Daily Dim-sum Set 2015-12-29

Market Appetizer:

  1. Highest USD/CNY fixing in four-and-half years suggest PBOC is still tolerant about what is going on right now (http://www.fxmarketalerts.com/free/document.aspx?codes=9360ff08-d0ad-e511-9203-00155d7cc709&DDID=0)XMMC8901

Commentary: Again, PBoC is still testing waters on whichever position is the most comfortable one for the currency. The truth is, until Fed rate hike decision has some legs or consistency, it is unlikely that the PBoC will make any drastic move in terms of both rate and currency.

Policy Bun:

  1. CIRC posts warning for aggressive buyout behaviors led by insurance companies – (http://wallstreetcn.com/node/228023, Chinese only) Chen Wenhui, vice Chairman of CIRC, indicates that behaviors of certain insurance companies might incur concentration risk and liquidity risks when buying listed companies aggressively.

Commentary: In line with the recent proxy battle of Vanke (we will cover in our columns), more and more insurance companies have been using its balance sheet to leverage up and acquire listed companies aggressively. The risk on policy holders is imminent and it’s necessary for the regulatory power to step in and prevent excessive risks in the sector. However, it is also worth considering that due to the poor M&A financing channels in China, insurance companies have been forced to walk on the edge to get the ammunition needed. A more thoughtful reform is needed to promote M&A in China without resulting in excessive risks for financial institutions.

2. 900 billion deficit found in urban resident’s pension (http://china.caixin.com/2015-12-29/100894011.html, Chinese only).

Commentary: The existing gap was due to the cost of market reform from a planned economy. But with an aging population, the gap will only widen and that contingent liability is a huge concern for China’s fiscal soundness in the long run.

3. Pan Gongsheng, Vice Governor of PBoC, will be assuming the director of SAFE and replacing Yi Gang (http://www.chinadaily.com.cn/bizchina/2015-12/29/content_22855858.htmpan

Commentary:  Pan is well known to be as reform-minded as his predecessor. But will this appointment make a notable change on the FX policy of China? Unlikely so.

Corporate Dessert:

  1. Hanergy Chairman Li Hejun sold its stake at 5% of its previous market valuation- (http://www.bloomberg.com/news/articles/2015-12-29/hanergy-stake-sale-implies-almost-20-billion-in-value-wiped-out)hanneng

Commentary: Thin film technology hasn’t developed a cost advantage yet, but what really puzzles us is how Li managed to pump up such a self-fulfilling prophecy and how Hong Kong regulatory powers undertook little action to intervene until the stock price dropped by 50% in a single day. With such a harsh haircut, it is not only Li’s tragedy, but also that of the whole PV solar sector in China.

2.  China STO (Shentong Express) plans backdoor listing for A-shares via Zhejiang IDC Fluid Control (002468-SZ) – (http://www.reuters.com/article/china-logistics-idUSL3N12N24K20151023)

Commentary: It is customary to think that SF Express, YTO (Yuantong) and the other logistics giants were contemplating the same thing, if not the identical fashion.

3. Shanshui cement may default on another bond (http://in.reuters.com/article/china-debt-shanshui-idINL3N14I2FW20151229)

Commentary: With a negative PPI for nearly 4 years, it is hardly conceivable that Shanshui will be the only case here. It is time for the market the clean out the “zombie firms”, which the State Council has been eager to do for quite a while.

4. China Animal Healthcare announced its financial statements being “stolen” in December (http://www.chinanimalhealthcare.com/pdf/en1451310417.PDF)

Commentary: Remember, anything can happen in China, especially those listed companies. The company hasn’t disclosed its 2014 annual report, you know why…

Cultural Tea:

  1. Li Bingbing, famous Chinese actress who took roles in Transformers and Resident Evil, had been hospitalized in Australia for more than two weeks due to flu, leading to public debate on comparison of Chinese-Western healthcare system and overdose of antibiotics in China – (http://www.ecns.cn/2015/12-26/193773.shtml)lbb.jpg

Commentary: While the Australian healthcare might not be in world class standard, inappropriate and excessive use of antibiotics might be the key reason here why a Chinese will suffer a hard time in the Western treatment of flu. It is a serious misconception and a severe issue that might haunt Chinese in the long run.

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