China market round-up: Ceinex mulls Shanghai-Deutsche Connect, HK’s legal system faces conundrum, China central bank cuts LPRs
In this round-up, the China Europe International Exchange (Ceinex) is working on establishing a Stock Connect scheme between China and Germany, the National People’s Congress criticises the Hong Kong High Court’s decision around the anti-mask law and the People’s Bank of China lowers its benchmark interest rates.
Ceinex is working on a Shanghai-Deutsche Stock Connect scheme, state-owned media Xinhua News reported on Wednesday.
The scheme aims to encourage German listed blue-chip companies to issue Chinese depository receipts on the Shanghai Stock Exchange, and Chinese firms, especially those in the manufacturing sector, to issue global depository receipts on the Frankfurt stock market.
After months of social turmoil, Hong Kong’s legal system now has a problem.
On Monday, the Hong Kong High Court ruled that the government’s anti-mask law violated the Hong Kong Basic Law. The Basic Law is the city’s mini-constitution. The anti-mask law, implemented in early October, made wearing masks during public protests punishable.
On Tuesday, Zang Tiewei, a spokesman for the Standing Committee of the NPC, told state-owned media Xinhua News that “whether the laws of the Hong Kong SAR conform to the Hong Kong Basic Law or not can only be judged and decided by the Standing Committee of the NPC. No other institution has the right to make such judgement or decision”.
Trivium, a consulting firm, wrote in a Tuesday note :“Legally speaking, the Standing Committee of the NPC does have the right to interpret the Basic Law. But legal or not, protesters are still going to see such a step as mainland interference in Hong Kong judicial affairs.”
The PBoC lowered the one year and five year loan prime rates (LPRs) by 5bp each on Wednesday. One year and five year LPR now stand at 4.15% and 4.8%, respectively.
“We believe Beijing faces the dilemma of a worsening growth slowdown amid a rapid rise in CPI inflation, but worsening growth prospects will likely push Beijing to do more to bolster growth,” Ting Lu, chief China economist at Nomura, wrote in a Wednesday note.
“Although the LPR for five year and longer tenors serves as the anchor for pricing new mortgage loans and it was cut by 5bp this time, we believe banks in the near term are unlikely to charge lower mortgage loan rates given the PBoC’s still hawkish stance on the property sector and clear instructions on mortgage loan rates,” Lu added.
The move came after an unexpected cut by the central bank on Monday. The People’s Bank of China cut the seven-day reverse repo rate from 2.55% to 2.50%, the first trim in more than four years.
Nomura’s majority-owned securities joint venture in China, Nomura Orient International Securities, has received a business licence from the China Securities Regulatory Commission to conduct business in brokerage, investment consulting, proprietary trading and asset management, according to a press release on Friday.
With the joint venture, Nomura hopes to eventually grow the business into a “full-fledged brokerage that will form a core part of the firm’s strategy in Asia ex-Japan,” according to the press release.
The JV is located in Shanghai and has a registered capital of Rmb2bn ($284m). Nomura Holdings, Orient International (Holding) Co. and Shanghai Huangpu Investment Holding own 51%, 24.9% and 24.1% of the JV respectively.
In October, the renminbi dropped one position to the sixth most active currency for international payments by value, with a share of 1.65%, according to Swift’s monthly RMB tracker. The RMB was overtaken by the Canadian dollar.
“Overall, RMB payments value decreased by 12.31% compared to September 2019, whilst in general all payments currencies increased by 4.17%,” Swift said in the report.
In terms of international payments, excluding payments within the Eurozone, the renminbi retained its eighth position with a share of 1.06% in October. The percentage was 1.26% in September.
The Ministry of Commerce reviewed foreign direct investment data for the first 10 months this year on Monday.
According to the readout from the press conference, China saw 33,407 new foreign-invested enterprises established in the first 10 months. By October, FDI reached Rmb752bn, up 6.6% year-on-year. Further, FDI in October alone reached Rmb69bn, a 7.2% year-on-year increase.
“As evidenced by the recent flurry of renewed market-opening promises, Chinese leaders are acutely concerned about the withdrawal of overseas investment,” Trivium wrote in a Tuesday note. “That reality makes right now a particularly good time for foreign companies to score good investment deals in China.”