Chinese stocks are taking off...

Since late October, Steve has written numerous times about the opportunity in Chinese stocks. According to him, it's "the best market for 100% gains over the next 24 months." He even went on CNBC to talk about it.

In today's DailyWealth, Steve mentioned the iShares China Large-Cap Fund (FXI). This fund holds multi-billion dollar Chinese companies like China Mobile and Bank of China. It's the Dow Jones of China.

As you can see in the chart below, FXI is in a solid uptrend. Over the past month, shares are up about 8%... and sit pennies away from their highest level since 2011. As Steve mentioned above, a great China bull market is now underway.

Source: Daily Wealth

[behappyalways]

Shanghai shares sharply lower in Asian trade
http://www.bbc.com/news/business-30875490