The People's Bank of China is turning a hawkish eye on shadow banking. Photo: AFP/Mark Ralston

Economic events

Financial markets will watch China’s efforts to support its own markets when they reopen after the Lunar New Year holidays on Monday. People’s Bank of China said it will inject 1.2 trillion yuan to “maintain reasonable and abundant liquidity of the banking system and stable operation of the currency market.” The injection is 900 billion more than in the same period last year. Reuters News is also reporting, citing unidentified sources, that the China Securities Regulatory Commission (CSRC) has issued a verbal directive to brokerages to bar clients from short selling. CSRC is also considering other measures to support the market and prevent any panic selling,  the report said.

China’s holiday closure, since January 23, was supposed to end on Friday but was extended because of the virus epidemic, which has so far claimed 305 lives. But attention will remain focused on the spreading coronavirus with the White House offering to help China contain the outbreak. Beijing has yet to respond to the offer.

“We do expect significant market volatility in China as it returns from the Lunar New Year holiday,” said J.P. Morgan Asset Management Asia Chief Market Strategist Tai Hui. “This could spill over into Hong Kong and other Asian markets. In addition to investors’ concerns over the impact on corporate earnings from the Coronavirus outbreak, reduced liquidity in the Chinese onshore markets and local investors’ preference for holding more cash could also exacerbate this correction.

“As the number of infections is still likely to rise in the weeks ahead,” he continued, “we would expect the Chinese onshore equity market to come under pressure. That said, we still believe that economic activities should recover swiftly once the number of new cases comes under control, and subsequently market sentiment should also improve.”

Markets will also seek direction from some key economic indicators to be released during the week including China Caixin PMI, US manufacturing PMI data from ISM, and January’s  Non-Farm Payroll report on Friday.

“The Caixin PMIs,” Capital Economics said in a note, “might provide a picture of the damage the virus did in its earliest days. Admittedly, we do not know what share of survey respondents submitted their answers after public awareness heightened following January 20th. The services PMI is the one most likely to have taken a hit.”

The official manufacturing PMI, release last week, fell from 50.2 in December to 50.0 and the non-manufacturing PMI strengthened 0.6 points to 54.1.

“We expect to see a moderate pickup in the pace of hiring to start the year,” Sam Bullard, senior economist at Wells Fargo, said in a report. “Following a 145,000 gain in December, we look for nonfarm payrolls to add a more trend-like 170,000 jobs in January as secondary employment indicators, including initial jobless claims and regional employment indices, have shown some improvement since last month.”

Fund flow

Last week, emerging markets-dedicated equity funds recorded small outflows for the first time in 2020, said Barclays in a report citing EPFR data. “Flows into EM dedicated bond funds remained positive, but were much smaller than in previous weeks,” it said, blaming the deterioration in EM flow momentum on the outbreak of the coronavirus. “However, more concrete signs of stabilization of the situation in China would likely encourage investors to take renewed long positions in EM assets, in our view, and reignite the positive flow momentum YTD.”

BofA Securities analysts said the reach for yield continued in 2020 and investment grade bond funds had sustained the recent strong pace of inflows recorded so far this year, despite the ongoing wobbles in global financial markets. “The bid for quality yielding assets should remain supported by monetary policy largess, CSPP2.0 and downside risks to global growth.” (CSPP2.0 is the latest version of the European Central Bank’s Corporate Sector Purchase Program.)

Companies in focus

New China Life Insurance received approval from China Banking and Insurance Regulatory Commission to issue bonds to replenish its capital for improving solvency. The CBIRC allowed the company to publicly issue 10-year redeemable capital supplementary bonds in the national inter-bank bond market, of a maximum amount of 10 billion yuan.

China Pacific Insurance estimated its profit for the year 2019 would be 50% to 60% higher than that in the previous year. It said the rise was driven by higher investment income and the changed tax policies on commission expenses.

Powerlong Real Estate Holdings reported its January contracted sales. It had logged 3,513 million yuan revenue on 220,792 square meters area of property sold. That represented 10.4% and 5.6% rises over the previous year.


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