Bank of China, Sinopec to Join Hang Seng Stock Index

November 14, 2006 at 11:10 am (China, Companies, Economics, Investment)

From Bloomberg By Hanny Wan and Darren Boey

 

Bank of China Ltd. and China Petroleum & Chemical Corp., known as Sinopec, will be added to Hong Kong’s Hang Seng Index after a quarterly review of the stock benchmark, the compiler said.

The number of constituents on the Hang Seng will rise to 36

from 34, HSI Services Ltd. said in a statement after the market

closed today. No deletions were announced. The changes will take

effect on Dec. 4, the index provider said.

Bank of China and Sinopec, so-called H shares of companies

incorporated in mainland China, had been tipped for inclusion by

brokerages such as Nomura International (Hong Kong) Ltd.

The addition reflects the Chinese companies’ growing

presence on Hong Kong’s stock market. The exchange’s Web site

shows H shares at the end of October accounted for 21 percent of

the value of the main board, up from 1.5 percent at the end of

1997, the year the U.K. returned Hong Kong to China.

Bank of China and Sinopec’s inclusion “is evidence that H-

shares are getting more important,” said Kent Yau, deputy head

of research at Core-Pacific Yamaichi International in Hong Kong.

“If you look at the trading volume of H shares, they’re getting

bigger and bigger.”

The number of Hang Seng members will be gradually increased

to 38 to include H shares, HSI Services said in June. China

Construction Bank Corp., the nation’s fourth-largest lender, was

the first H share to join the stock benchmark after the index

compiler’s August quarterly review.

 

Shares of Bank of China, the nation’s second-largest lender,

have climbed 16 percent since they were sold in an initial public

offering at the end of May. Sinopec, Asia’s largest oil refiner,

has surged 47 percent this year.

“Bank of China was a bit of a surprise,” Yau said. “Short

term it’s going to get a boost. It’s positive news. Investors will

probably start to accumulate” before the changes take effect.

HSI Services determines constituents based on criteria such

as market value and trading volume. Adjustments would prompt

funds that mirror the stock benchmark, such as the $3.4 billion

Tracker Fund of Hong Kong, to buy stocks that are added.

Exchange-traded funds may have to buy HK$475.3 million

($61 million) of Sinopec shares and HK$579.4 million of Bank of

China shares in response to the inclusion in the Hang Seng, Sandy

Lee, an analyst at Nomura, said in an e-mail after HSI Services’

statement was released.

Bank of China has a market value of HK$851 billion, behind

HSBC Holdings Plc and China Mobile Ltd. among existing Hang Seng

Index members.

Sinopec, Asia’s biggest refiner, is valued at HK$562 billion,

which would put it behind Construction Bank, currently the

measure’s third-biggest company.

HSI Services also said it will start an index to measure the

H shares of Chinese financial-related companies from Nov. 27. The

Hang Seng China H-Financials Index will track five lenders

including Bank of China and Construction Bank, and three insurers

such as China Life Insurance Co.

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Russia Near Deal to Join the W.T.O.

November 10, 2006 at 10:43 pm (Economics, Other Countries)

From The New York Times

 

Officials in Washington and Moscow reached an agreement in principle for Russia to join the World Trade Organization, crossing the final big hurdle in the stop-and-go cycle that has marked the process since Moscow began its application shortly after the collapse of the Soviet Union.

The deal is expected to be signed next Saturday, when both President Bush and President Vladimir V. Putin of Russia will be in Hanoi for an Asia-Pacific Economic Cooperation meeting, negotiators from both countries said. The White House also announced this week that President Bush planned to stop in Moscow on Nov. 15 on his way to Vietnam.

“We have agreement in principle and are finalizing the details,” the United States trade representative, Susan Schwab, said in a statement. “It is a clear indication of Russia’s efforts to participate fully in and benefit from the rules-based global trading system.”

Mr. Putin has repeatedly said that joining the 149-member W.T.O. was a major foreign policy goal, though Russia’s oil-driven economy will get few direct gains from membership in the organization, which sets the ground rules for globalization. But joining would give Russia a voice in world trade talks, with the potential to help set future trade policy.

“Russia today is the only major world economy outside the W.T.O. — the only one,” Mr. Putin said at a news conference early in his presidency, in June 2002. “Staying outside this organization, outside this process is dangerous and stupid.”

American officials say the countries gradually worked out nagging disputes on issues like agriculture inspections, chicken exports to Russia and intellectual property protection.

The Bush administration has other contentious issues with Russia, particularly its support for Iran and that country’s nuclear program. There was no immediate sign of any broader deal involving those issues.

One American official said that Russian negotiators had been a “moving target” back in July, balking on issues that Washington thought had been resolved. But they said Russian officials had become more forthcoming in recent weeks.

“At the bitter end, the issues were quite trivial,” said Gary C. Hufbauer, a trade policy expert at the Institute for International Economics in Washington, who has followed the negotiations.

Mr. Hufbauer suggested that Russian leaders might have decided to seal a deal out of worry that this week’s elections would mean greater resistance by Democrats to an accord. “I think the Russians read the election returns and realized that if they don’t go for it now, they might not get anything,” he said.

Russia still must win approval from Moldova and Georgia, countries with deep grievances over a Russian ban on importing wine, ostensibly for health reasons. Those countries could further delay any final deal on W.T.O. membership, which is expected to take place next year. Russian officials have said they want to join in 2007.

Georgia first approved Russia’s membership but rescinded it last month, after Russia blockaded its border. Maksim Medvedkov, Russia’s chief negotiator, said Friday in remarks carried on state television that he would not negotiate with Moldova and Georgia separately but try to allay their objections during multilateral talks with the W.T.O. in Geneva.

The European Union, China and Japan have already signed off on Russian membership.

American officials said they reached agreement on longstanding disputes about American exports of poultry, beef and pork. Russia is the United States’ biggest export market for chicken parts, but American producers have long complained about being hindered by Russian inspection procedures.

The agreement also calls for Russia to offer greater access for foreign services, from construction to overnight parcel delivery and telecommunications. Russian officials also agreed to allow banks and investment firms in Russia to be owned by foreign companies, meaning that foreign banks would not need to team up with Russian partners.

American trade negotiators accepted an unusual restriction on foreign players in the banking and insurance sectors, according to the trade representative office. It will limit foreign investment to no greater than 50 percent of total investments in these businesses. In Moscow, state television reported Friday that Russia was the only country in the W.T.O. to win this concession.

Russia also promised to step up enforcement of intellectual property rights, which had been carried out in spotty fashion.

Russian trade relations with the United States, while forming only a tiny share of both countries’ total foreign trade, have gone through some dismal periods. In 2002, President Bush imposed tariffs on steel, a major Russian export commodity, and Mr. Putin retaliated by banning imports of chicken thighs, known as “Bush Legs” because the product first arrived in Russia as food aid under the president’s father in the early 1990s.

In contrast to China, Russia’s oil-dependent economy gains little from joining the W.T.O. “China is a consumer goods manufacturer and exporter and there was a huge benefit for China,” said Peter Westin, chief economist at the MDM Bank. “There will be nothing like that for Russia.”

Instead, Mr. Westin and other economists say, the primary benefit for Russia would come in exposing the domestic banking, telecommunications and other sectors to more direct foreign competition. This should increase productivity.

Ford Motor, which produces about 70,000 cars a year in Russia and exports another 50,000 cars to Russia, said it was delighted by the deal. Over the next seven years, Russian duties on foreign-made cars are set to decline to 15 percent, from 25 percent today.

“What all this adds up to,” said Stephen E. Biegun, Ford’s vice president for international governmental affairs, “is that we will be able to grow as fast as we possibly can in Russia.”

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US GDP at the Slowest Growth in More Than 3 Years

October 27, 2006 at 9:28 am (Economics, US)

Even the Fed holds the interest rates stable, the economy growth still slows to the lowest, mostly driven my the shrinking investment on property. Investment on homebuilding fell by the largest since 1991.

Depending on the inflation rate and the unemployment rate, the Fed might have to consider to act on the opposite direction–raise the rate to avoid a possible stagflation.

 

From AP

Stocks fell Friday after the Commerce Department reported that the economy grew at the slowest pace in more than three years.

While investors expected the reading on gross domestic product would show growth to be slowing, the report stirred concern that a cooling in the housing market would spill over into other parts of the economy.

The GDP, the broadest measure of the economy, showed growth slowed to 1.6 percent in the third quarter; economists had been expecting a 2.1 percent expansion. The report identified the slowing housing market as a significant drag on growth, as money pumped into homebuilding fell by the largest amount since 1991.

“The fact that there is a moderate pullback tells you that the overall market risk is not extreme,” said Subodh Kumar, chief investment strategist for CIBC World Markets, referring to the strength of the market’s ability to digest the GDP news.

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China Posts Rules on Index Futures

October 23, 2006 at 7:31 pm (China, Economics, Investment)

From The Wall Street Journal, China Posts Rules on Index Futures

 

The China Financial Futures Exchange published draft rules on stock-index futures on its Web site, setting a minimum-access threshold that analysts said could deter some investors.

Under the draft rules, each investor would deposit funds equivalent to 8% of the value of the derivatives contract, which analysts said would put the minimum threshold at about 34,400 yuan, or about $4,350.

The rules also stipulate that a single investor can hold no more than 2,000 lots of single-month futures contracts at one time.

……

According to the draft rules, published yesterday for public comment, China’s first stock-index futures will be based on a unified index that groups 300 large-capitalization stocks on both the Shanghai and Shenzhen exchanges. The rules also stipulate that the price of stock-index futures can’t rise or fall by more than 10% in one day from the previous close.

 

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Hong Kong is Set to be the Largest IPO Market

October 20, 2006 at 5:03 pm (China, Economics, Investment)

Fueled by the IPO frenzy in mainland China, Hong Kong is set to surpass London and New York to become the biggest market for initial public offerings, said the New York Times. The bulk of new listed companies in Hong Kong are from mainland, including the mammoth ICBC, which is to set a new world record on IPO value.

 

Read the NYT:

 

In a reflection of China’s growing prominence in international finance, Hong Kong is set for a banner year in global markets: More money will be raised by companies selling shares to the public here than on the biggest exchanges in New York and London.

And on Friday, pricing will be set for the world’s largest offering ever, that of China’s biggest bank, Industrial and Commercial Bank of China.

This week, long lines of individual investors showed up at downtown stalls to grab prospectuses for the bank’s initial public offering, while institutional investors have swamped the underwriters with orders. (continue)

 

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Good News from Silicon Valley

October 20, 2006 at 4:43 pm (Companies, Economics, Internet, US)

EBay‘s third-quarter profit grew by 10 percent, helped in part by a lower tax rate and strong sales at its online payments unit.

Apple Computer‘s fourth-quarter profit increased 27 percent rise in its fiscal fourth-quarter profit.

The biggest winner is Google, whose third-quarter profits nearly doubled.

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Additional Reading on China’s Foreign Exchange Reserves

October 18, 2006 at 12:05 pm (China, Economics, Finance, US)

 

Following the preview post on China’s foreign exchange reserves, here is a comprehensive story on how China’s financial policy will shake the world economy.

 

From the Wall Street Journal By Andrew Browne

China’s Reserves Near Milestone, Underscoring Its Financial Clout

from WSJfrom WSJ

Sometime in the next few days, China’s holdings of foreign currencies and securities will top $1 trillion — a sum greater than the annual economic output of all but nine countries. The rapid growth in these so-called foreign-exchange reserves has made Beijing a colossus in the financial world, cushioned against shocks at home, but potentially able to trigger them abroad.

How China manages its growing pool of wealth has major repercussions for the global economy. Beijing’s reserves totaled $987.9 billion as of Sept. 30 and are growing by roughly $20 billion a month. That total compares with the about $1.2 trillion in assets under management at U.S. mutual-fund giant Fidelity Investments.

 

As the pot grows, the secretive and sophisticated portfolio managers at China’s central bank are trying gradually to boost their country’s returns on its foreign-exchange holdings, at least in part by making somewhat riskier but higher-yielding investments. Last spring, an unsuccessful effort to divine their intentions sparked a steep run-up in the price of gold.

For the U.S., how China deploys its reserves is a question of some consequence. Most of China’s currency reserves are invested in U.S.-dollar-denominated debt, such as U.S. Treasurys, which are considered the world’s safest investment. That has kept demand for U.S. Treasury notes high — and interest rates low. A change in that pattern could affect how much Americans pay for mortgage loans and other borrowings. Read the rest of this entry »

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Two Chicago Derivative Exchanges to Merge

October 18, 2006 at 11:24 am (Economics, Finance, Investment, US)

The Chicago Mercantile Exchange and the Chicago Board of Trade is to merge in an $8 billion deal. The merger of the two longtime competitors will create the largest derivative market in the world

The new exchange, to be named CME Group, will have an average daily trading volume of about 9 million contracts, representing $4.2 trillion, much larger than the New York Stock Exchange’s $87.2 billion daily trading value.

The merger signaled the rising position of Chicago as the world finance center. It also marked a milestone on the track of market integration.

 

From the New York Times:

Two Exchanges in Chicago Will Merge

By Alexei Barrionuevo

The Chicago Mercantile Exchange and the Chicago Board of Trade, longtime fierce competitors, said Tuesday that they would merge in an $8 billion deal creating the largest market for financial derivatives contracts in the world.

The transaction would be the latest in a wave of mergers among the leading financial exchanges, as they transform themselves from member-owned clubs to for-profit companies competing in markets that have become increasingly global and electronic.

The New York Stock Exchange, the Nasdaq Stock Market and smaller exchanges have announced mergers, and the New York exchange’s recent pursuit of Euronext, operator of four European stock markets, is driven in large part by Euronext’s derivatives exchange in London.

A combination of the two Chicago markets, which were founded in the 19th century to trade agricultural futures, would trumpet the spectacular rise of derivatives — financial contracts whose value is tied to or derived from currencies, interest rates, commodities or other things of value.

Derivatives have made risk more manageable for many businesses, including oil companies seeking to insure themselves against storms and banks trying to protect themselves against home mortgage defaults. Yet they have also fueled trading blow-ups, as in the near-collapse in 1998 of the hedge fund Long-Term Capital Management that shook the financial markets. Read the rest of this entry »

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China’s Citic Bank plans dual listing, Plus Other Posts from CDT

October 16, 2006 at 6:10 pm (China, Economics)

China’s Citic Bank plans dual listing

Wal-Mart to Acquire China’s 2nd-largest Hypermarket Chain

China’s Wealthy Splurge $63 Million at Luxury Show in Shanghai

Business groups ‘blocking’ HK democracy

China’s Reserves Near $1 Trillion

 

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Wilshire, Dow Jones to Launch a New Group of Global Indexes

October 16, 2006 at 5:53 pm (Economics, Finance, Investment, US)

Good news for index funds and those investing in global markets. The new global indexes Wilshire and Dow Jones are cobbling are to meet needs from more and more investors who are increasingly eyeing emerging markets as havens to hedge their portfolios and, if possible, to collect more returns.

The new Dow Jones Wilshire Global Total Market Index, including more than 12,000 stocks in 56 countries and a float-adjusted market value of $33.6 trillion, will beat other two global indexes on capital value: MSCI All-Country World Index, which covers 2,772 stocks in 48 markets with a market value of $27.4 trillion, and the S&P Citigroup Global Equity Indices, which covers 10,446 stocks in 56 countries with a market value of $33 trillion.

 

 

From the Wall Street Journal

Wilshire, Dow Jones to Launch a New Group of Global Indexes

By Karen Richardson

 

With investors continuing to chase returns in global markets, companies that build stock indexes are ramping up their offerings.

In the latest instance, Wilshire Associates Inc., which compiles the DJ Wilshire 5000 Composite index, and Dow Jones Indexes, which compiles the Dow Jones Industrial Average, are teaming up to launch a new group of global indexes, in a bid to compete for business from international money managers who are the prime users of tools like these. Dow Jones & Co. is the publisher of The Wall Street Journal.

Several rival index providers are also rolling out new products, or making changes in their lineups. Next month, Standard & Poor’s Corp. plans to launch “growth and value” style indexes for emerging markets, which would enable investors to track the performance of companies in developing countries that fall into the categories of growth or value stocks. This month, S&P also started providing more historical performance and customized data for each country in its S&P Citigroup Global Indices, according to David Blitzer, managing director and chairman of S&P’s index committee. Read the rest of this entry »

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