China Speeds Up Opening of Market to Investment Bank Giants
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China brought forward the planned opening of its $21 trillion capital market by eight months, swinging the door open for global investment banks such as Goldman Sachs Group Inc.
The New York-based powerhouse, and rivals including JPMorgan Chase & Co. and Morgan Stanley, will now be allowed to apply to form fully owned units to do a broad array of investment banking and securities dealing in the Communist Party-ruled nation in April, compared with an earlier timetable set for December.
The decision was included in the signing of a trade deal with the U.S., partially resolving a protracted dispute that has weighed on the world’s second-largest economy. China had already committed to a broader opening of its $45 trillion financial markets, which also includes given access to its asset-management and insurance markets.
“China shall eliminate foreign equity limits and allow wholly U.S.-owned services suppliers to participate in the securities, fund management, and futures sectors,” according the text of the landmark Phase 1 trade agreement released Wednesday.
China said it won’t take longer than 90 days to consider applications from providers of electronic-payments services including American Express Co., Mastercard Inc. and Visa Inc. to handle transactions in the nation. It will remove restrictions to allow U.S.-owned insurance companies into its markets and also open its $14 trillion market to U.S. credit-rating companies.
As a reciprocal move, the U.S. will “consider expeditiously” pending requests by Chinese financial firms including Citic Securities Co., China Reinsurance Group Corp. and China International Capital Corp. It committed to “non-discriminatory” treatment of payment providers such as UnionPay Co. and Chinese credit rating companies.
China is also opening its market to allow more foreign investment into the country’s 2.37 trillion yuan ($344 billion) non-performing loan market, giving U.S. investors direct access to the market as part of its trade deal amid a surge in bad loans.
While Wall Street’s giants and their European counterparts have been present in mainland China for decades, and done deals for the country’s corporate titans, they have until now had limited opportunity to do direct business, having had to operate through joint ventures with local partners. Full ownership would be a final step after they in late 2018 were given the go-ahead to take majority control over their ventures.
Much Welcome
China has made “significant commitments” in the deal, Jake Parker, vice president at the U.S.-China Business Council, said in an e-mailed comment. “While China has already in the past year announced many of the commitments on the financial openings in the agreement, the inclusion of specific timelines on when these commitments will be implemented is very much welcome and will improve enforceability going forward.”
UBS Group AG, Nomura Holdings Inc. and JPMorgan already hold a majority in their ventures, while the others are in the process of applying for a 51% stake. It’s unclear if the application process will now move straight to the 100% hurdle.
By dismantling the wall to its financial market, China is counting on foreign financial firms to plow $1 trillion in fresh capital into the nation over the next few years, cushioning a slowdown in the economy and helping a transition to more consumer-led growth model.
The global banks, meanwhile, have a lot to gain in getting access to China’s still-fast growing economy and its increasingly prosperous population. Up for grabs is an estimated $9 billion in annual profits by 2030 in the commercial banking and securities sectors alone, Bloomberg Intelligence estimates.
But they will still need to steer an often opaque and precarious political landscape. After meeting with global banking executives in November, President Xi Jinping warned that China would seek to preserve its “financial sovereignty” even as he committed to the market opening.
China’s official People’s Daily newspaper said in a comment that the deal is generally in line with its direction of advancing reforms and opening up, and will support its need for “high-quality economic growth.”
The newspaper said that the reforms and opening up will be done “at its own pace.”
The nation has plans to create investment banking behemoths of its own to compete with the foreign influx and expand abroad. Right now, China has a fragmented market of brokerages, with about 131 firms and a limited global presence. Their combined assets equal to what Goldman Sachs sits on by itself.
(Updates with details on distressed debt in seventh paragraph.)
–With assistance from Jun Luo.
To contact Bloomberg News staff for this story: Lucille Liu in Beijing at xliu621@bloomberg.net
To contact the editors responsible for this story: Candice Zachariahs at czachariahs2@bloomberg.net, ;Alan Goldstein at agoldstein5@bloomberg.net, Jonas Bergman, Dan Reichl
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TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
