Will Chinese Measure Reverse Recent Sell-down?

kimeng

Publish date: Mon, 14 May 2012, 12:30 PM

Warrants Highlight

Will Chinese Measure Reverse Recent Sell-down?

Over the weekend, China lowered the reserve requirement ratio (RRR) for banks by 50 basis points, after last Friday’s data showed Chinese industrial production, new loans and retail sales for the month of April were growing at a rate below forecast.

The RRR cut, effective this Friday, reduces the required level against deposits to 20 percent for large banks and 18 percent for smaller institutions. The move is expected to release 450 billion yuan ($71 billion) into the financial system, ensuring that Chinese companies have sufficient cash.

Investors looking to tap into the Chinese market may do so via Macquarie’s list of warrants over the China A50 futures index.

Code	Name	Type	Expiry	Exercise Price
QC8W	CN8400MBeCW120628	Call	28-Jun-12	8400
QC9W	CN8800MBeCW120628	Call	28-Jun-12	8800
QD2W	CN8200MBePW120628	Put	28-Jun-12	8200
QD3W	CN8600MBePW120628	Put	28-Jun-12	8600
QD0W	CN9000MBeCW130130	Call	30-Jan-13	9000
QD1W	CN8000MBePW130130	Put	30-Jan-13	8000

What is China A50 Index
The FTSE A50 Index tracks the performance of the 50 largest A-share companies listed on the Shanghai and Shenzhen stock exchange. It includes mega-names like Ping An Insurance, China Merchants Bank and Shanghai Pudong Development Bank. The index gives investors a broad exposure to the China story.

Unlike the H-share market (China companies listed in Hong Kong), the A-share market is largely reserved for domestic Chinese investors and certain institutions participating in the Qualified Foreign Institutional Investors (QFII) programme. With Macquarie's A50 warrants, you will be able to gain direct exposure to movements in the China A-share market.

The China A50 futures have been gaining popularity in the Singapore trading community. According to SGX, a total of 30,247 futures contracts were traded in 3Q12, which is an almost 3 fold increase from 3Q11.

Is it time to buy into China?
At its recent levels of around 8,500, the China A50 is trading near its 3-year lows. At the height of the 2007 bull market, the index reached an all-time high of 23,413. Macquarie’s Head of Asian equity strategy, Emil Wolter will be sharing his views on the Chinese market outlook and how Macquarie is advising its institutional clients to position themselves for the year ahead. Click on the banner below to attend the session held today or this Wednesday.

Will there be other government measures sparked by economic data? Below are this week’s macro releases:

Mon 14 May: Eurozone Industrial Production (Mar)
Tue 15 May: U.S CPI (Apr), Advance Retail Sales (Apr), U.S Empire Manufacturing (May)
Wed 16 May: U.S Housing Starts (Apr), U.S Industrial Production (Apr), Eurozone CPI (Apr)
Thu 17 May: U.S Philadelphia Fed Manufacturing (May), U.S Leading Indicators (Apr), Singapore Non-Oil Domestic Exports (Apr)
Fri 18 May: China Property Prices (Apr)

Singapore Market Wrap

European Woes Kept STI Under Pressure

Last week, STI had its worst weekly fall since Aug 11. The index corrected 3.6% week-on-week (wow) to close at 2883.40. The political uncertainty in Greece and France affected global investors sentiment, while local headlines were dominated by 1Q12 earning results. Last week, DBS and rig builders' warrants were actively traded, with more than 20mn warrants changing hands in each of the following warrants:

Call DBS MB eCW120702 (P0VW) exercise price $13.90.*
Call KepCorp MBeCW120702 (P0WW) exercise price $10.50.*
Call SembMar MBeCW120905 (P1FW) exercise price $5.058.*

Banks posted strong earnings
UOB announced that its 1Q12 net profit grew 12% year-on-year to S$688mn on Wednesday, beating analysts estimates. Net interest income, fee and commission income, as well as trading and investment income increased while expenses remained under control. Its shares fell 3.7% wow to $18.30 after paying a $0.40 dividend.

On Friday, OCBC reported its 1Q12 net profit grew 32% year-on-year to $832mn. The management attributed the strong earnings to its customer-related business growth and a strong increase in market-related income. Its shares fell 0.2% wow to $8.94.

Call UOB MB eCW120702 (P0XW) exercise price $17.80.*
Call UOB MB eCW121101 (QD7W) exercise price $19.00.*

Call OCBC Bk MBeCW120802 (P1VW) exercise price $9.00.*
Put OCBC Bk MBePW120718 (P2OW) exercise price $8.40.*

Agri-names disappointing results
Noble (-4.1% wow, $1.16) and Golden Agri (-4.1% wow, $0.695) both reported worse than expected earnings last week. Noble reported 4% year-on-year increase in net profit to US$110mn, while Golden Agri's net profit fell 30% to US$162mn

Call NobleGrpMBeCW121002 (P8JW) exercise price $1.40.*

Call GoldenAgMBeCW120702 (PB2W) exercise price $0.75.*

Overnight Market Wrap

US Underperformed Europe on Friday

While most European indices rose on Friday, the S&P500 fell 0.3% to 1,353.39, bringing its week-on-week losses to -1.2%. US Producer Price Index (PPI) fell 0.2% on lower gas prices, sharpest decline since Jun 11.

Over the weekend, the Chinese government cut banks' reserve requirement ratio (RRR) by 50 basis points. Last week's data showed that the Chinese economy was slowing faster than expected, while inflation eased further.

Overnight Markets

Indices	Last	Change
STI	2883.40	-0.7%
HSI	19964.63	-1.3%
DJIA	12820.60	-0.3%
S&P 500	1353.39	-0.3%
Nasdaq	2933.82	0.0%

Corporate News

Corporate Announcements

Golden Agri Resources' 1Q12 net profit came in at US$162mn, a 30% drop from the previous year.

Results Announcement
Mon 14 May: STX OSV 1Q12
Tue 15 May: Olam 3Q12
Tue 29 May: Biosensors 4Q12

Ex-Dividend Date
Tue 15 May: Noble Group (US$0.0165)
Thu 17 May: Yangzijiang ($0.055)

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