Market Close Aug 31

China bank NPLs alarm, Buffett buys spurs Nikkei

Japanese yen to stay weak; Gold recovers as dollar pressured; China bank profits seen taking a big hit

China bank NPLs alarm, Buffett buys spurs Nikkei
Berkshire Hathaway chairman Warren Buffett walks through an exhibit hall as shareholders gather to hear the billionaire investor at the group's annual shareholder meeting in Omaha, Nebraska on May 4, 2019. News emerged today that the legendary investor recently bought small stakes in five of Japan's biggest companies. Photo: Scott Morgan/ Reuters.

(ATF) Hong Kong: Investors turned cautious after China’s biggest banks said they are setting aside more funds to provide for future losses due to the impact of the coronavirus pandemic. Chinese banks’ non-performing loans ratio is already running at the highest since 2009 and they have already posted a 9.4% drop in net profit in the first half of the year.

This took away some of the optimism stoked by positive data from the world’s second largest economy which showed China’s manufacturing PMI was in positive territory for the sixth consecutive month.

China’s CSI300 index eased 0.58%, Hong Kong’s Hang Seng benchmark fell 0.96% and Australia’s S&P ASX 200 dipped 0.22%.

“In the worst case, China banks could be guided to reduce profit by c.20-25% in 2020. Further reduction would hurt banks’ capital even without any dividend payout and would be harmful to financial stability,” Shujin Chen and Alfred He, banking analysts at Jefferies & Co, said.

Moody’s analysts said they expected a considerable lag time before NPL metrics fully capture the increase in loan delinquency. Asset pressure will remain high as consumer sentiment stays weak amid a slow recovery from the pandemic.

Nikkei up

But Japan’s Nikkei jumped 1.12% after legendary investor Warren Buffett's Berkshire Hathaway acquired 5% stakes in five leading investment companies, saying its intention is to hold its Japanese investments for the long term. The company also said it may increase its holdings up to a maximum of 9.9% in any of the five investments.

The Japanese yen, which had rallied last Friday on the news that Prime Minister Shinzo Abe would resign, weakened as markets do not expect a sustained rise in the currency, which is a popular safe haven asset.

It fell to 105.88 to a dollar after hitting a high of 104.195 on Friday.

“BoJ Governor Haruhiko Kuroda is expected to serve in his full term, which ends in April 2023. This would also imply that a radical tightening of monetary conditions is unlikely till his term ends,” UBS CIO Office analysts Teck Leng Tan and Thomas Fleury said in a note. “As such, we believe that the current bout of JPY strength might find some limitation at around the 100 level versus the USD, and that Japan's economy is not yet ready for a double-digit USD/JPY exchange rate on a sustained basis.”

Gold prices edged up 0.1% to $1,965 per ounce as the dollar weakened against a basket of currencies, edging down 0.1% to 92.3. US Treasuries also were off with the 10-year yields edging up to 0.72%.

Also on Asia Times Financial

China's biggest banks prepare for a wave of bad loans 

Two bids for TikTok but Beijing move puts a cloud over any sale 

Chinese banks say 560 million people have 'zero' in their accounts

Foreign Exchange:

Asia Stocks

# Japan’s Nikkei 225 index jumped 1.12%

# Australia’s S&P ASX 200 edged down 0.22% 

# Hong Kong’s Hang Seng index retreated 0.96%

# China’s CSI300 eased 0.58%

# The MSCI Asia Pacific index was flat.

Stock of the day

Future Retail shares and bonds surged after the weekend announcement that Reliance Retail is acquiring the group’s businesses in a move that “complements and makes a strong strategic fit into Reliance’s retail business”. Future Group’s $500 million worth of 5.6% bonds due in 2025 jumped to 94 cents on the dollar from 75, while the share price soared 20% to 162.35 Indian rupees.