Financial Times: Beijing intervenes to help stabilise banks

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. The Chinese government will boost its stakes in the country’s largest banks, as it attempts to shore up slumping financial stocks and to restore investor confidence.

Central Huijin, the domestic arm of China’s sovereign wealth fund, will purchase shares in Agricultural Bank of China, Bank of China, China Construction Bank and Industrial and Commercial Bank of China, the official Xinhua news agency announced on Monday. Xinhua added that the purchases by Huijin – its first such public intervention since a similar decision at the onset of the financial crisis three years ago – would “support the healthy operations and development of key state-owned financial institutions and stabilise the share prices of state-owned commercial banks”.

The announcement came too late for the Chinese stock market, which had closed at a 30-month low, but had an immediate effect on late trading in Hong Kong. ICBC’s Hong Kong-listed shares, which had been down 3 per cent, rallied to close up 1 per cent. Analysts said the sharp rebound may have partly reflected short covering. Chinese bank shares have fallen 30 per cent during recent months.

“They [Huijin] are trying to signal to the market that they feel confident,” said Sanjay Jain, a Chinese bank analyst with Credit Suisse. “And of course valuations are depressed, so it’s not a bad idea to buy at these levels for a long-term strategic investor.”

Although Chinese growth has so far held up well, the European debt crisis and fears of a double-dip recession in the US have cast a shadow over the country’s economic prospects. With inflation running near three-year highs and debt levels swollen by heavy spending, economists doubt that Beijing can launch another massive stimulus programme, as it did when the global financial crisis struck in 2008.

Beijing also allowed the renminbi to record its biggest one-day gain in years on Monday. It rose 0.6 per cent against the dollar, squeezing traders who have been betting that the currency will weaken in tandem with a slowing economy.

The motivation for the sudden appreciation appeared to be diplomatic. The US Senate is poised to vote on Tuesday on legislation that would punish China for deliberately undervaluing the renminbi.

The government, by means of Huijin, is already the majority shareholder in all of the country’s important banks. The Xinhua announcement gave no details about how many more shares the fund intends to buy.

Investors have turned against China, driving down commodity prices and dumping Chinese bank shares. Global investors worry that bad debt levels will soar because of a lending spree that began in 2008. To short Chinese bank shares in Hong Kong has become a popular play for investors betting that the world’s fastest-growing major economy will soon slow.

Source: http://www.ft.com/intl/cms/s/0/2caa65ec-f329-11e0-8383-0144feab49a.html#axzz1aRxTVMtq

Asian shares rise after France-Germany agreement

HONG KONG: Asian shares began Monday on a high after France and Germany said they had agreed a plan to support Europe's banks, while US jobs data also provided some lift.
However dealers remained cautious after Wall Street finished last week with a loss and Fitch downgraded the debt ratings of Italy and Spain.
Hong Kong gained 0.66 percent in the first few minutes, Sydney gained 1.20 percent, Seoul was 1.10 percent higher and Shanghai, which was closed last week for the Golden Week holiday, was 0.16 percent up.
Tokyo and Taipei were closed for public holidays.
French President Nicolas Sarkozy and German Chancellor Angela Merkel put on a united front Sunday and vowed after talks in Berlin a response to Europe's debt crisis within weeks.
Without announcing concrete details, Sarkozy said there would be "lasting, global and quick responses before the end of the month", amid rampant fears of a crippling credit crunch.
The announcement comes a few weeks ahead of a G20 summit in Cannes, and Sarkozy said Europe must "arrive at the (meeting) united and with the problems resolved".
It also came amid concerns that France and Germany, the two main powerhouses of the eurozone, were at odds over the best way to recapitalise the region's banks.
Germany, the effective eurozone paymaster, wants banks that are under pressure to turn to investors for funds before appealing for national or European cash.
It wants the EU's 440-billion-euro ($589-billion) European Financial Stability Facility (EFSF) bailout fund to intervene only as a last resort.
But France, fearful of losing its top-notch AAA credit rating, would rather dip into European funds than its own coffers.
However, Sarkozy said Sunday that "agreement is complete".
"An economy is not prosperous without stable and reliable banks," he told reporters after the talks.
Merkel also said the two sides had "decided on doing what is necessary to recapitalise (the) banks in order to assure the granting of credit to the economy".
Also on Sunday, Belgium and Luxembourg said they had reached a deal to dismantle troubled bank Dexia, the first victim of the eurozone crisis.
Belgium's finance minister said Brussels had, in accordance with French wishes, agreed to guarantee 60 percent of the so-called "bad bank" assets, compared with 36.5 percent for France and 3.5 percent for Luxembourg.
The news from Europe added to the upbeat data from the United States, which showed the economy created a better-than-expected net nonfarm 103,000 jobs in September.
The Labor Department also revised upward the two previous months' job creation numbers, indicating that employment in the faltering economy had more momentum than previously believed.
The July payrolls totalled 127,000, not the 85,000 initially estimated, while August was revised from zero to 57,000.
However, Wellington-based ANZ bank strategists said in a note: "Some optimists are hailing an end to the risk of recession for the US, but given this data is volatile and prone to large revisions, we'll not make any significant judgements from one outturn."
But putting downward pressure on markets was Fitch's decision Friday to cut it ratings on Italy and Spain, citing the increasing pressure on them as the eurozone crisis makes it harder for them to raise cash.
"The downgrade reflects the intensification of the eurozone crisis that constitutes a significant financial and economic shock which has weakened Italy's sovereign risk profile," Fitch said.
The single currency was at $1.3454 against the dollar, from $1.3375 late Friday in New York, and at 103.25 yen, from 103.10 yen.
The dollar was at 76.70 yen, from 76.73. 
Crude prices were up in Asia Monday with New York's main contract, light sweet crude for delivery in November, adding 93 cents to $83.91 a barrel.
Brent North Sea crude for November delivery gained 53 cents to $106.41.
By 0210 GMT gold was at $1,652.10 an ounce, up from $1,653.97 at 1045 GMT on Friday. (AFP)

Source:http://www.thenews.com.pk/NewsDetail.aspx?ID=24263&title=Asian-shares-rise-after-agreement