Friday, August 17, 2012

Financial Review: New Crisis Era in 2012 Q2

Why and What is New Crisis Era?

New Crisis Era, as per our own definition, refers to a period of uncertainties and chaos in financial markets. During this period, investor confidence is weak, financial markets are highly nervous and can be easily affected by sudden breaking news.

No doubt we have already entered a New Crisis Era since 2011. In this year, European sovereign debt crisis has just become a sensitive bomb that can explode in any time and has still been the top focus in global financial markets. We believe that the New Crisis Era will continue to evolve in 2012, because almost every investor now understands very well that all existing efforts made by EU (European Union) are just trying to buy time instead of resolving their debt issues effectively.

Financial Review in 2012 Q2

Now we want to summarize the top business and financial news in 2012 Q2 as below. As usual, this financial review is an extension of that for 2012 Q1 (Reference: Financial Review 2012 Q1). If you want to see our whole list of financial reviews in the past years, please visit: Whole List of Financial Reviews.

Apr 3:In order to feed more foreign capitals to support the domestic equity markets against the recent capital outflows, China decided to sharply raise QFII (Qualified Foreign Institutional Investors) investment quota by USD$50 billion from USD$30 billion to USD$80 billion, the first quota boost since 2007. China also decided to raise RQFII (RMB Qualified Foreign Institutional Investors) investment quota sharply by RMB 50 billion from RMB 20 billion to RMB 70 billion. For more about RQFII, please read: RMB Internationalization Policies.
Apr 12:Shenzhen supported Qianhai Special Region to develop OTC (Over-The-Counter) market and to develop cross-border RMB lending business with Hong Kong as a pilot financial innovation program. This would encourage offshore RMB (at lower lending interest rates) to flow back into the onshore (domestic) market. Read also: Guangdong-Hong Kong Policy Cooperation.
Apr 16:(1) RMB receded while PBoC (People's Bank of China) began widening USD/RMB daily trading band to 1% from 0.5%, the first forex band widening since 2007. This implied that the USD/RMB two-way volatility could reach 2% maximum per each trading day. Read also: Our 2012 USD/RMB Forex Target.
(2) China Forex Management Authority (FMA) announced that the era implementing 'Compulsory Foreign Exchange Settlement System' (CFESS) had become history.
Apr 17:Argentina Fernandez government announced to re-nationalize YPF, the largest oil firm in the country, through unilateral expropriation from the Spanish energy company Repsol.
Apr 18:(1) HSBC (Hong Kong and Shanghai Banking Corporation) became the first RMB (Renminbi) bond issuer outside China, as the bank issued its first RMB bond in the U.K. and also had it listed on the London Stock Exchange. Read also: RMB Business Competition.
(2) Cambodia Securities Exchange (CSX), a joint venture of South Korea Exchange, started its first trading day and had the Phnom Penh Water Supply Authority (PPWSA) as the only listed company there.
Apr 19:U.S. Federal Reserve allowed U.S. banks at least 2 more years no sooner than July 2014 to start implementing Volcker rules under the Dodd-Frank Financial Regulation Reform Act.
Apr 23:(1) Bank of Spain (BoS) reported that the country was technically back to economic recession in 2012 Q1.
(2) Shenzhen Stock Exchange (SZSE) officially announced to implement ChiNext Delisting Standard System (CDSS) on May 1, 2012 to minimize speculations on junk stocks according to the amended ChiNext Stock Listing Governing Rules.
(3) PBoC (People's Bank of China) total assets hit USD$4.5 trillion in end-2011, surpassed the European Central Bank (USD$3.5) or the U.S. Federal Reserve (USD$3), and thus became the largest central bank in the world. Read also: Why PBoC Chooses RRR.
(4) Bank of Korea (BoK) started buying RMB bonds from this week onwards, the first time ever since it obtained quota worth RMB 20 billion from China early this year.
Apr 24:Fitch downgraded debt rating of Nokia, a mobile phone pioneer, to junk status on negative profit outlook.
Apr 25:(1) ECB (European Central Bank) historically called for 'growth pact' supported by the leading French Socialist presidential candidate Francoise Hollande, as opposed to the current 'fiscal discipline treaty' supported by the German Chancellor Angela Merkel.
(2) U.K. Office for National Statistics (ONS) reported that the country was technically back to economic recession in 2012 Q1.
Apr 27:(1) Bank of Japan (BoJ) further increased total QE size to JPY 70 trillion (was JPY 65 trillion) by lifting asset purchasing size to JPY 40 trillion (was JPY 30 trillion) and cutting credit lending size to JPY 30 trillion (was JPY 35 trillion), the first time its asset purchasing size exceeded credit lending size. BoJ also extended bond maturity of asset purchasing to 3-year (was 2-year).
(2) Samsung surpassed Nokia in 2012 Q1 to become the largest mobile phones manufacturer by shipping volume in the world. Samsung also surpassed Apple in 2012 Q1 to become the world's biggest smart phones manufacturer by shipping volume.
(3) S&P's (Standard & Poor's) downgraded Nokia credit rating to junk status on negative profit outlook.
Apr 29:Both Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) proposed to implement Delisting Standard System (DSS) to minimize speculations on junk stocks on their main broads respectively. For more development plans of Shanghai Stock Exchange, please read: Shanghai Development Plans.
Apr 30:China State Council announced to cut tariffs of some hi-tech equipment, raw materials, energy products and daily necessaries with provisional tax rates to encourage imports and thus to reduce foreign trade friction and achieve better trade balance. For our own trade balance target, please read: 2012 Trade Balance Target.
May 1:AUD receded as Reserve Bank of Australia (RBoA) lowered benchmark interest rates by an unexpectedly sharp cut of 0.5% to 3.75% on weak global commodities demand.
May 2:S&P's upgraded Greece sovereign-debt credit rating from SD (selective default) to CCC on stable economic outlook.
May 6:French anti-austerity socialist Francoise Hollande won France presidential election against the incumbent conservative party Nicolas Sarkozy.
May 8:(1) Iran Tehran government confirmed acceptance of RMB for crude oil sales to China against Western export sanctions.
(2) China launched its first physical iron ore trading platform, China Beijing International Mining Exchange (CBMX), for boosting global iron ore price-setting influences against top miners BHP Billiton, Rio Tinto and Vale SA.
May 9:Germany 10-year Treasury bond yield fell below 1.5% and hit record low of 1.498%.
May 10:(1) Shanghai Futures Exchange (SFE) launched the first silver futures contract trading platform for China. Read also: Shanghai to Compete Hong Kong as Top Financial Centre.
(2) Rupee (INR) rebounded as India central bank started to impose foreign currency restriction (companies need to convert 50% of their foreign-currency earnings into rupees) to try stopping money outflow from the country.
(3) J.P. Morgan Chase (JPM) CEO Jamie Dimon, the biggest objector of Volcker Rule, acknowledged that the bank suffered at least USD$2 billion loss on proprietary trading of speculative credit derivatives at its London trading desk.
May 13:China, South Korea and Japan agreed to initiate trilateral trade liberalization pact negotiations within this year for establishing free-trade zone. Japan, at the same time, would also take part in negotiations for joining Trans-Pacific Partnership (TPP) promoted by the U.S. against emerging China.
May 15:Greece political parties eventually failed to form an unify government after inconclusive election. A new election would have to be hold on June 17, 2012.
May 16:(1) ECB (European Central Bank) suspended providing liquidity to 4 main Greece banks via Emergency Liquidity Assistance (ELA) program.
(2) Japan 2-year Treasury bond yield fell below 0.1%, the first time since May 2005.
May 17:(1) Fitch downgraded Greece sovereign-debt credit rating to CCC from B- for the increasingly risks of the country to exit Euro-zone, although the agency did upgrade Greece rating once on March.
(2) Moody's downgraded credit ratings of 4 Spanish local governments (Catalunya, Andalucia, Murcia, Extremadura) as well as 16 Spain banks (including BBVA and Banco Santander) on negative economic outlook.
May 18:Facebook, the social media network giant headed by CEO Mark Zuckerberg, started listing in Nasdaq at initial public offering (IPO) stock price of $38 and became the 3rd biggest IPO ever in the U.S. Nasdaq, however, could not handle the huge trading volume of this Facebook IPO and resulted in launch delays and significant trading errors.
May 21:Records indicated that PBoC (People's Bank of China) has been the first foreign central bank to allow bypassing primary dealers to place its bids of U.S. government bonds directly from the U.S. Treasury Department Auction System since June 2011. This has permitted China to protect and hide its bidding data from Wall Street speculators.
May 22:Rupee (INR) hit new historical low of 55.47 against USD on negative India economic outlook.
May 25:S&P's (Standard & Poor's) downgraded credit rating of Bankia S.A. to junk status after nationalization of the Spanish bank.
May 31:Crude oil futures price tumbled as U.S. Energy Information Administration (EIA) reported that U.S. crude oil inventories reached 22-year high.
June 1:(1) China Foreign Exchange Centre (CFEC) began direct Renminbi (RMB) trading with Japanese Yen (JPY), the second major currency allowed to do so after USD. This should save exchange costs as bilateral trades between the two countries no longer required exchanging to USD (third-party currency) intermediately. Read also: Direct Renminbi Trading in Russia.
(2) Germany 2-year Schatz Treasury bond yield fell below 0% (turned negative), the first time ever.
(3) U.S. 10-year Treasury bond yield fell below 1.5% and and hit historical low of 1.44% since 1800s on weak non-farm payroll jobs data.
(4) London Brent ICE crude oil price fell below USD$100, the first time in recent 8 months, on weak China manufacturing PMI (Purchasing Managers Index) data. Read also: Global PMI Risks.
(5) Both Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) began cutting A-shares trading transaction fees by around 25% to 0.0087% according to the securities market reform initiated by the China Securities Regulatory Commission (CSRC).
June 7:PBoC (People's Bank of China) announced to cut interest rates by 0.25%, the first time since December 2008. Source: Is PboC Really Cutting Rates?
PBoC also announced to extend deposit rate floating range (x1.1 time benchmark rate), the first time ever. This opened a new chapter for interest rate reform in China. References: Chinese Interest Rate Reform and Necessity of Interest Rate Reform.
June 6:(1) ECB extended unlimited liquidity and refinancing operations until Jan 15, 2013 (at least).
(2) China postponed implementation of Basel III new capital rules for commercial banks until January 1, 2013. Read also: CBRC Banking Rules and Support Chinese SMEs.
June 9:Spain became the 4th Eurozone country to seek bailout (maximum EUR 100 billion) from European Union (EU) for rescuing Spanish banking industry.
June 14:Bank of England (BoE) announced a new scheme to provide liquidity through bank loans of 3-4 years maturity at under-market rates, and also to activate its ECTRF (Extended Collateral Term Repo Facility) to offer 6-month emergency liquidity for extended types of collaterals.
June 15:(1) HKEx (Hong Kong Stock Exchange) formally announced to acquire LME (London Metal Exchange) for promoting Chinese influences in global commodities trading market.
(2) Italy decided to start selling state-owned assets worth EUR 10 billion for cutting its sovereign debts.
June 18:(1) Greece pro-bailout party defeated anti-austerity party in parliamentary election.
(2) China promised to contribute USD$43 billion to IMF (International Monetary Fund) as new funding resources for global crisis-fighting.
June 20:(1) U.S. Federal Reserve decided to extend its 'Operation Twist' (until end-2012) to purchase longer-term Treasury securities (maturities of 6-30 years) worth USD$267 billion and to sell (or redeem) the same amount of shorter-term Treasury securities (maturities of 3 years maximum).
(2) Legal action of Hong Kong SFC (Securities and Futures Commission) successfully forced Hontex International Holdings (Hontex Stock Code: 946.HK) to become the first HK-listed company to rebate HKD$1.03 billion to shareholders because of the false and misleading financial information in company's IPO (Initial Public Offering) prospectus.
June 21:London-based ICE Brent crude oil future fell below $90 per barrel, the first time since December 2010. New York-based crude oil future also fell below $80 per barrel on weak demand concerns.
June 23:Qinhuangdao coal inventories hit record high level of 9.5 million tons, confirming a slowdown of Chinese electricity consumption. Read also: Hard-Landing Fears For China.
June 25:(1) Cyprus became the 5th Eurozone country to seek bailout (maximum EUR 10 billion) from European Union (EU). Cyprus banking sector needed urgent rescue funds for recapitalization as it suffered huge losses on Greece government debts.
(2) Fitch downgraded Cyprus sovereign-debt credit rating to junk status.
June 26:Japan parliament approved a controversial bill to increase consumption-tax rate up to 10% gradually by 2015.
June 27:Barclays admitted its misconduct about manipulation of LIBOR fixing prices.
June 28:(1) Hong Kong Stock Exchange (SEHK) announced to establish a new 3-side joint-venture index company in Hong Kong with Shenzhen Stock Exchange (SZSE) and Shanghai Stock Exchange (SSE) to develop cross-border index-linked products as well as equity derivatives products.
(2) China Ministry of Finance (MoF) announced that Hong Kong would be the first offshore financial hub to sell RMB sovereign bonds to foreign central banks. Source: RMB Sovereign Bonds in Hong Kong.
June 29:(1) EU Summit decided to promote growth pact (worth EUR 120 billion), and also to conditionally allow ESM (European Stability Mechanism) and EFSF (European Financial Stability Facility) to buy debts via ECB in primary markets or to fund Eurozone banks directly.
(2) China NDRC (National Development and Reform Commission) announced 8 schemes for Shenzhen Qianhai Special Region and formally confirmed to use Shenzhen Qianhai as a pilot zone for RMB capital account convertibility.
(3) Hong Kong SFC (Securities and Futures Commission) approved the first RQFII A-share ETF listing in H.K. Stock Exchange (Source: RQFII A-share ETF in Hong Kong), and CSRC (China Securities Regulatory Commission) also approved the first two HK-share ETFs listing in Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE).
(4) Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) announced newly-improved delisting rules to minimize speculations on junk stocks.

To conclude, European sovereign debt crisis was still deeply affecting the global financial markets in 2012 Q2. Although we do not believe European debt crisis can be quickly resolved, investors do not enjoy living with uncertainties and we do 'hope' this New Crisis Era will be over soon


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