22 January 2019

China lenders plunge as trust product teeters on the brink

China lenders tumbled on Thursday amid news reports that a trust distributed by Industrial & Commercial Bank of China (01398.HK) was on the brink of default, and the bank could assume responsibility for one-fourth of the trust payments.

Hong Kong’s benchmark Hang Seng Index slumped 348 points or 1.51 percent to finish at 22,733 points. The Hang Seng China Enterprises Index, the main gauge for H shares, fell 2.1 percent to 10,109. The Shanghai Composite index closed 0.47 percent lower at 2,042 points.

Power Assets Holdings (00006.HK), a Hong Kong Electric spinoff, was only one of the three HSI constituents that finished higher. The counter rose 2.45 percent, making it the best-performing blue chip of the day.

The People’s Bank of China sold 120 billion yuan (US$19.8 billion) of reverse repurchase agreements, its second open-market operations for the week to add liquidity to the market, but the move failed to stop interbank rates from rising.

According to mainland media reports, the 3 billion yuan trust, issued by China Credit Trust but distributed by ICBC, was marketed as “100 percent safe”.

There are now concerns that the wealth management product might default, and ICBC would be responsible for 750 million yuan of the payments to investors.

The bank’s shares tumbled 3.4 percent, creating a ripple effect on the sector. Other big players like China Construction Bank (00939.HK), Bank of Communications (03328.HK) and Bank of China (03988.HK) dropped in a range of 2.6 to 3 percent, while Bank of Chongqing (01963.HK) and China Everbright Bank (06818.HK) fell to their record lows during the session.

Investors continued to put pressure on Macau gaming plays. Galaxy Entertainment (00027.HK) shed 2 percent, Sands China (01928.HK) declined 2.9 percent and Wynn Macau (01128.HK) ended 2.6 percent lower.

Meanwhile, night club operator Magnum Entertainment (02080.HK) made a swinging debut, leaping 114 percent from its offering price at one point before closing 89.3 percent higher.

– Contact the writer at [email protected]




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