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SSE Composite Index Fell after the United Kingdom’s Vote

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SSE Composite Index fell after Brexit

The SSE (Shanghai Stock Exchange) Composite Index fell for the week ending June 24, 2016. The United Kingdom’s vote to leave the EU (European Union) caused tremors across global markets. The pound fell to its lowest level since 1985. However, Brexit won’t have much of an impact on business with China and the United Kingdom.

The overall market tone was subdued. Fed Chair Janet Yellen stated, in her testimony before the Senate Banking Committee, that the Fed would take a cautious approach to raising rates due to uncertainties in the US economy. Also, there are underlying concerns about the PBoC (People’s Bank of China) depreciating the yuan in a bid to adjust its exchange rate policy.

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In another development, China’s foreign exchange regulator said on June 20 that pressure on the country’s cross-border capital outflows eased gradually. Data from the State Administration of Foreign Exchange showed that the commercial banks’ foreign exchange sales fell to $12.5 billion in May from $23.7 billion in April.

China might introduce CDRs to attract foreign companies

The PBoC is considering introducing CDRs (Chinese depositary receipts)—similar to US-traded ADRs (American depository receipts)— to allow eligible foreign companies to issue shares in China. This move by the PBoC would be one more step towards opening up China’s capital markets. Liu Shiyu, chairman of the China Security Regulatory Commission, said on June 22, that China will “fully support Chinese bourses’ opening up and international cooperation.”

With the introduction of CDRs, foreign firms can gain exposure in the Chinese market in an easier and economical way. It would also help Chinese investors buy shares in some of the best performing foreign companies.

Return of funds

For the week ending June 24, the Matthews China Fund – Investor Class (MCHFX) and the Clough China Fund – Class A (CHNAX) rose by 0.8% and 0.3%, respectively. The Fidelity Advisor China Region Fund – Class A (FHKAX), the Oberweis China Opportunities Fund (OBCHX), and the Templeton China World Fund (TCWAX) fell by 0.3%, 0.5%, and 0.7%, respectively.

For the same period, the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) and the iShares MSCI China ETF (MCHI) fell by 2.2% and 0.2%, respectively.

The ADRs of Chinese companies such as Net Ease (NTES), JD.com (JD), and 58.com (WUBA) rose by 5.2%, 2.5%, and 1.4%, respectively, for the week ending June 24.

In the next part, we’ll analyze China’s MNI Business Sentiment Indicator for June.

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