Shanghai Stock Markets Continue to Skyrocket Higher, Yuan Pares Back
Even as the yuan pared back slightly against the US dollar and Euro in the overnight session, Shanghai stocks continued to advance. In the New York session, the underlying currency was trading lower against the greenback at 7.5705, while against the Euro at 10.4416. Lending to the short term rebound in the USD/CNY pair were technical support levels that the market was eyeing since the close yesterday. However, that didn’t stop the benchmark stock markets from ratcheting higher, closing at record levels once again. The benchmark Shanghai Composite closed up 23.12 points at 4,651.23 as the smaller Shenzhen Index added 0.74 points to close up at 1,351.11. Shares of steel producers continued to lead the way as Baoshan Iron & Steel gained another 5.7 percent while Wuhan Iron & Steel advanced by 2.1 percent. Petroleum & Chemical rose subsequently on the commodity bid tone, advancing by 5.3 percent to 15.19 yuan. With positive earnings still expected in the near term for Chinese companies, equity gains may not be fully realized yet, helping speculators to see past the already 60 percent gain in the index.

Chinese Government Requires Brokers to Protect Investors
Beginning this month, regulators will be encouraging domestic brokers to begin contributing a portion of annual revenue to a fund established to protect investors. With over 100 million accounts now active in the world’s fastest growing economy, regulators are attempting to shield the industry from any breakdowns, especially with the volatility that has been witnessed recently. Key indexes in the region have experienced upward swings of over 5 percent while being countered by downside losses of almost 8 percent. Should a brokerage go belly up, investors will be able to be protected by adverse situations. Additionally, it was announced that a new brokerage system will be implemented in order to rate investment houses, in attempts to improve upon current supervision. Ultimately, both pieces of legislation may very well hurt the industry rather than improve it as fund contributions will surely dent upcoming earnings which have soared on increased equity investments.

Major Global Banks See Plenty of Profit
Two major banks scored big for the first half of the year with Agricultural Bank of China making front headlines. First half profit soared an amazing 65 percent as loan growth and fee income surged. The figures help the weakest of the four major state-owned banks in the country, improving on the possibility of a cash injection by the government. Speculated yesterday, Central Huijin Investment Co. is said to be considering a rather large capital investment in Agricultural. With the amassed capital, the bank would hope to improve upon its nonperforming loans, clearing its balance sheet and setting itself right with international regulators. Ultimately, the improvement would lead to a possible initial public offering in the future and put it in competition with fellow banks that have already run public. Separately, Standard Chartered saw profit soar 26 percent as revenue in China doubled for the first six months of the year. Attributed to the increase were corporate lending figures that advanced by 92 percent in the world’s fastest growing economy.

Subprime Continues To Weigh On Regional Markets
Regional markets continued to remain under pressure following further speculation of subprime woes crimping the US economy. As a result, the Hang Seng index finished lower by 28.74 points at 21,907.99. With crude oil futures dropping 4.5 percent in yesterday action, crude producers led decliners. Comparatively, the Straits Times Index lost 6.98 points at 3,302.01.

Richard Lee is a Currency Strategist at FXCM.