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China markets round-up: PBoC keeps May LPR steady, stock exchanges welcome short-term bonds, Fidelity to enter mutual fund market

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By Addison Gong, Rebecca Feng
22 May 2020

In this round-up, China’s central bank leaves the benchmark loan prime rate (LPR) unchanged for May, the stock exchanges of Shanghai and Shenzhen will allow companies to sell bonds with maturities under one year, and fund manager Fidelity International is looking to break into the onshore mutual fund industry.

The People’s Bank of China (PBoC) kept the one year and five year LPRs at 3.85% and 4.65%, respectively, on Wednesday.

“This is in line with market expectations, as there was no medium-term lending facility rate cut or other rate cuts in the past month,” Ting Lu, chief China economist at Nomura, wrote in a Wednesday note. “The unchanged LPRs in May suggest bank net interest margin is the key constraint for the PBoC to further lower bank lending rates.”

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Bank of China’s cross-border renminbi index reached 313 in the first quarter this year, nine points lower than the 2019 fourth quarter, the bank said in a Wednesday report.

Notably, cross-border renminbi settlement value grew by nearly 40% year-on-year, hitting Rmb6tr ($844bn) in the first quarter.

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China’s shadow banking sector has shrunk by Rmb16tr over the past three years, the China Banking and Insurance Regulatory Commission (CBIRC) said on Tuesday.

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The Shenzhen and Shanghai Stock Exchange both published trial rules for companies looking to issue short-term company bonds on Thursday.

The companies should have positive operating cash flows for the past three consecutive years. Alternatively, their most recent year’s quick ratio — a liquidity indicator measured by dividing current assets excluding inventory by current liabilities — must be more than one. Securities firms should have “relatively strong operating strength, internal control and risk control system”.

Until now, company bonds can only have tenors of more than one year.

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Fidelity International, a global asset management firm, has applied to the China Securities Regulatory Commission to set up a wholly-owned mutual fund subsidiary in China, according to a Tuesday filing. The firm is the third international asset management firm to do so after BlackRock and Neuberger Berman Group.

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A senior official at the CBIRC has proposed easier access to the onshore bond market for corporates during the “Two Sessions” meetings that are underway in China. The measures include lowering the requirements on net assets as well as the liability ratio of potential issuers. 

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The chairman of the Shenzhen Stock Exchange, Wang Jianjun, has suggested harsher punishments for financial fraud. He has proposed to change the criminal law and lift the maximum sentence to life imprisonment, for issuers that have hidden or faked information in their IPO or bond prospectus.

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Miao Wei, the minister of Industry and Information Technology, said that about 40% of foreign companies in China plan to invest more in the country, citing a recent survey conducted by the ministry.

About 91% of the small and medium-sized enterprises had resumed operation or production by May 18, Miao said. The rate was lower at 87% for the hospitality and catering industry.

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The CBIRC said it has officially launched an investigation into Bank of China for its handling of one of its crude oil futures products. The bank had decided to settle trades at negative prices after the WTI crude oil price plunged to historic lows last month.

BOC and 80% of the clients affected have agreed to settle the dispute, according to the regulator.

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Mengshang Bank, the new bank set up to replace the failed Baoshang Bank, will be officially up and running next Monday, according to a statement this week on the old Baoshang website.


By Addison Gong, Rebecca Feng
22 May 2020