A Chinese confidence game, but is it enough? A Chinese confidence game, but is it enough? A Chinese confidence game, but is it enough?

A Chinese confidence game, but is it enough?

Equities 5 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  Evergrande shares are up 18% today following a rare exchange filing by management last Friday stating that the company is healthy and rejecting all rumours about its creditworthiness and liquidity issues. Ping An also boosted confidence in HSBC by raising its stake and publicly stating that it believes in the long-term prospects of the bank. For now the confidence game has been won with both shares up in today's Hong Kong trading session.

Today’s session saw a relief rally at two major Hong Kong listed stocks, HSBC and Evergrande, driven by confidence statements in both cases. Evergrande is one of the largest Chinese real estate developers and owners with around $120bn in debt but had experienced a 52% decline in its share price from the highs in early July to the lows last week. Talks among market participants had accelerated that the company had liquidity issues and the recent stronger USD was another contributing factor as a stronger USD usually puts pressure in offshore USD markets and emerging markets.

Source: Bloomberg

In a rare exchange filing late Friday, Evergrande’s management reassured the market that its real estate business was healthy and that no interest payment had been skipped. In addition, it said debt had been reduced since March. The confidence game was won over the weekend and the stock was 18% in today’s session. However, the situation is dynamic, and volatility is likely to remain high if the global economy continues to face headwinds. Evergrande with its massive debt on the balance sheet and potential contagion effects to banks (collateral values) is clearly a systemic risk to the Chinese financial system and thus our view is that the company enjoys an implicit backstop. With credit in emerging markets in general under pressure, as described by our fixed-income specialist Althea Spinozzi, the market should pay attention to developments in Evergrande and other large EM stocks. Especially since Bloomberg’s default risk model has pushed Evergrande into elevated territory.

Source: Bloomberg

HSBC and the wider banking problem

HSBC shares are up 9% in today’s session following confidence statements from its biggest shareholder Ping An Insurance Group. The Chinese insurance group announced that it had increased its stake marginally to around 8% and said that it has confidence in the long-term prospects of the bank. The cancelled and subsequent discontinued dividend is viewed by Ping An as short-term and that dividends will resume as the outlook improves. The bank hit lowest levels since 2009 last week with shares down 64% since the highs in early 2018 troubled by its loan book and deteriorating business in the US and UK. Market trust is the lowest since 2007 measured on the price-to-tangible-book indicating that the market believes profitability will remain low and below the cost of equity for the bank. With the increased stake from Ping An and the geographical (50/50) split between Asia and non-Asia coupled with the increasingly difficult political environment between Washington and Beijing could put a split of the bank with two listings on the table.

Source: Bloomberg

Tomorrow, we will follow up on European banks in general which traded at the lowest levels since 1987 as we alluded to in today’s Saxo Market Call podcast. Provisions have been rising to levels three times the realized cost cutting and consensus has lowered net revenue by $100bn for the current and next fiscal year underscoring the tough environment for banks. At one point this must get the attention of the market but even more importantly the EU Commission and the ECB. More on that tomorrow.


The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.