SSE Composite Index was flat
The Shanghai Stock Exchange (or SSE) Composite Index was flat from January 27 to February 3 and ended at 2,739.25 points on February 3, 2016, after the People’s Bank of China (or PBoC) injected additional cash in the money market through reverse repo in its open market operations. The index was also helped by a rally in commodity prices.
The SSE Composite Index includes all listed stocks (A shares and B shares) on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. A-shares are shares denominated in domestic currency and are available only to local investors. On the other hand, B-shares are shares denominated in foreign currency such as in US dollars on the Shanghai Stock Exchange and in Hong Kong dollars on the Shenzhen Stock Exchange. These shares are available to foreign investors.
PBoC pours funds into the economy ahead of new year holiday
To maintain liquidity in the economy ahead of the Lunar New Year holiday, the PBoC has been constantly adding cash into the banking system. The PBoC injected 80 billion yuan, or $12 billion, into the banking system using reverse-repurchase agreements.
The Lunar New Year is celebrated February 7-13, and China’s financial markets and businesses will be closed during this period.
Views of George Soros and Kyle Bass
George Soros, a billionaire and high profile investor, said in reference to China’s outlook in an interview with Bloomberg Television, “A hard landing is practically unavoidable. I’m not expecting it, I’m observing it.”
Kyle Bass, a US hedge fund manager, was of the opinion that the PBoC would be forced to devalue the yuan further in order to boost the economy. But in this process, China’s foreign reserves would deplete at a faster rate. Further, capital outflow from China is already on the rise. Thus, China’s foreign reserves could fall to $2.7 trillion in the coming months from the current $3.3 trillion, which may create financial instability in the country.
Returns of China-focused mutual funds
From January 27 to February 3, the returns of the John Hancock Greater China Opportunities Fund – Class A (JCOAX) and the Eaton Vance Greater China Growth Fund – Class A (EVCGX) were up by 0.6% and 0.7%, respectively.
The Oberweis China Opportunities Fund (OBCHX) was the worst performer in the period, and its returns were down by 1.7%.
Due to a rebound in oil prices, the shares of CNOOC Limited (CEO) and China Petroleum & Chemical (SNP) were up by 5.5% and 3.6%, respectively, from January 27 to February 3, 2016. For the same period, American depositary receipts of Chinese companies such as Alibaba Group Holdings Limited (BABA), 58.com (WUBA), and Baidu (BIDU) were down by 8.8%, 4.6%, and 3.3%, respectively.
In the next article, we will analyze China’s official manufacturing purchasing managers’ index.