On this Week’s Market Summary:
💡 1. Foreign capital flows into China’s equity markets reached a record high in 2021, as the country further opened its financial markets and as regulatory changes directed offshore investors to turn to stocks listed in the mainland. Net inflows of northbound capital into equities listed in Shanghai and Shenzhen, the major bourses on the mainland, reached a record of 417.5 billion yuan (US$65.5 billion) as of December 23, according to CICC. The net volume of capital flows almost doubled from last year’s level, based on data from the investment bank. The record-high inflows are a sign of that foreign capital remains very interested in assets in China, after the world’s second-largest economy bounced back from the impact of the pandemic and despite increased geopolitical tensions.
💡2. Extra domestic stimulus will be needed to keep mainland growth close to 6 per cent in the next few years. With the US Federal Reserve on the cusp of a pre-emptive interest rate increase, plotting a course through all the recent volatility will be a major problem. Reductions in domestic borrowing costs through lower interest rates and cuts to the bank cash reserve ratio will help lift consumer morale and boost business investment intentions. There is a strong argument for another big push in fiscal stimulus to plug the gaps in demand.
💡3. China’s dollar bond market is expected to continue seeing defaults especially in the stressed property sector. Diversification of investment portfolios amid policy uncertainty could be a safer bet, analysts and industry veteran’s said. The cumulative default rate of China’s high-yield dollar bonds is expected to rise to 42 to 45 per cent in the coming three to six months in 2022, from 38 per cent in 2021, according to Credit Suisse. The total maturities of Chinese dollar bonds in 2022, including those with put options, will surge 19 per cent to at least US$118.5 billion from a year earlier, according to the ratings agency.
💡4. Hong Kong stocks fell on Wednesday, ending a five-day winning streak as Beijing’s scrutiny of overseas share sales weighed down Chinese technology stocks in the city. The Hang Seng Index retreated 0.8 per cent to 23,086.54, while the Tech Index sank 1.8 per cent for its biggest drop in a week. On the mainland, China’s Shanghai Composite Index lost 0.9 per cent. Key Asia-Pacific markets were mixed on Wednesday. Japanese and South Korean equities fell by at least 0.6 per cent, while the Australian benchmark rose 1.2 per cent.
One of the must-ask interview questions for banking and finance is: “Have you read any news recently?”, with the follow-up questions: “How would you link this news to the market and what investment suggestions would you give to your clients based on this news?”
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