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Z-Ben Advisors | www.z-ben.com 1 China Dashboard | Monthly Update | April 2016
Z-BEN ADVISORS Ltd. (Hong Kong) Two Exchange Square, 39/F
8 Connaught Place Central, Hong Kong SAR
Research Affiliate Z-BEN ADVISORS Ltd. (Shanghai, China) 哲奔投资管理咨询(上海)有限公司
Hongjia Tower 25/F 388 Fushan Road
Pudong New Area, Shanghai China 200122
+86 21 6075 8155
Disclaimer The contents of the China Dashboard: Monthly Update (the Product hereafter) are for informational purposes only. The data contained herein is based entirely upon the available information provided in public reports by the locally operating fund managers. The contained information has been verified to the best of Z-Ben Advisors and its research affiliate’s ability, but neither can accept responsibility for loss arising from the decisions based upon the product. The Product does not constitute investment advice or solicitation or counsel for investment in any fund or product mentioned thereof. The Product does not constitute or form part of, and should not be construed as, any offer for sale or subscription of any fund or product included herein. Z-Ben Advisors and its research affiliate expressly disclaims any and all responsibility for any consequential loss or damage of any kind whatsoever resulting, directly or indirectly, from (a) the use of the Product, (b) reliance on any information contained herein, (c) any error, inaccuracy or omission in any such information or (d) any action resulting therefrom. Disclosure Z-Ben Advisors and its research affiliate currently provides other products and services to some of the firms whose products are included in the Product. Z-Ben Advisors and its research affiliate may continue to have such dealings and may also have other ongoing business dealings with other firms whose products are included in the Product. Copyright The duplication of all or any part of the Product is strictly prohibited under copyright law. Any and all breaches in that law will be prosecuted. No part of the Product may be reproduced, transmitted in any form, electronic or otherwise, photocopied, stored in a retrieval system or otherwise passed on to any person or firm, in whole or in part, with out the prior written consent from Z-Ben Advisors.
Z-Ben Advisors | www.z-ben.com 2 China Dashboard | Monthly Update | April 2016
March highlights An overview of the major China news during the month
Dashboard: Quick hits
Cross-border: China Post takes over RBS’ ETF unit
China Post and Capital Fund Management has bought out Market Access, Royal Bank of Scotland’s ETF unit in the UK. The transaction is valued at EUR360m. This is the first acquisition of a British fund manager by a Chinese FMC. A number of fund managers and bank-backed asset managers have made inroads in Europe but this acquisition marks a change of strategy away from organic growth through a local entity.
Page 6
Cross-border: Shenzhen, London Connects imminent
New links to China’s stock markets are imminent. The LSE has indicated its link to the SSE will be ready at the start of 2017. CSRC followed on this, hinting at a different structure from the existing Hong Kong-Shanghai Connect. CSRC also confirmed that the Shenzhen Stock Connect will be launched before the end of the year, which will need at least four months of preparation. The Shenzhen connect was first proposed in mid-2015
Page 6
Capital Markets: CFFEX preparing new bond futures
The China Financial Futures Exchange is set to expand the available futures contracts from the five currently available to include two-year treasury bonds. Ten- and five-year treasury bond futures were reintroduced in 2013 after an 18-year hiatus. The new futures contracts will give investors additional tools for trading and hedging and add diversity to China’s capital markets.
Page 7
Insurance: Anbang bids for North American hotels
Anbang Insurance made two ambitious takeover bids for hoteliers in North America. In the first deal, it agreed to buy Strategic Hotels & Resorts Inc. from Blackstone. A second, larger, deal pitted it in a bidding war for Starwood Hotels. Despite putting in a higher offer, it eventually withdrew. The USD14bn transaction would have been Anbang’s largest offshore investment to date. Anbang has been among the most aggressive insurers offshore.
Page
Trusts: Four trusts inject new capital
Even as foreign interest in the trust sector wanes, four domestic trust companies have completed new capital injections. Notably, Bridge Trust also raised its registered capital, with foreign partner JP Morgan participating, in contrast with other foreign participants that have allowed dilution of their stakes. Others that increased their capital were Zijin Trust, Chang’an Trust and Everbright Xinlong Trust.
Page 1
Brokerages: Profits surge in 2015
All releasing their annual reports, China’s listed brokerages posted record revenue and profit growth. Their earnings were all boosted in the first half of 2015 as a bull market saw increased market turnover as well as from IPOs. Orient Securities had the fastest profit growth, up 181% YoY, followed by Lianxun Securities with 177%.
Page 12
CONFIDENTIAL 3 Z-Ben Advisors
2,900
3,000
3,100
3,200
3,300
3,400
3,500
3,600
3,700
3,800
Mar-15 Jun-15 Sep-15 Dec-15 Mar-160.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Jul-15 Aug-15Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16
780
805
830
855
880
2,500
2,750
3,000
3,250
3,500
1-Mar 8-Mar 15-Mar 22-Mar 29-Mar
RM
B (b
n)
CSI300 Margin
Global market share of RMB payments
March in a nutshell
Northbound Connect daily aggregate usage (RMB bn) Foreign exchange reserves (USD bn)
Source: Z-Ben Advisors, WIND, AMAC
CSI 300 and A-share margin balance
112
114
116
118
120
122
124
126
128
1-Mar 6-Mar 11-Mar 16-Mar 21-Mar 26-Mar 31-Mar
Z-Ben Advisors | www.z-ben.com 4 China Dashboard | Monthly Update | April 2016
China’s largest listed insurer’s disclose their asset allocation for 2015
Chart of the month
Source: Z-Ben Advisors, China Life, Ping An, CPIC, New China Life, PICC
Largest listed insurer asset allocation, 2015
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
China Life Ping An CPIC New China Life PICC
Fixed-term deposits Bonds Stocks Funds Investment property
Z-Ben Advisors | www.z-ben.com 5 China Dashboard | Monthly Update | April 2016
Regulatory updates
State Council NCSSF offshore investment upgraded State Council released detailed guidelines for the development of the pension system, explicitly defining NCSSF’s ability to make offshore allocations. Strategic industry board postponed The Strategic Emerging Industry board for the SSE was omitted from the 13th five-year plan submitted to the National People’s Congress for ratification. Regulators have stated it requires further evaluation prior to implementation.
Heightened volatility at the start of the quarter
underscored the need for continued stabilizing
measures in the equity markets. CSF’s role had
been expected to recede and its holdings
transformed into a passive market tracker. A
continued active presence, or signalling of such,
is likely intended as an anchor for investor
confidence. At the same time, CSRC continues to
clear the market of illegal activity.
PBoC governor Zhou Xiaochuan indicated that
the central bank is moving towards use of more
subtle tools to manage liquidity and interbank
rates. This is in line with its adoption of a
macro-prudential assessment (MPA) system. The
ability to finely calibrate interbank demand for
central bank reserves will give it flexibility in
managing market liquidity, reserving other
monetary policy tools for different uses.
Throughout March, CBRC concentrated its
efforts on strengthening risk management using
pre-existing policy measures. CBRC made
special note of the 68 domestic trusts in its
guidance on information disclosure. Improved
information disclosure is intended to maintain
favorable sentiment among investors and the
general public as the trust sector, and certain
banking business lines, have often been opaque.
In addition to capital market reforms, State
Council has directed its attention at further
developing the core capabilities of different
institutions. NCSSF now has explicit permission
to re-allocate funds raised domestically into
offshore markets. This is a big step up from
current systems, which were largely constructed
to allow NSSF to manage (passively) the
proceeds of SOEs’ foreign IPOs. The new policy
was first drafted in 2015.
PBoC Credit default swaps for bond market The central bank is leading a study on the possible implementation of credit default swaps in the domestic bond market. Credit default swaps are currently only available for debt issued offshore. Interest rate corridor PBoC is building out an interest rate corridor in order to enhance the effectiveness of open market operations as a monetary policy tool. The central bank earlier adjusted its internal rules, allowing intra-day open market operations, up from bi-weekly.
CBRC Improved information disclosure CBRC issued a notice to all banks and trusts, giving guidance on improved information disclosure. Regular disclosure has been extended to internal organizational structures and description of executives’ duties as well as guarantee and insurance systems for clients. Online finance regulation strengthens CBRC has led the formation of an industry self-regulating body for online financial services covering P2P lending and payments. It will increase oversight and cooperation with other regulators. It will also outline measures for information disclosure and internal control.
Ana lys i s
CSRC CSF to stay active in equity market China Securities Finance Corp will remain active in the A-share markets according to CSRC. The institution’s role rose to prominence as it became the vehicle used to stabilize the market during 2H15. Brokerages to clear illegal accounts CSRC gave direction to domestic brokerages to clean up all illegal trading accounts, particularly those tied to the New Third Board. Brokerages will conduct internal self-evaluation and give detailed reports to the regulator.
Z-Ben Advisors | www.z-ben.com 6 China Dashboard | Monthly Update | April 2016
83%
7%
1% 1%8%
Government backed bonds Corporate bonds Bank bonds
Non bank financial bonds CDs Others
Foreign holdings of domestic bonds in March
Cross-border activities
Updates Ana lys i s Data
Net quota allocation in March totaled USD156m as ten institutions
saw their quota reduced. BMO Investments, Guosen Securities
(HK), UBS SDIC (Hong Kong) and Van Eck Associates had all their
quota removed. Their names were also removed from the registry
of QFII licensees. The numbers likely do not accurately reflect
changes resulting from SAFE’s reform of the quota system early in
February as it continues with implementation.
Source: Z-Ben Advisors, SAFE
Vanguard’s FTSE Emerging Markets Index ETF made the switch to
a transitional A-share tracker in June 2015. this was followed by
a large RMB10bn RQFII quota grant in Australia, tripling this in
January 2016. Vanguard is now the leader in non-Chinese RQFII
access at a combined RMB30bn (USD4.6bn), demonstrating the
firm’s long-term commitment to the A-share market. More
managers are expected to follow suit if FTSE and MSCI elect full
inclusion of A-shares at their next annual reviews.
QFII quota changes in March
China Post deliberately sought an established UCITS fund
manager, rather than build a European product range from the
ground up as is being done by ICBC, CCB and BOC. The
manager intends to cross-list Market Access’ ten ETFs in Hong
Kong. China Post will take advantage of a familiar European
brand name and its experience in Hong Kong to develop
products in both markets. Chinese financial companies have been
increasingly acquisitive in Europe and more fund managers may
follow China Post’s example.
CompanyQuota Change
(USD m)Current Quota
(USD m)
Commerzbank AG -300.0 20.0Harvard College -150.0 50.0CDH Investment Advisory 500.0 850.0SinoPac Securities Investment -20.0 80.0Taikang AM -50.0 470.0CICC Asset Management 300.0 600.0Keywise Capital Management -44.0 31.0Greystone Investments -80.0 20.0Rongtong Global Investment 500.0 500.0BMO Investments -100.0 0.0Guosen Securities -200.0 0.0UBS SDIC Asset Management -100.0 0.0Van Eck Associates -100.0 0.0
Vanguard increases ETF A-share position A-share exposure in ETFs managed by Vanguard increased to 2.28% from 2.22% in January, indicating a 20% advance in its A-share exposure. In the middle of 2015, Vanguard announced it would gradually increase the A-share exposure of its flagship emerging markets ETF. FTSE Russell creates new China index FTSE Russell launched a new index, the China A-H 50 Index. This is the index provider’s first tracker combining A- and H-shares. Deutsche AWM is the inaugural licensee for an ETF that will be dual listed on the LSE and Deutsche Börse. New QFIIs granted quota New QFII licensee Rongtong Global Investments was granted USD500m in quota while CDH Investments was awarded an additional USD500m for a total of USD850m and CICC’s allocation was doubled to USD600m. Shenzhen Connect confirmed CSRC confirmed that the Shenzhen Stock Connect will be launched before the end of the year, echoing exchange officials who stated that all systems are in place. Meanwhile, the head of the London Stock Exchange indicated its link to Shanghai will be operational early in 2017. SAFE gives international investment report SAFE released the international financial report showing China’s international investment position by the end of 2015. It shows that China’s overall foreign debt stood at USD1.4tr by the end of the period. China Post takes over RBS’ ETF unit China Post Global, China Post and Capital Fund Management’s Hong Kong holding platform, acquired Market Access, Royal Bank of Scotland’s ETF unit, for EUR360m. This is the first acquisition of a British fund manager by a Chinese FMC.
Z-Ben Advisors | www.z-ben.com 7 China Dashboard | Monthly Update | April 2016
116
118
120
122
30-Sep 31-Oct 30-Nov 31-Dec 31-Jan 29-Feb 31-Mar
2,750
3,000
3,250
3,500
3,750
4,000
30-Sep 31-Oct 30-Nov 31-Dec 31-Jan 29-Feb 31-Mar
Equity market CSI 300 Index (Sep-Feb)
Bond market ChinaBond Aggregate Index
The new futures contracts will add diversity to China’s capital
markets and give investors additional tools for trading and
hedging. In addition to the five futures contracts currently offered,
ETF options are available for select funds traded on the SSE and
SZSE. As the market continues to mature, new derivatives products
are expected to be introduced. China has the third largest bond
market globally and added diversity should be a boon for its
efforts to draw in foreign investors.
Capital markets
Updates Ana lys i s
CNH Hibor hit an historic level in January, rising sharply to 66.8%
as offshore RMB liquidity receded. The negative turn is attributed
to banks in Hong Kong selling off RMB prior to rolling over their
positions as PBoC’s required reserve ratio was implemented.
Da ta
Yurun’s missed payment triggered a cross-default provision in a
separate loan, forcing the acceleration of RMB1.45bn of debt.
Paper defaults are becoming more common, as Guosen Securities
breached guarantee covenants in an offshore bond, leading to the
potential acceleration of the RMB1.2bn issue. The bond defaults
are still a good opportunity for the domestic bond market and its
participants to refine risk pricing. Source: Z-Ben Advisors, WIND
Source: Z-Ben Advisors, WIND
Monthly return: 12.8%
Monthly return: 0.5%
CFFEX preparing new bond futures The China Financial Futures Exchange is set to launch new futures products. The new contracts will be based on two-year treasury bonds. CFFEX currently offers five- and ten-year treasure futures and equity index futures. National team continues buying Annual company reports released in March show that buying by China Securities Finance Corp. placed it on the list of significant shareholders in 26 firms. Members of the national team were listed on the significant shareholding rosters of 137 companies among those that have published reports. CNH Hibor turns negative The overnight RMB lending rate in Hong Kong dipped to -3.7% on March 30. This is its lowest level since the benchmark was launched in June 2013 and the first time it has turned negative. First SSE delisting due to fraud The Shanghai Stock Exchange has completed the first company delisting as a consequence of corporate fraud. ZhuHai BoYuan Investment was first placed on the exchange’s watch list in March 2015. PBoC releases monthly bond market statistics Total bond issuance in March reached RMB4tr, approximately equal to total bond issuance in January and February combined. 2016’s issues have already reached approximately 36% of last year’s total of RMB22.3tr. Bond defaults at large industrial firms March saw two significant bond defaults as companies missed scheduled payments. Yurun Food was unable to make a payment on RMB500m of short-term notes while state-backed Dongbei Special Steel Group missed a repayment of RMB852m in principal and interest.
Z-Ben Advisors | www.z-ben.com 8 China Dashboard | Monthly Update | April 2016
0%
50%
100%
0
200
400
600
800
Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16
Premium YoY Growth % (right)
0%
50%
100%
Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16
Deposits Bonds Funds & Stocks Others
CIRC has turned its attention to duration mismatches in insurance
products over the last few months. This is part of an initiative to
enhance the solvency of the sector. The new guidance formally
defines short- and medium-term life insurance products, linking
this to relevant asset pools and sales methods. As a result of
continuing regulatory changes insurers are expected to wean
themselves off higher-risk investment products.
The offshore allocation now accounts for 2.02% of total insurance
assets, far below CIRC’s cap of 15%. Property in developed
markets has been a popular investment choice among insurers
such as Anbang. Following the introduction of China’s risk
oriented solvency system (C-ROSS) we believe insurers’
international portfolios will move away from large-scale trophy
assets into developed market fixed income and equities.
As the lead in a consortium of investors, Anbang entered a
bidding war for Starwood hotels that pitted it against the
Marriott Group. The insurer’s aggressive outbound investment in
the past two years have greatly increased its offshore
allocation. After agreeing to the Strategic Hotels deal, the
acquisition of Starwood would have brought it uncomfortably
close to CIRC’s 15% cap for overseas asset allocation and may
have been a consideration in withdrawing the final offer.
Asset allocation Allocation in 2015 (monthly)
Premium income Premium income (monthly)
Insurance sector
Updates Ana lys i s Data
Source: Z-Ben Advisors, CIRC
Source: Z-Ben Advisors, CIRC
Insurance overseas investment hits USD36bn Insurance assets invested offshore exceeded USD36bn by the beginning of March. This represents growth of 51% from the end of 2014. Foresea Reinsurance approved CIRC approved the establishment of Foresea Life Insurance. Its shareholders include China Post Group and Foresea Financial Group. The latter controls Foresea Life Insurance, a fast growing insurer noted for an unsuccessful hostile bid for property developer Vanke. Aeon’s AM subsidiary approved Aeon Life Insurance received approval from CIRC to establish an asset management subsidiary. The new subsidiary, also located in Dalian, will have initial registered capital of RMB100m. Anbang bids for North American hotels Anbang Insurance made two large bids for hotels in North America. It agreed to buy Strategic Hotels & Resorts Inc. from Blackstone for USD6.5bn. However, a USD13.6bn offer for Starwood Hotels was ultimately withdrawn. Insurance sector equity exposure The total value of company stocks held by China’s listed insurance companies reached RMB412bn by the end of March. The average allocation per company to the equity market stands at 6.14%. CIRC standardizes short and mid term life products The insurance regulator issued new guidelines to standardize short- and medium-term life insurance products. This is part of a continued effort to minimize duration mismatches between assets and premiums.
Z-Ben Advisors | www.z-ben.com 9 China Dashboard | Monthly Update | April 2016
0% 5% 10%
TianhongChinaAMC
E FundICBC Credit Suisse
CCB PrincipalGF
SouthernHarvest
BOCChina MerchantsChina Universal
BoseraFortune SG
PenghuaFullgoalHua AnYinhua
Da ChengHuatai-PineBridgeAEGON-Industrial
China InternationalLion
ABC-CAUBS SDIC
GuotaiRongtong
BOCOM SchrodersCIB
Minsheng RoyalEverbright Pramerica
HuafuINVESCO Great Wall
Great WallZhong Ou
China Post & CapitalBaoying
China Life AMPGalaxy
HuashangChang Xin
BOSCHFT
CITIC-PrudentialChangsheng
SWS MUGTJA AllianzPing An-UOB
ZhongrongAXA-SPDB
Manulife Teda
Domestic party share
Foreign party share
Mutual fund sector
Updates Ana lys i s Data
Fees earned by mutual fund managers exceeded expectations.
The large increase from 2014 may be attributed to the large
number of equity funds launched while the A-share market made
strong gains the first half of the year, which met good fundraising,
as well as subsequent switching to other fund types as investor
risk preferences changed. In total, 11 FMCs exceeded RMB2bn in
fee income, including Huaxia Fund, E Fund, ICBC Credit Suisse,
Tianhong and Harvest Fund Management.
Source: Z-Ben Advisors, WIND
Top 50 FMCs by market share Estimated mutual fund sector market share (March)
Harvest is the first FMC to set up a standalone PE subsidiary. The
reverse is more common, with PE and private fund managers
seeking public mutual fund licenses. So far, four PFMs have sought
mutual fund licenses, including Chongyang – the largest – and
Gopher, IFA Noah’s subsidiary. FMCs have longer experience with
different distribution partners, which may benefit products
launched by Harvest’s subsidiary.
Managers have in the past been reluctant to liquidate funds. So
far, 29 funds have been wound up including the two from
ChinaAMC. Zhongrong has called a meeting to decide on the first
classified fund liquidation in the industry. Resolution of the funds
came after AUM remained below the minimum threshold of
RMB50m. While the number is small it indicates an increasing
willingness by managers to dispose of less attractive products,
even as they aggregate AUM through new launches.
Fee income rises 60% in 2015 Total fee income for China’s mutual fund sector in 2015 was RMB47.5bn. This represents a 61% increase from the total at the end of 2014. Trail fees grew faster, increasing by 73% from the end of 2014 to RMB8.8bn. SWS MU gains QDII license CIRC has granted SWS MU Fund Management a QDII license. No quota has yet been awarded by SAFE. SWS MU will be able to create offshore products once quota is given. No new quota has been awarded since 1Q15. MRF update Two funds from Bosera, the Bosera Credit Market Bond Fund and Bosera Value Mixed Fund were approved by Hong Kong’s SFC. Three funds, from ICBC Credit Suisse, Hang Seng and Franklin Templeton Sealand, began distribution after earlier approval. ChinaAMC liquidates two ETFs ChinaAMC completed the first liquidation of a domestic ETF. It liquidated two funds: the ChinaAMC Shanghai composite materials ETF and the ChinaAMC SSE Energy ETF. The two funds had AUMs of RMB22m and RMB30m respectively prior to winding up. Everbright Pramerica GM exits Everbright Pramerica Asset Management saw the exit of its General Manager, Mr. Tao Geng. He is the sixth GM to leave a domestic FMC since the start of 2016. A total of 35 senior executives have resigned from 30 FMCs this year. Harvest expands into PE Harvest Fund Management completed an investment into JD Finance, the online finance unit of JD.com. The investment was made through its private equity subsidiary, the first PE manager controlled by a domestic FMC.
Z-Ben Advisors | www.z-ben.com 10 China Dashboard | Monthly Update | April 2016
50
120
190
260
330
400
470
540
610
BoC
omm
Nan
jing
Min
shen
g
CC
B
Jian
gsu
BOC
CM
B
Ping
An
ABC
Hua
Xia
RMB products Foreign currency products
17
11
9
6
2
7
BOC ICBC CCB Minsheng ABC Other
Fund distribution Distribution and number of funds launched (March)
Bank wealth management products No. of products launched (March)
Banks
Updates Ana lys i s Data
Source: Z-Ben Advisors, WIND
Source: Z-Ben Advisors, WIND
Growth in non-performing loans on the books of domestic banks
have been a cause for concern, but regulators maintain they are
within manageable levels. Securitization will have the dual
benefits of diversifying the banks’ funding towards longer-term
sources and adding depth to the onshore credit market. As CBRC
implements Basel III domestically, banks will gradually be held to
higher liquidity and overall capital standards.
Regulation of companies in the internet finance space has been
uncertain despite fast growth seen in the segment. PBoC and
CBRC introduced tighter measures for online payment providers
and P2P lenders in 2015 as a prelude to substantive regulation.
ITFIN will be responsible for registering companies as members,
drafting common measures for core systems management and
enforcing self discipline.
Despite continued growth of non-performing loans across the
banking sector, companies in fast-growing segments of the
economy are still faced with a shortage of funding. Equity
investment will allow more companies to access financing. The
swaps widen the banks’ options for dealing with NPLs while the PE
scheme will provide a wider pool of funding for their investments.
Banks to begin debt for equity swaps Chinese banks will begin swapping some loans issued to companies for equity. BoC and CCB have indicated that the pilot scheme will not be restricted to swapping of non-performing loans. Private equity pilot for banks CBRC will allow banks to conduct private equity investments through a pilot scheme. The banks selected will do this either by setting up funds or special purpose vehicles. Slowest profit growth in ten years Net profit in the banking sector grew only 2.4% in 2015, the slowest since 2005. Fast growth in previous years has been hit by increase in non-performing loans as well as narrowing interest margins. Fintech industry self-regulating body launched PBoC together with CBRC and the Payments and Settlement Association have launched a self-regulating industry body for companies involved in internet finance called ITFIN. The association began operating on March 25. New Bank QDII products Three new bank QDII products were put op for sale in March. DBS offered two new funds from one global manager, the Investec Global Strategic Management Fund and the Investec Investment Grade Bond Fund; HSBC began selling the JPM Global Bond Fund Three banks begin NPL securitization Three banks, ICBC, BoC and CCB, have began securitizing their non-performing loans under a pilot scheme by CBRC. NPLs in the sector rose to 1.67% of assets by the end of 2015 from 1.25% a year prior.
Z-Ben Advisors | www.z-ben.com 11 China Dashboard | Monthly Update | April 2016
Top 30 trusts by products launched No. of products launched (March)
Trust sector
Updates Ana lys i s Data
Source: Z-Ben Advisors, WIND
Sino-foreign Domestic
The CRIS system involves three steps: self assessment, panel
review and a final score. The assessment looks at 11 key areas
including capital adequacy, risk management, liquidity and the
cost-to-income ratio, among others. The results of the assessment
will be announced annually at the end of April. Due to the public
nature of the ratings, trusts are under more pressure. Since 2014
CTA has undertaken continued steps both to make the industry
more market-oriented and transparent.
The largest trust company by registered capital is Chongqing Trust
at RMB12.8bn after a new injection in 2015. China’s companies
have continually raised their capital levels since 2014 as CBRC
urges stronger risk buffers. Of the new batch, Minsheng has the
largest increase, up from RMB3bn to RMB7bn; Bridge Trust had
the narrowest jump, up by RMB800m to RMB2.2bn. Awaiting
approval for capital injections are Minsheng and Anxin Trust.
Structural changes continue in the industry, most evident as the
importance of core businesses declines, with three of the five
companies with the fastest-growing profits having core-business
revenue growth under 5%. Meanwhile, five companies (CITIC
Trust, Pingan Trust, Zhongrong International Trust, CRC Trust and
Chongqing International Trust) make up more than 31% of
industry revenue and annual revenue declined in 15 companies.
This trend is expected to continue as profit margins and investable
assets decrease, leading to business diversification.
0 10 20 30 40 50
Sichuan Trust
Ping An Trust
CITIC Trust
Everbright Xinglong Trust
Wanxiang Trust
Zhongrong International Trust
Bridge Trust
Huaxin Trust
CCB Trust
AVIC Trust
Zhongyuan Trust
Beijing International Trust
China Fortune International Trust
JIC Trust
COFCO Trust
China Resource SZITIC Trust
BoComm International Trust
Shandong International Trust
Yunnan International Trust
Hwabao Trust
Huarong Trust
Lujiazui International Trust
Minsheng Trust
Xiamen International Trust
Suzhou Trust
Zhongtai Trust
Chongqing International Trust
Dongguan Trust
Shanxi Trust
AJ Trust
Trusts implement new rating system China’s trust companies have now begun implementing the China Trustee Association’s (CTA) new self-rating and assessment system (CRIS). The ratings, which look to measure the strength of their risk management, will be made public. New product fundraising declines 19% The AUM for newly launched trust products declined by 18.71% YoY in 1Q16. The largest decline was seen in securities investment trusts, declining by 55.62% YoY. Four trusts inject new capital Four domestic trust companies have completed new capital injections, raising their aggregate registered capital. They are: Bridge Trust, Zijin Trust, Chang’an Trust and Everbright Xinlong Trust. All four saw pro rata contributions from existing shareholders, leaving ownership structures intact. Tianjin steel default hits trusts Products by National Trust, Tianjin Trust and Northern Trust are facing liquidity and acceleration pressure. The products were invested in defaulted bonds issued by Tianjin Iron and Steel Group. The parties have negotiated an extension to repayment and may take a haircut on the principal. Zhejiang Orient buys into Zheshang Jinhui Trust Zhejiang Orient Holdings purchased 56% of stakes of Zheshang Jinhui Trust from Zhejiang International Group. This is the only trust company owned by brokerage, CICC, with a 35% stakes. Taikang SDIC approved for ABS issuance Taikang SDIC Trust has received approval to begin issuance of asset-backed securities. Currently, 27 trusts have approval for ABS issues, with CITIC, Jiangxi Trust, Beijing Trust, Shanghai International Trust and China Resources Trust controlling 54.2% of the market.
Z-Ben Advisors | www.z-ben.com 12 China Dashboard | Monthly Update | April 2016
236
240
244
248
252
256
260
264
268
272
276
1 2 3 4 5 6 7 8 9 10 11 12 13Dec 25 Jan 8 Jan 22 Feb 5 Feb 26 Mar 11 Mar 25
95
98
100
103
105
2 3 4 5 6 7 8 9 10 11 12 13 14Dec 18 Dec 31 Jan 15 Jan 29 Feb 19 Mar 4 Mar 25
Institutional share trading accounts A-share account openings (weekly, thousands)
Brokerage sector
Updates Ana lys i s Data
Source: Z-Ben Advisors, WIND
Source: Z-Ben Advisors, WIND
Individual share trading accounts A-share account openings (weekly, m)
Brokerage fees remain the leading contributor to income for the
sector. This was enhanced by a bull market in the first half of
2015. Strong market conditions then also favored proprietary
investment, the next largest income segment. A deterioration of
market conditions impacted revenue in the second half of the
year. This has persisted with profits at 21 of the 24 listed
brokerages slipping on average 59% YoY during February 2016.
Improving conditions and investor sentiment, as well as the return
of IPOs, may boost revenue across business lines during the year,
however, these may fall short of 2015 figures.
A number of brokerages have loosened requirements for margin
trading following CSRC’s adjustment from a 50% to a 100%
equity margin requirement in November, although the majority of
brokerages claim these are standard adjustments based on
assessments of the target companies. Margin trading totals
reported a record series of drops in late January and hit a 15
month low in late March at less than RMB840bn.
The funds entrusted to CSF may in the future be recognized as
losses. Despite the sharp mid-year correction reversing, the equity
market ended the year far below its peak in June. Among the
largest brokerages to entrust funds with CSF in this period were
CITIC, GF and Huatai Securities. CSF’s summer efforts were
exceptional and regulators have taken steps to avoid a repeated
sharp correction, meaning these losses – once realized – are
unlikely to be repeated.
Brokerage profits surge in 2015 China’s listed brokerages increased their profits by 110% on average according to annual reports released in March. Leading in growth was Orient Securities, up 181% YoY, followed by Lianxun Securities with 177%. Brokerages begin share buybacks Guoyuan Securities and Industrial Securities began buying back RMB470m and RMB385m of their own shares, respectively. The large buybacks are intended to enhance investor confidence in the companies. Brokerages loosen margin trading requirements Ping An Securities and GTJA increased their conversion rates for margin trading in March. The lower requirements mainly apply to blue-chip, yield and growth stocks. Ping An to open joint trading-insurance accounts Ping An securities became the first brokerage allowed to link individual insurance accounts to securities brokerage accounts. The new functionality will be piloted among select brokers and greatly hastens the account-opening process. New JV brokerages in approval pipeline Two new joint venture brokerage companies are in the approval phase for operating licenses. CSRC’s updated list shows Yunfeng Securities, affiliated with Alibaba’s Jack Ma, and Jinghua Securities, backed by Renaissance Capital. CSF losses hang over brokerages Brokerage reports indicate that the sector has unrealized losses of up to 5% - attributed to China Securities Finance Corp (CSF), which took the lead in stabilizing the equity market in the summer of 2015.
Z-Ben Advisors | www.z-ben.com 13 China Dashboard | Monthly Update | April 2016
0
3500
7000
10500
14000
17500
0
500
1,000
1,500
2,000
Jul Aug Sep Oct Nov Dec Jan Feb
AUM (RMB bn) No. Funds (right)
Private funds Number of private funds launched and total AUM per month
Private fund performance Top-performing private funds: 1m and 12m returns
Private (hedge) funds
Updates Ana lys i s Data
Source: Z-Ben Advisors, WIND
Source: Z-Ben Advisors, WIND
Of the managers which have broken contact, nine specialize in
equity funds while the oldest of the set was established in 2014.
The loss of contact is a concern as in the first list released by
AMAC, two managers had absconded with investors’ money. As
the private fund industry is becoming more visible, this case
highlights the necessity to perform extensive due diligence on
domestic PFMs, particularly when issuing mandates.
The event in Shanghai alone had 4000 firms registering for the
1000 spaces available, while a number of firms registered in
multiple cities due to a limited ability to ask questions. AMAC has
initiated a number of changes to PFM registration since the end of
2015 which has drawn the attention not just of firms but also their
professional service providers. Clarity on these changes is
necessary as firms seek to avoid being de-registered.
China’s hedge fund industry has developed rapidly with oversight
only now catching up. From the start of the year, business
registrations have been tightened in a number of cities. AMAC has
also issued draft measures for the PFM industry aimed at better
defining the scope of business for all participants. Global
managers have been increasingly looking to this channel as a
means for fast entry into the domestic asset management market.
We believe the suspension is temporary and will leave the
industry in an overall better shape.
Shanghai suspends registration detail changes Shanghai’s Industrial and Commercial bureau suspended any new amendments to the registration details of private fund managers. Individual changes are still possible through interviews with the bureau. New regulations hit fundraising WIND data shows that new fundraising in January and February declined 75.2% YoY. A total of 344 new products were launched raising RMB4.43bn for private fund managers. This comes amid a tightening of regulations targeting managers engaging in the domestic PF business. AMAC conducts manager Q&A sessions AMAC has hosted a series of Q&A meetings in several large cities including Beijing, Shanghai, Shenzhen, Hangzhou and Suzhou. The meetings were held to give clarity on regulatory changes that have been made for PFMs. Manager investigated over performance fees AMAC began investigating one private fund manager due to high performance fees charged to investors. While PFMs are free to define their fees, these must be disclosed to investors beforehand. AMAC discloses fourth batch of missing managers AMAC released the latest list of private fund managers it has lost contact with. The list contained a total of 15 PFMs. AMAC has previously released three such lists. Managers that persistently break contact risk losing their registrations.
Fund Name 1m Fund Name 12m Golden Ding Variant 108.6% Wealth No. 1 2287.6% Modern Prosperity No.3 108.2% Weihang Strive
Growth 1083.2%
China Select Allocation 107.4% Citic Balanced Large 616.5% Ultimate Surplus No.2 62.7% Yufeng Green B 582.5% Jin Song (Phase C) 56.7% Resilient Dragon 573.6%
Average 88.7% Average 1028.7% CSI300 11.8% CSI300 -20.6%