The China 25 Index ETF (FXI) falls 1.5% premarket as Beijing moves to break up the opacity of...

The China 25 Index ETF (FXI) falls 1.5% premarket as Beijing moves to break up the opacity of the shadow banking system with regulators demanding non-traditional wealth-management products be clearly linked to specific assets. Seems prudent. Citic Bank -6.8%, Minsheng Banking -7.9%. Banking ETF (CHIX) -6.1% YTD.

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Comments (6)
  • Tom Guttenberger
    , contributor
    Comments (714) | Send Message
    Who wants prudent? Market wants willful ignorance, high-flying earnings on excessive risk, and use of cash reserves for dividends and buybacks. It couldn't care less about whether the banks or the currency even exists in 10 years. It wants a good quarter, this quarter. We can all still scream and shout about fraud and ghost cities too.


    If I haven't personally taken a headcount of 1.2 billion people, they don't exist.
    28 Mar 2013, 08:21 AM Reply Like
  • divinecomedy
    , contributor
    Comments (465) | Send Message
    Hyperinflation, revolution or go home!!!


    I think the Chinese government made a mistake by not anticipating the shadow banking problem earlier, but I have to admit that it takes guts to puncture this thing when the global economy is still soft.
    28 Mar 2013, 08:37 AM Reply Like
    , contributor
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    Excuse my ignorance but wouldn't fighting the underground lending help the established banks by generating more business for them? Transparency has always been an issue with investing in China so I would have assumed that was already baked in to any Chinese stock.
    28 Mar 2013, 08:54 AM Reply Like
  • Tom Guttenberger
    , contributor
    Comments (714) | Send Message
    If the request is regarding non-traditional (securitized) assets being explicitly linked to specific assets (loans, CDS, etc.), this fear is that these banks will not be able to lend as much with their pass-throughs being restricted by the stipulation of having an asset actually backing it 1:1.


    This is opposed to securitization based on shared pools of collateral, which would basically allow the bank to promise the same loan receivables to a variety of different investors. This is the case witnessed in the western banking system -- coupled default times of these securities undermine the generally solvency of the institutions. IF loans go bad simultaneously, implementing transparency to identify 'who has bought what' is a positive preventative measure.


    This probably has a negative overall effect on these banks' cost of funds, as over-collateralized securities can be graded higher than those which are explicitly linked to a pool, and tranched down the waterfall.


    A negative reaction to this news item is completely unwarranted. The pessimist would have you believe that without a great expanse of shadow banking in China, home values will be decimated, borrowers will be in negative equity, and you get a whole unwind of the so called real estate bubble.


    Anyone who has followed the PBoC's policy actions knows that they would not knowingly do this to their own banks. They are simply trying to stem the issue. Are there person-to-person and other black market lending operations in China? I am sure there are. But that is beside the point. This is targeted at setting up regulatory frame-work around securitization, I believe. This is an important move revolving around something that is just burgeoning in China, and that has already been butchered in the United States.
    28 Mar 2013, 09:12 AM Reply Like
  • Sam Liu
    , contributor
    Comments (3711) | Send Message
    " by not anticipating the shadow banking problem earlier, "


    The Shadow banking has been in Cn longer than the current banking system. I feel that Xi is just talking a big deal (learned that from the USA govt).


    Giving the CCP credit though, it has to deal with a whole lot more forces than the USA because of this lack of transparency, corruption ...


    That is a major reason the wealthiest is transplanting their money to safer destinations.
    28 Mar 2013, 08:58 AM Reply Like
  • Whitehawk
    , contributor
    Comments (3121) | Send Message
    It seems as if China's equity markets have become disconnected and somewhat irrelevant. What is "fair value" vs. current trading range?


    Shadow banking usually includes overuse of duration mismatch and employment of special vehicles (including securitized) to hide risk. What is the evidence that this is reaching proportions in China that will lead to a major crash [we have evidence of what levels do lead to a crash based on the West's recent experience].
    28 Mar 2013, 02:59 PM Reply Like
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