On this Week’s Market Summary:
💡1. China will require no less than 35 trillion Yuan (US$5.5 trillion) in credit expansion to steady the economy and stem an earnings recession, and stock investors should not be swayed by January’s seasonally-strong financing data, according to BCA Research. Hold off from going overweight on Chinese stocks as strong January financing data obscures below-par trend against past easing cycles, BCA says. Stocks have weakened 0.5 to 1 per cent despite encouraging January data, underscoring caution among investors. BCA arrived at its 35 trillion-Yuan estimate based on the flow of TSF as a share of GDP. That ratio needs to hit at least 28.5 per cent to reduce the odds of a major earnings contraction to below 50 per cent. It assumes an 8 per cent growth in China’s nominal GDP in 2022.
💡2. Hong Kong stock exchange has seized market share from its Singapore rival in China stock futures, opening up a winner-takes-all battle for control of how global investors hedge Chinese equities. The fight to become the dominant pool of liquidity for so-called A-share futures not only pits Hong Kong’s share market against Singapore but also Blackrock against Chinese fund companies and the index provider. FTSE Russell is considering changes to its index such as weighting by sector and doubling the number of constituent stocks. BNP estimated that those moves could bring the FTSE benchmark’s performance in line with MSCI’s, potentially erasing an advantage for Hong Kong.
💡 3. The dearth of insurance that protects directors of special purpose acquisition companies (SPAC) from legal liability could hold back mergers and acquisitions and prove to be a setback for Hong Kong’s new listing regime, according to sponsors and insurance players. The lack of so-called directors and officers (D&O) liability insurance in Hong Kong has been cited as a risk factor by sponsors of SPACs – shell companies that raise funds through a share sale and use the proceeds to buy assets within a limited period of time. There are only “a handful” of insurers in Hong Kong that offer D&O insurance to SPAC directors, and the premium can be five times more expensive than that charged for a traditional IPO, says insurance broker.
💡4. Hong Kong stocks dropped for a third time this week as banks tumbled amid a hit to business from rising Covid-19 cases, while a military stand-off between Russia and Ukraine reignited risk aversion. The Hang Seng Index lost 0.6 per cent to 24,564.50 at the local noon trading break, erasing an intraday gain of as much as 0.6 per cent. The Tech Index retreated 0.4 per cent, while the Shanghai
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