Dealing In Rumours – Fictional Chinese TV show drives up shares of real Chinese company

May 24, 2016

Chinese Gambling Economy consumers

After a period of relative stability in the Chinese domestic markets, there are signs that retail investors burned by the selloffs last year are once again gaining confidence. A fictional Chinese TV program featuring the potential takeover of a firm has driven up the shares of an actual company bearing a similar name. Shares rose by the 10% daily limit on three consecutive trading days, causing the company management to issue a statement saying that the fundamentals remained the same and it was not an acquisition target. While this is an extreme example, it highlights the extent to which the Chinese domestic market continues to be driven by rumour rather than a focus on fundamental value. Although the market as a whole has gone some way to rebalancing to a more realistic level, there is still pockets of irrationality.

Elsewhere global equities continued to trade sideways over the course of the week with nothing significantly affecting the overall level of the market. UK retail sales were announced on Thursday, showing volumes were 1.3% higher than they were in March and 4.3% higher than a year earlier. Furthermore, March’s figures were revised upwards significantly, now showing a 0.5% fall. Unseasonal weather has caused clothing sales to continue to be a drag on growth; however, sales and price cuts boosted volumes. Strong figures were received well by currency markets with the sterling rising on the announcement, indicating that investors’ concerns of a weakening UK consumer may not have been so well founded. The UK inflation rate also fell to 0.3% on the back of lower air fares, although this has been attributed to the timing of Easter and is expected to bounce back over the coming months.

The oil price has continued its steady path higher. While initially the rally was in anticipation of a potential output freeze by OPEC, it has gained momentum following supply disruptions from Nigeria and Venezuela. The potential for geopolitical supply disruptions has been overlooked during the supply glut over the last two years; however, the oil market has a long history of shortages given a significant amount of production is in unstable regions. Some high profile market commentators have now predicted that the market will move into a small deficit by the end of the year. This will give a level of support for the price, although the scope for a return to $100 oil is also limited given the large amount of US shale production that can be brought online at higher prices.

Index Open Close Change % Change
FTSE 100 6138 6156 18 0.29%
S&P 500 2046 2052 6 0.29%
Dax 9952 9916 -36 -0.36%
Cac 40 4319 4353 34 0.79%
Nikkei 225 16412 16736 324 1.97%
UK 10 Year Gilt Yield 1.371 1.419 0.048 3.50%

German Q1 GDP is announced tomorrow, giving an indication of how the EU as a whole may have fared during the first three months of the year.

Japanese CPI is released on Friday. The direction of movement will be closely monitored as its implications on the country’s both monetary and fiscal policy will be significant.

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