OREANDA-NEWS. As China is the largest economy in Asia and more than half the size of the United States economy, its policies, reforms and economic swings have a regional impact with many regional companies increasing their China business in recent years.

Recent policies and reform events in China have included the Shanghai-Hong Kong Stock Connect, the PBOC rate cut and a proposed reform to deposit insurances. These latest developments have coincided with an increase in activity and volatility in the Mainland markets.

The Shanghai-Hong Kong Stock Connect was launched on 17 November. The platform has enabled investors in Hong Kong and the Mainland to trade a specified range of listed stocks in each other’s market through their respective local securities companies.

Following the local market close on 21 November, five full sessions after the Shanghai-Hong Kong Stock Connect was launched, the People’s Bank of China (PBOC) cut benchmark interest rates for the first time since July 2012. While the PBOC statement maintained a directionally neutral stance, the recent rate cut coincided with ongoing pressure on industrial balance sheets from lower energy and bulk commodity prices.

The above mentioned increase in activity and volatility in the Mainland markets have been observed since the PBOC cut. There has been an increase in volume, turnover and intraday volatility in the China stock market. In the two months ending 5 December, the annualised intraday volatility of the FTSE China A50 Index moved from 9% to 59%. This was based on intraday moves on one minute intervals for the morning  and afternoon sessions of the China stock market. With the move in prices, volume and turnover of the FTSE China A50 Index constituent stocks also increased significantly.

Over the same period, the Straits Times Index (STI) maintained its stable annualised intraday volatility which varied from 8% to 11% and volumes remained stable. This coincided with comparatively steady volumes and turnover in the STI constituent stocks. The comparative performances are illustrated in the two charts below.

Chart 1: Turnover and volatility of FTSE China A50 Index over the past two months

Source: SGX and Bloomberg

Chart 2: Turnover and Volatility of STI over the past two months

Source: SGX and Bloomberg

SGX FTSE China A50 futures contracts have attracted robust attention from global investors. Turnover for the first half of December has more than doubled that of corresponding period last month. The contract trades an average of 405,797 contracts daily, or approximately US\$4.6 billion in notional turnover. As shown in the chart, annualised intraday volatility of FTSE China A50 Index was lower than STI in October because the China markets are only open four hours per day versus eight hours for Singapore markets, hence, there is mechanistically less variation in intraday returns all else being equal.

China Exposure in the STI

Parallel to investors seeking more access to A-shares, many international business are gradually seeking more China revenue. More than one third of the STI constituents increased their portioned revenue or net revenue exposure to China in the last Financial Year. The biggest change was observed by Global Logistic Properties which saw its geographically segment revenue to China gain to 60.1% in FY 2014 from 39.3% in FY 2013.

China business connection is now as much a part of the Singapore bourse as China incorporated companies. The table below details the 13 STI constituent stocks that report revenues to China.

Name SGX Code China Geo Segment Rev %: Last FY China Geo Segment Rev % Preceding FY Difference Market Cap S\$ B Px Chg Pct YTD % Total Return YTD %
GLOBAL LOGISTIC PROPERTIES MC0 60.1 39.3 20.8 12.1 -13.8 -12.4
CAPITALAND C31 26.9 17.8 9.1 13.4 2.3 4.9
GOLDEN AGRI-RESOURCES E5H 33.7 28.4 5.2 5.7 -22.0 -21.3
WILMAR INTERNATIONAL F34 49.9 46.7 3.2 20.0 -9.1 -7.0
JARDINE STRATEGIC HLDGS J37 21.2 18.8 2.4 47.7 5.9 6.7
ASCENDAS REAL ESTATE INV TRT A17U 1.3  N/A 1.3 5.6 7.3 14.4
UNITED OVERSEAS BANK * U11 7.5 6.4 1.1 37.2 10.1 13.9
HUTCHISON PORT HOLDINGS TR-U NS8U 54.9 54.0 0.9 7.6 2.8 11.1
DBS GROUP HOLDINGS * D05 8.2 7.8 0.4 47.4 11.6 15.4
SEMBCORP INDUSTRIES U96 1.4 1.0 0.4 7.3 -24.2 -21.1
NOBLE GROUP N21 8.1 7.9 0.2 7.2 -0.9 3.2
OVERSEA-CHINESE BANKING CORP* O39 5.8 6.1 -0.3 40.2 1.7 5.3
COMFORTDELGRO CORP C52 5.9 7.3 -1.4 5.3 24.9 29.2

Source: Bloomberg (data as of 17 Dec 2014) * Net revenue

Amongst these 13 STI constituent stocks with revenue exposure in China, the five with the largest portioned increase in China geographical segment revenue percent year-on-year were the aforementioned Global Logistic Properties followed by CapitaLand, Golden Agri-Resources, Wilmar International and Jardine Strategic Holdings.  

Global Logistic Properties

Global Logistic Properties is a provider of modern logistics facilities in countries including China, Japan and Brazil. The company has a property portfolio of 28 million square meters located across 77 cities. Global Logistic Properties has a market capitalisation of S\$12.1 billion. On 4 November 2014, Global Logistic Properties reported revenue of US\$192.9 million for the three month period ended 30 September 2014, an increase from US\$146.6 million for the previous corresponding period. The stock went ex-dividend on 22 July 2014, distributing S\$0.045 per share in dividends.

CapitaLand

CapitaLand is a real estate company and has a diversified real estate portfolio including integrated developments, shopping malls, serviced residences, offices and home. CapitaLand’s listed real estate investment trusts are Ascott Residence Trust, CapitaCommercial Trust, CapitaMall Trust, CapitaMalls Malaysia Trust and CapitaRetail China Trust. CapitaLand has a market capitalisation of S\$13.4 billion and generated 2014 year-to-date total return of 4.9%. On 7 November 2014, CapitaLand reported profit after tax and minority interests (PATMI) of S\$130.0 million for the quarter ended 30 September 2014, an increase from S\$128.3 million for the previous corresponding quarter. The stock went ex-dividend on 2 May 2014, distributing S\$0.08 per share in dividends.

Golden Agri-Resources

Golden Agri-Resources operates as an integrated palm oil plantation company, primarily in Indonesia and China. Its primary activities range from cultivating and harvesting oil palm trees; and processing fresh fruit bunches into crude palm oil (CPO) and palm kernel, to refining CPO into industrial and consumer products, such as cooking oil. Golden Agri-Resources has a market capitalisation of S\$5.7 billion. On 12 November 2014, the company reported gross profit for the quarter ended 30 September 2014, increased 2% year-on-year, from US\$277 million to US\$283 million. The stock will go ex-dividend on 2 January 2015, distributing S\$0.00408 per share in dividends.

Wilmar International

Wilmar International operates as an agribusiness company in the People’s Republic of China and internationally. It operates in seven segments: Palm and Laurics, Oilseeds and Grains, Consumer Products, Plantations and Palm Oil Mills, Sugar Milling, Sugar Merchandising and Processing, and Others. Wilmar International has a market capitalisation of S\$20.0 billion. On 11 November 2014, the company reported net profit for the quarter ended 30 September 2014, increased 1.5% year-on-year, from US416 million to US\$422.4 million. The stock went ex-dividend on 14 August 2014, distributing S\$0.02 per share in dividends.

Jardine Strategic Holdings

Jardine Strategic Holdings, through its subsidiaries, has operations in areas including engineering and constructions, transport services, insurance broking, property investment and development, retailing, restaurants, hotels, and agribusinesses. Jardine Strategic Holdings has a market capitalisation of S\$47.7 billion and maintained 2014 year-to-date total return of 6.7%. On 1 August 2014, Jardine Strategic Holdings reported profit attributable to shareholders of US\$876 million for the six months ended 30 June 2014, an increase from US\$860 million for the six months ended 30 June 2013. The stock went ex-dividend on 20 August 2014, distributing US\$0.08 per share in dividends.