January 19, 2015


[Securities exchanges hit as Beijing clamps down on risky investment practices, leaving Shanghai index down by nearly 8%]

Investors falling share prices at a Chinese stockbroker firm’s office in Fuyang, 
Anhui province. Photograph: Imaginechina/Corbis
Shanghai’s stock market suffered its worst plunge in more than six years on Monday, after authorities cracked down on a risky lending practice used by the China’s biggest securities brokerages.

The Shanghai Composite Index sank 7.7% to 3,116.35 at close on Monday, after the China Securities Regulatory Commission (CSRC) banned the country’s three biggest security brokerages — Citic Securities, Haitong Securities and Guotai Junan Securities — from opening new margin trading accounts for the next three months. For every stock that rose on the index, nine fell.

The regulator posted news of the suspensions to its official microblog on Friday afternoon after the markets closed, and on Monday the extent of the damage became clear — CITIC Securities shares dropped 10%, while Haitong sank 13.7% and Guotai Junan was weakened by 7.31%.

Margin trading is essentially investing with borrowed money, and it’s an inherently risky practice — individuals and companies that buy on margin stand to lose more than they originally invested.

Highly leveraged investors began ploughing their money into Chinese stocks after the Beijing government cut interest rates in November, fueling a protracted rally — the market had risen 36% by Friday, when the exchange recorded its highest close in 65 months.

While margin loans were around 400bn yuan (£42bn) last June, they had nearly tripled to 1.1tr yuan by Friday.

The surge is likelyto have spooked regulators, who are keenly aware of the risks posed to a highly leveraged financial system. The CSRC also said that it would closely supervise entrusted lending, a type of shadow banking that often serves as a back door for margin lending.

“Regulators are concerned that shares have run too hard, too fast,” Hao Hong, a Hong Kong-based strategist at Bocom International Holdings told Bloomberg. “They want a measured increase in the stock market. After all, margin financing is one of the reasons for people to be bullish on brokerage stocks, and these stocks have run particularly hard.”

Despite Shanghai’s nosedive, Asian stock markets rose, as Wall Street rallied and oil prices rose. Tokyo rose 0.9% to 17,014.29, and Seoul rose 14.5 points to 1,902.62.

The rating agency Moody’s announced in a report that the credit profile of Chinese banks will be “largely stable over the next 12-18 months,” despite risky financial practices and a broader economic slowdown.

“Our stable outlook reflects our assessment that, on balance, the developments in monetary policy, financial supervision and market reform will help stabilise banks’ operating environment, their liquidity and their capital, but could also pressure their profitability, asset quality and support assumptions, over the next 12-18 months,” said Christine Kuo, vice-president and senior credit officer.

@ The Guardian 

[President Dilma Rousseff of Brazil personally appealed to President Joko Widodo of Indonesia to spare the life of Mr. Moreira, who was convicted of smuggling cocaine in 2004. Ms. Rousseff was “distressed and outraged” that the sentence was carried out, according to a statement from the Brazilian president’s press office.]

HONG KONG — Indonesia’s weekend executions of two foreigners convicted on drug charges have prompted an indignant diplomatic reaction, as Brazil and the Netherlands withdrew their ambassadors and Australia said it would not rule out such a move.
A Dutch citizen, Ang Kiem Soei, and a Brazilian, Marco Archer Cardoso Moreira, were executed early Sunday by firing squad along with convicts from Indonesia, Malawi, Nigeria and Vietnam.
President Dilma Rousseff of Brazil personally appealed to President Joko Widodo of Indonesia to spare the life of Mr. Moreira, who was convicted of smuggling cocaine in 2004. Ms. Rousseff was “distressed and outraged” that the sentence was carried out, according to a statement from the Brazilian president’s press office.
The Netherlands condemned the executions of Mr. Ang, who was convicted in 2003 on the charge of producing ecstasy, and the five others. “My sympathies go out to their families, for whom this brings a dramatic end to years of uncertainty,” the Dutch foreign minister, Bert Koenders, said in a written statement.
Mr. Joko said earlier this month that the executions would be “important shock therapy” in his country’s fight against illegal drugs. He had rejected calls for clemency, saying the convicts had received due process under Indonesian law. Mr. Joko wrote on Facebook after the executions that there should be “no halfhearted measures” in the war on drug syndicates.
Australia has expressed concern that two of its citizens on death row in Indonesia for drug smuggling could also be executed, although a specific schedule has not been made public. The two, Andrew Chan and Myuran Sukumaran, are part of the Bali Nine, a group of nine Australians convicted in 2006 of attempting to smuggle heroin out of Indonesia.
Foreign Minister Julie Bishop said Australia would continue to urge Indonesia not to execute the men. In an interview with Sky News, she did not rule out recalling Australia’s ambassador if Indonesia carried out the sentences.
“This is not just a matter that Prime Minister Abbott and I have been involved in,” she told the network, referring to Prime Minister Tony Abbott. “Across our diplomatic corps they have been making representations at every level in the Indonesian government, and that will continue.”
In 2013, Indonesia carried out its first execution in more than four years, ending an informal moratorium put in place because of concerns of wrongful executions and an acknowledgment that the punishment was falling out of favor in much of the world.
Human Rights Watch has raised concerns about the resumption of the death penalty in Indonesia and has called its application in drug-trafficking offenses “particularly odious.”

@ The New York Times