U.S. Government Outlines Rescue Package for Citigroup

On Monday the U.S. government outlined a massive rescue package for Citigroup which would include an injection of another $20 billion.

This is followed up by the initial $25 billion as part of the $700 billion bank bailout Congress passed earlier in October.

Concerns that the exposure to toxic mortgage assets have greatly rattled the markets and Citigroup stocks ended last Friday at below $4 a share. Citigroup shares are now down roughly 87 per cent this year, and the bank has announced plans to lay off 50,000 workers from its 350,000 person workforce.

Gome Chief Detained in Share-price fixing Probe

Wong Kwong-yu of Gome Electrical Appliances was detained by Beijing police for questioning last week as part of an investigation into alleged market manipulation.

He is apparently being investigated for allegedly manipulating the share price of Shandong Jintai Group, a pharmaceutical company owned by his brother Hunag Junqin and listed in Shanghai.

Prices of Shandong Jintai shares have surged around the 10 per cent daily limit 26 times in July and August.

Gome shares were suspended yesterday from trading in Hong Kong and is not expected to resume trading until further announcements.

The company will look into verifying the authenticity of allegations made against their Chairman.

CCB Dives Tuesday on talk of US Lender Selling Stake

Shares of China Construction Bank Corp fell as much as 10.46 per cent on Tuesday amid concerns that Bank of America may sell its stake in the mainland lender.

On Monday Bank of America exercised a call option to acquire 19.58 billion H shares from China SAFE investments for $54.8 billion. Market speculators widely believe that the US lender will also sell the 19.2 billion shares of CCB H which they acquired in 2005, for which the lock-up period expired last month.

Potential disposal of old stake in shares would help Bank of America realise US$6.8 billion. It is also likely that the impact of share disposal would not be significant as it is believed that Bank of America will likely sell the shares through displacement rather than the open market.

Broker downgrades depress property stocks

JP Morgan downgraded five developers and cut share-price estimates on two leading players which resulted in lower property stocks on Tuesday. The brokerage expects residential prices to fall 35 per cent by June and office rents to drop by 40 to 50 per cent by the end of next year from the third quarter and retail rents to decline 15 per cent. JP Morgan expects earnings by most developers to fall by 13 to 17 per cent.

Bank of America to Lift Stake

China Construction Bank said that it had received a notice on Monday that Bank of America is proposing to buy 19.58 billion H shares from China SAFE Investments through a call option this month. Although they did not say how much the US lender would pay, the exercise price per share should be 1.2 times what CCBs audited net asset value at the end of September.

The audited net asset value per share was revealed to be at 2.05 RMB (HK$2.33) so Bank of America had to pay 2.46 RMB or HK$2.80. CCB shares fell 0.72 per cent close to close yesterday at HK$ 4.11.

The shares that Bank of America is seeking will be locked up until 2011.

Citic Group bails out Citic Pacific

Citic Pacific has announced a massive bailout from parent company Citic Group. The bailout includes sales of covertible bonds and disposals of their toxic foreign-exchange contracts.

Citic Group has agreed to provide an HK $11.6 billion standby loan to Citic Pacific to be replaced by convertible bonds of the same amount. If the bonds were to be converted, Citic Group's stake in the company will increase from 29.44 per cent to 57.56 per cent.

The company reported that a total HK $16.8 billion was realised last night from all contracts, hence the parent company bailout. The contracts were currency contracts to hedge an ore investment project that would force the company to purchase Australian dollars at a rate of 0.87 to the US dollar. Yesterday the Australian dollar was trading at 0.65 to the US dollar.

All in all, this takes away the susceptibility the company had to attacks and Citic Pacific can resume focusing on it's core business. This company can be closely examined in the future.

HSBC sets aside US$4.3b for bad loans in US

On Monday HSBC Holdings reported that it had set aside US$4.3 billion to cover bad loans in its US consumer finance units for the third quarter. They also reported the company as a whole had made a profit for the quarter as well as the first nine months.

Despite expected slowdown of global economic growth, the bank still expects the mainland to see an economic growth of 8 to 9 per cent given the stimulus package.

Short-lived rally?

The weekend's unveiling of China's economic stimulus plan caused the Shanghai Composite Index to surge 7.27% and the Hong Kong Hang Seng Index up by 3.52% on Monday. However, it seems as if recession worries and caution trumped the announcement with Asian markets dropping yesterday.

600b yuan budgeted for urban railway projects

Beijing announced that it will spend RMB 600 billion (HK$681.12 billion) on urban rail projects in several cities over the next 7 years.

The original budget for 2006 to 2010 was RMB 4.5 trillion, adding in the stimulus package of an additional RMB 4 trillion for 2009 and 2010, would directly translate into more contracts for mainland infrastructure companies in the coming future. On Tuesday, Hong Kong shares of mainland state infrastructure and rail-related firms rose sharply as a result of this news.

Companies to watch for:
China Railway Group (#0390)
Angang Steel (#0347)
Guangshen Rail (#0525)
Maanshan Iron & Steel (#0323)
Jiangsa Express (#0177)
China Railway Construction Group (#1186)
Shenzen Express (#0548)