China market round-up: industrial profits slip, Sun Hung Kai Financial gets GDR conversion licence, MSCI urges better market access to the Mainland
In this round-up, profits at Chinese industrial companies declined further in October, Sun Hung Kai Financial (UK) became the latest GDR conversion institution and MSCI said it will not include more Chinese A-shares into its indices until access concerns are addressed.
Profits at Chinese industrial companies saw a further contraction in October from September. Industrial profits reduced by 9.9% year-on-year last month, worse than the 5.3% contraction in September, according to data published by the National Bureau of Statistics on Wednesday. The drop is the steepest in eight months.
In terms of sectors, state-owned enterprises suffered a 12.1% year-on-year profit fall over the first 10 months, a huge drop from the 12.8% year-on-year growth in the same period last year. Foreign enterprises also saw their profit slip by 4% year-on-year, a big decline from the 5.3% year-on-year growth in 2018. Lastly, private enterprises saw their profit growth slowing to 1.9% this year from 11.9% last year.
“We expect industrial profit growth to remain sluggish, given the deteriorating growth outlook and elevated uncertainty amid the US-China trade conflict,” Jing Wang, a China economist at Nomura, wrote in a Wednesday note. “In our view, Beijing will likely roll out more easing measures in the coming months despite a limited policy room.”
Sun Hung Kai Financial (UK) received the green light from the Shanghai Stock Exchange on Wednesday to become a cross-border GDR conversion institution. With the licence, the bank can create and redeem the GDRs by buying and selling the underlying A-shares in China through the Shanghai-London Stock Connect scheme.
Index provider MSCI completed the three-step Chinese A-share inclusion into its MSCI Emerging Markets Indexes and the MSCI China Index on Tuesday.
However, in a statement that followed, the index provider said that it will not include more Chinese A-shares until concerns over hedging instruments, short settlement cycle for Chinese A-shares, trading holidays and availability of an omnibus trading mechanism on the Stock Connect are resolved.
Asset manager Barings has launched its first onshore private fund in China, according to a Wednesday press release. The Barings China A-share Private Securities Investment Fund No 1 will be distributed to qualified investors onshore. The fund will mainly invest in companies established or operating within the country.
“Barings’ first China Fund is an important milestone in our long-term commitment in China,” said Tom Finke, chairman and CEO of Barings. “The firm draws upon a distinguished history of financing and providing investment solutions across the region and the globe. This fund leverages our knowledge and expertise to serve local investors and provide them with our onshore Chinese investment capabilities.”