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Tuesday 17 February 2009
China Loans Diverted to Stocks, Fuelling Rally, Shenyin Says
Chinese companies may be using record bank lending to invest in stocks, fuelling a rally that’s made the benchmark Shanghai Composite Index the world’s best performer this year, according to Shenyin & Wanguo Securities Co.
China Loans Diverted to Stocks, Fuelling Rally, Shenyin Says
By Chua Kong Ho 17 February 2009
(Bloomberg) -- Chinese companies may be using record bank lending to invest in stocks, fuelling a rally that’s made the benchmark Shanghai Composite Index the world’s best performer this year, according to Shenyin & Wanguo Securities Co.
As much as 660 billion yuan ($97 billion) may have been converted by companies into term deposits or used to buy equities, Li Huiyong, Shanghai-based analyst at Shenyin Wanguo, said in a phone interview today, citing money supply figures.
China’s banks lent a record 1.62 trillion yuan in January as part of a government drive to stimulate the world’s third-largest economy, while M2, the broadest measure of money supply, climbed 18.8 percent from a year earlier. The Shanghai Composite has surged 29 percent since the start of 2009, compared with a 10 percent decline in the MSCI World Index.
“Part of the liquidity flowing into the stock market could be from companies using borrowed funds to invest in the stock market instead of working requirements,” said Li. The brokerage was voted the best in the country for research by the national pension fund, China’s largest investor.
The jump in new loans was twice the record set a year earlier. The biggest proportion of new lending, 39 percent, was through discounted bills, which supply working capital. Medium and long-term corporate loans accounted for 32 percent.
Companies are reluctant to increase production amid a slowdown in demand and some may have diverted funds meant for expansion into the stock market to chase higher returns, said Li.
Loan growth may continue to surge this month, the Shanghai Securities News reported today, without citing a source.
Identity Sought
China’s central bank is asking lenders to identify the recipients of last month’s loans to ensure the funding contributes to economic growth, a person with knowledge of the matter said Feb. 13, speaking on condition of anonymity.
The government is putting pressure on banks to support its 4 trillion yuan stimulus package, while seeking to avoid a pile-up of bad loans. Default risk represents the biggest threat to Chinese lenders this year, Fitch Ratings said last month.
“It’s hard for banks to tell whether the funds are flowing into the real economy or into the stock market,” said Michelle Qi, a Shanghai-based portfolio manager at Bank of Communications Schroder Fund Management, which oversees about $790 million.
“In the short term, there’s a risk that this inflow of funds could push the market too high,” she said.
China’s banking regulator is reviewing commercial lenders’ financing of discounted bills after a surge in January prompted concern about excessive risks, the China Business News reported yesterday, citing unidentified people.
Working Capital
Fortune SGAM Fund Management Co.’s Gabriel Gondard said while there may be examples of companies diverting working funds into the stock market, they are likely to be in the minority.
“Corporates are in need of working capital right now,” said Gondard, who helps oversee about $7.2 billion. “There may be exceptions, but it’s not big enough an impact to explain the rally.”
Most of the discounted-bill financing was “behaviour by companies” to help meet their funding needs, People’s Bank of China Vice Governor Yi Gang said Feb. 14 during a conference in Beijing. “We should respect the market,” he said.
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China Loans Diverted to Stocks, Fuelling Rally, Shenyin Says
By Chua Kong Ho
17 February 2009
(Bloomberg) -- Chinese companies may be using record bank lending to invest in stocks, fuelling a rally that’s made the benchmark Shanghai Composite Index the world’s best performer this year, according to Shenyin & Wanguo Securities Co.
As much as 660 billion yuan ($97 billion) may have been converted by companies into term deposits or used to buy equities, Li Huiyong, Shanghai-based analyst at Shenyin Wanguo, said in a phone interview today, citing money supply figures.
China’s banks lent a record 1.62 trillion yuan in January as part of a government drive to stimulate the world’s third-largest economy, while M2, the broadest measure of money supply, climbed 18.8 percent from a year earlier. The Shanghai Composite has surged 29 percent since the start of 2009, compared with a 10 percent decline in the MSCI World Index.
“Part of the liquidity flowing into the stock market could be from companies using borrowed funds to invest in the stock market instead of working requirements,” said Li. The brokerage was voted the best in the country for research by the national pension fund, China’s largest investor.
The jump in new loans was twice the record set a year earlier. The biggest proportion of new lending, 39 percent, was through discounted bills, which supply working capital. Medium and long-term corporate loans accounted for 32 percent.
Companies are reluctant to increase production amid a slowdown in demand and some may have diverted funds meant for expansion into the stock market to chase higher returns, said Li.
Loan growth may continue to surge this month, the Shanghai Securities News reported today, without citing a source.
Identity Sought
China’s central bank is asking lenders to identify the recipients of last month’s loans to ensure the funding contributes to economic growth, a person with knowledge of the matter said Feb. 13, speaking on condition of anonymity.
The government is putting pressure on banks to support its 4 trillion yuan stimulus package, while seeking to avoid a pile-up of bad loans. Default risk represents the biggest threat to Chinese lenders this year, Fitch Ratings said last month.
“It’s hard for banks to tell whether the funds are flowing into the real economy or into the stock market,” said Michelle Qi, a Shanghai-based portfolio manager at Bank of Communications Schroder Fund Management, which oversees about $790 million.
“In the short term, there’s a risk that this inflow of funds could push the market too high,” she said.
China’s banking regulator is reviewing commercial lenders’ financing of discounted bills after a surge in January prompted concern about excessive risks, the China Business News reported yesterday, citing unidentified people.
Working Capital
Fortune SGAM Fund Management Co.’s Gabriel Gondard said while there may be examples of companies diverting working funds into the stock market, they are likely to be in the minority.
“Corporates are in need of working capital right now,” said Gondard, who helps oversee about $7.2 billion. “There may be exceptions, but it’s not big enough an impact to explain the rally.”
Most of the discounted-bill financing was “behaviour by companies” to help meet their funding needs, People’s Bank of China Vice Governor Yi Gang said Feb. 14 during a conference in Beijing. “We should respect the market,” he said.
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