Rumors of New Chinese Banking Regulations Impact Lenders' Shares

Updated

Asian markets closed lower Thursday. In China the Shanghai Composite Index sank 1.9% to 2,602 and in Hong Kong the Hang Seng Index inched down 0.2% to 21,691. Japan's Nikkei 225 Index dipped 0.1% to end the day at 9,510.

Whispers that China's banking regulators might boost capital adequacy ratios as high as 15% sent shudders through the market and shares in Chinese banks lower. But regulators have denied plans for an increase, sending word via text message, reports Bloomberg.

With ratios now standing at 11.5%, Chinese banks are already under much stricter regulation than those in other nations. And that's even after the Basel Committee on Banking Supervision's decision this week to raise capital requirements to 7%. While these measures may safeguard against another global financial crisis, by reining in lending they will no doubt affect consumer spending -- especially for big ticket items like cars and homes.

Today Chinese banking stocks fell with Bank of China slumping 2.1%, China Construction Bank plunging 2%, Agricultural Bank of China tumbling 1.9% and Industrial & Commercial Bank of China falling 1.5%.

Among Chinese car companies, FAW Car declined 4.2%, Beiqi Foton Motor slid 4.% and SAIC lost 2.2%. And among real estate firms Poly Real Estate closed down 1.9%, China Vanke slumped 1.6% and Gemdale fell 1.4%.

The mining sector suffered further losses today as the market continued to take into account new curbs on the quantity of metal mines can output and the London Metal Exchange Index declined. Zijin Mining nosedived 3%, Jiangxi Copper plummeted 2.6% and Aluminum Corp. of China, affectionally nicknamed Chalco, slid 2.1%. Even Shandong Gold Mining fell, dropping 4% in today's trading despite predictions that the precious metal could go to $1,300 per ounce in the next few weeks, according to a Reuters report.

Chinese pharmaceutical companies gave back gains won earlier in the week after news broke of a new strain of drug-resistant bacteria and the spread of a tick-borne illness. Some speculate that the massive gains in stock price were out of line with possible earnings, especially since no actual new treatments have surfaced. Today Guangzhou Pharmaceutical tumbled 6.8%, Yabao Pharmaceutical Group dived 5.3% and North China Pharmaceutical slumped 3.7%.

In Hong Kong, banks also closed lower. Feeling the heat of possible new restrictions, China Merchants Bank slipped 2.5%, and China Construction Bank dipped 0.6%.

Hong Kong oil exploration company Cnooc fell 1.1% and PetroChina receded 1% after the price of crude oil fell for a third day in a row.

In Tokyo, the Nikkei closed lower despite a continued and welcome drop in the value of the yen. Shares in many companies making their profits within Japan lost value, while those dependent on exports headed higher, thanks to the more beneficial exchange rate. Central Japan Railway plunged 4.1% and East Japan Railway shares declined 2.8%. Kirin, the maker of Japan's number one beer, fell 2%.

Japanese carmakers gained today with Toyota and Nissan both gaining 1.7% and Mazda, Isuzu, and Fuji Heavy Industry, the maker of Subaru vehicles, all rising 1%. Honda added 0.5%.

Japanese electronics companies also performed well with Sharp surging 2.6% and Sony gaining 1.7%. Pioneer rocketed up 4% and Casio Computer advanced 1%. But while currency conditions may be favorable for exporters, the challenge still remains of finding customers abroad willing to open their wallets in these tough times.


Advertisement