The week in renminbi: MSCI raises A-share weighting, CPI inflation at record high, profitability requirement scrapped for ChiNext board
In this round-up, MSCI is set to give a boost to China A-shares again at the end of the month, CPI inflation accelerated to the fastest pace in seven years and the China Securities Regulatory Commission (CSRC) has decided to allow unprofitable companies to list on the ChiNext board.
Global index provider MSCI announced that it would raise the weighting of 268 Chinese A-shares in its MSCI Emerging Markets Indexes (EMI) from 15% to 20%. The new weighting will come into effect on November 27.
MSCI will also include an extra 204 A-shares in the MSCI China Index. Among these shares, 189 are mid-cap stocks, it said last Friday.
This is the third and last step of the US index provider’s three-stage move to increase the inclusion factor of Chinese stocks in its global indexes from 5% to 20%. Upon completion, Chinese A-shares will have a weighting of 12.1% and 4.1% in the MSCI China and MSCI EMI, respectively. The overall weight of A-shares in the MSCI EMI is 2.55% currently.
China's CPI inflation accelerated to 3.8% year-on-year in October, the highest since February 2012, according to data from the National Bureau of Statistics published last Friday. Inflation in pork surged to 101.3% year-on-year in October from 69.3% year-on-year in September.
“Chinese leaders are terrified of inflation,” Trivium, a consulting firm, wrote in a Friday note. “Hyperinflation was a big reason that the Chinese Communist Party was able to topple the Nationalists in the late 1940s. It was also one of the big drivers behind the 1989 Tiananmen protests.”
Non-food CPI inflation remains low at 0.9% and PPI deflation worsened to negative 1.6% in October from negative 1.2% in September.
“With pork prices likely to continue to soar, we think CPI inflation is likely to rise above 4% in November, and to more than 5% in January,” Yingke Zhou, an economist at Barclays, wrote in a Monday note. “While the government is taking steps to alleviate pork shortages through increased imports of pork and using frozen pork reserves, we do not see either of these two sources as having much impact on pork prices.”
Zhou added that Barclays estimated that China’s entire frozen pork reserves are sufficient for “only a couple of days of consumption”.
The CSRC announced last Friday that it has decided to remove rules requiring companies to be profitable should they seek to list on the technology-focused ChiNext board. The ChiNext board is housed under the Shenzhen Stock Exchange.
The development came after the regulators promised to reform the ChiNext board given the success of the Shanghai Stock Exchange’s Star Market.
China’s exports fell by 0.9% in October, according to data from the General Administration of Customs. Exports fell by 0.9% year-on-year in September. Imports in October fell by 6.4% compared with 8.5% in September.
The country’s exports to the US fell 16.2% in October, recovering slightly from negative 21.6% in September.
Exports to the EU grew further by 3.1% year-on-year from 0.1% in September. However, exports to Japan declined by 7.8% year-on-year compared with negative 5% in September.
“On the fundamentals, while the positive headlines about China and the US agreeing to a phased unwind of existing tariffs point to reduced risks of a global downturn, we think it is too early yet to anticipate any meaningful near-term recovery, with uncertainties hovering over when a phase one deal will be finalised,” Eric Zhu, an economist at Barclays, wrote in a Friday note.
Crédit Agricole has set up a Rmb5bn ($714m) Panda bond issuance programme, according to a press release from the French bank. It has obtained approval from the People’s Bank of China (PBoC), becoming the first European G-Sib financial institution to obtain this approval.
“Crédit Agricole intends to issue its inaugural benchmark Panda Bond soon, subject to market conditions, and become a repeat issuer in the fast-growing Panda market to fund its activities in China and further diversify its long term funding,” the press release said.
Officials from both the US and China said last Thursday that the two countries had agreed to roll back tariffs on each others’ imports thanks to the nearing of a phase one trade deal. But US president Donald Trump dampened some of the positivity when he told reporters at the White House on Friday that he did not agree to rollbacks of US tariffs imposed on China.“China would like to get somewhat of a rollback, not a complete rollback, ‘cause they know I won’t do it,” Trump said. “I haven’t agreed to anything."