22 International Financing Review September 8 2018“Such liquidity measures can help subside panic by
giving more runway to deal with problems”
UBS CHAIRMAN AND EX-BUNDESBANK CHIEF AXEL WEBER, P16MSCI move lifts China turnover
International investors continued to plough into
Chinese equities following MSCI’s latest increase
to the weighting of A-shares in its emerging
markets index, shrugging off concerns about a
Sino-US trade war and poor corporate
governance among Chinese listed companies.
According to data from Hong Kong
Exchanges and Clearing, northbound daily
turnover through its Stock Connect schemes
with bourses in Shanghai and Shenzhen rose
by almost three-quarters on August 31, the
day MSCI increased the weighting of A-shares
in the index to 5% of their market
capitalisation. The index provider began
phasing in A-shares at a factor of 2.5% in June.
Northbound daily turnover for both
Connect schemes touched Rmb31.72bn
(US$4.64bn) during that session, before
falling back last Monday to Rmb22.02bn.
Overall, turnover has been rising steadily
since the beginning of the year as more
international investors are increasing their
exposure to China, and not just passiveinvestors that benchmark themselves
against the index.
“Passive investors tracking the benchmark
emerging market index had already been
required to prepare, but active investors have
also been prompted to put systems in place to
meet the benchmark requirements, and also
to benefit from opportunities to earn alpha
returns,” said Stephane Loiseau, head of cash
equities and global execution services for Asia-
Pacific at Societe Generale.
“Evidence of this renewed interest is not
hard to find. There were about 4,000 special
segregated accounts before the
implementation of the first inclusion by
MSCI in June this year. By the end of August,
the number had soared to more than 5,800,
just before the second inclusion.”GRADUAL PROCESS
The heightened trading activity is a comfort
to MSCI, which had been accused of
dithering over the inclusion of A-shares inits benchmark EM index in the past. The US
index provider finally relented last June
after at least four years of talks with Chinese
regulators, although it opted for a low
weighting to start with.
It has emphasised since then that it will
continue to raise the weighting for A-shares.
Baer Pettit, MSCI’s president, said in May he
expected Chinese stocks eventually to have a
weighting in the index based on 100% of their
market value. He said this might occur more
quickly than with Taiwan and South Korea,
which took five and six years respectively
from when they were first admitted.
Several market observers have previously
expressed concerns about the inclusion of
A-shares in the index, however, citing weak
corporate governance standards, regular
share suspensions and the difficulties faced
by investors in repatriating funds. Observers
also queried whether appetite among
international investors for A-shares was set
to wane because of rising trade tension
between China and the US and a
depreciating renminbi.
Thomas BlottFROM THE ARCHIVE: 10 years ago this week
THE FINANCIAL CRISIS
September 6 2008 issue
Asian banks eye Lehman as Q3
losses loom
Expected further write-downs and
losses for Lehman Brothers when it
reports third-quarter results later
this month are thought increasingly
likely to set the scene for a sizeable
outside investment into the firm,
and the possible start of moves
towards an acquisition.
Confirmation from Korea
Development Bank that it was in
talks over an investment in the US
firm kicked off the week, althoughthe news was quickly joined by
speculation about interest from
Mitsubishi UFJ, CITIC Bank and
HSBC.
The KDB offer appears to be
the most advanced, with the firm
reported to be preparing to buy
an initial 25% stake in Lehman for
more than US$4bn, and could be
willing to buy as much as 49%.
KDB chief executive Min Euoo-
Sung, a former head of Lehman
Brothers in Korea, said last Tuesday
that the institution was hoping to
lead a group of South Korean banks
into taking a stake.
But a lack of detail has frustrated
analysts’ ability to assess the
attractiveness of the offer and KDB
even appeared to backtrack a little
on Wednesday by playing down the
imminence of a deal.
“Korea Development Bank
has considered M&A deals
in foreign investment banks
including Lehman Brothers, and
asset management companies,as part of its privatisation and
competitiveness efforts, but
nothing has been decided yet,”
the bank said in a statement.
Meanwhile, talk of interest
from Mitsubishi UFJ was
dismissed even before the bank
itself denied the speculation
on Thursday. If it had been on
the agenda, such a deal would
have mirrored Mizuho’s ¥130bn
(US$1.2bn) investment in Merrill
Lynch in January. Sumitomo
was also rumoured to be in talks
about a ¥100bn investment in
Barclays this summer.
“I’m sure Lehman is desperate
for someone to help them out, but
the chances of a deal with MUFJ
are less than 1%,” said one analyst.
CITIC, which has been previously
rumoured to be considering a
move, has also already shown its
interest in buying into a discounted
US bank by its aborted US$1bn
investment in Bear Stearns in
March.Fundraising challenges grow
for FIG
The increasing difficulty of raising
equity for financial institutions was
underlined last week, when Natixis
set the terms of its rights issue at
a greater discount than peers that
came earlier in the year.
It was therefore highly significant
that when Commerzbank set out
the funding arrangements for the
€8.8bn acquisition of Dresdner
Bank it included an equity issue
set at just under 10%. By capping
the issue at below 10% of existing
capital, Commerzbank has
flexibility on timing and allocations
that a rights issue simply doesn’t
offer.
The size of the discount on
the €3.7bn rights issue by Natixis
exceeded all expectations. The
bank is offering 1.6bn shares on a
13-for-10 basis at €2.25. The lowest
projection from a Reuters poll of
analysts and fund managers a week
earlier was €3.35.5 PM 2250 p15-24.indd 22 07/09/2018 18:36:15