Highlights from the last week of China business news.
Insuring against rumors
Ping An’s moves abroad attracted attention this week. The Chinese press reported on a rumor that the insurance giant was planning to raise US$20 billion through a share and bond sale. A rumor that domestic insurers would be allowed to invest more abroad also floated around. The sector is liberalizing, as the State Council has now agreed to let insurers invest in local banks, and this gave credence to the rumors. The hearsay then began to firm up: Ping An wanted to buy into British insurer Prudential, which would explain why it needed to raise money from a stock and bond sale. This theory was supported by the SCMP, which said some Ping An shareholders in Hong Kong who had been surprised by the sudden proposal would vote down a share sale for funding M&A deals. Ping An apparently hasn’t told its shareholders exactly why it needs so much new capital. It might be prudent for it to do so.
Rough week for A-shares
A-share investors watched in horror as the Shanghai Composite Index dropped more than 5% at the start of the week. It was the biggest drop in more than six months, causing it to close below the 5,000 mark for the first time this year. The next day the index sank lower, almost touching 4,500; the Hang Seng Index followed suit. The fear was that Bank of China, as the largest subprime mortgage securities holder in Asia, would announce huge writedowns of those holdings. America’s deteriorating outlook didn’t help. But by Wednesday, the US Federal Reserve cut interest rates by 75 basis points, prompting a rally. The Hang Seng finished 11% higher, while the SCI was up 3.1%. Regional indexes in India, Singapore and Japan rose too. Nevertheless, the fear hasn’t totally dissipated. A new task force has been created to monitor and require monthly reporting of subprime holdings at China’s biggest banks.
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