PBOC Reserve Cut Not Aimed at Helping Housing Market, BOC Says

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When China allowed banks to use 700 billion yuan ($108 billion) more of their deposits on Sunday, they were very clear on where the money should go.

One sector not mentioned was the overheating property market.

Money freed up from previous cuts may have ended up flowing into the housing market, and the design of this new policy seems aimed at preventing that, said Fan Ruoying, a researcher at the Bank of China’s International Institute of Finance in Beijing.

Loans to property developers and household rose 20.3 percent in the first quarter compared with a year ago, and the pace was faster than the overall loan expansion, Fan wrote in a note.

Previous Cuts May Have Flowed to Housing

Prices of newly built residential buildings

Source: Bloomberg Intelligence

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The PBOC aims for 500 billion yuan to be channeled to debt-to-equity swaps, and 200 billion yuan to be freed up for smaller banks to lend to small firms. When they announced the cut on Sunday, the central bank also released detailed instructions to make sure that the money flows to where they want it to.

Funds released from the cut will be closely monitored, with every debt-to-equity transaction documented and submitted for review on a quarterly basis. The record of small businesses financing will also be included in the central bank’s macro-prudential assessment review, according to the statement.

— With assistance by Miao Han

Banks May Be Using Lehman-Style Trick to Disguise Debt

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Banks may be disguising their borrowings in a way similar to that used by Lehman Brothers Holdings Inc., with debt ratios falling within limits imposed by regulators just four times a year.

Lenders use repurchase agreements -- known as repos -- to massage down their assets as reporting dates approach, typically as quarters end, the Bank for International Settlements said in its Annual Economic Report. The practice boosts leverage ratios -- the ratio between capital and so-called leverage exposures -- allowing banks to report them as being in line with regulatory requirements, it said.

“The data indicate that window-dressing in repo markets is material,” BIS analysts said in the report. “Data from U.S. money market mutual funds point to pronounced cyclical patterns in banks’ U.S. dollar repo borrowing, especially for jurisdictions with leverage ratio reporting based on quarter-end figures.”

The practice “reduces the prudential usefulness of the leverage ratio, which may end up being met only four times a year,” said the Basel, Switzerland-based BIS, which is known as the central bank for central banks.

Lehman used repos to disguise its borrowings before it imploded in 2008 in the biggest-ever U.S. bankruptcy. The collapse prompted regulators to close an accounting loophole the firm had wriggled through to mask its debts and to introduce a leverage ratio globally. The Basel Committee on Banking Supervision recommends a minimum 3 percent ratio is used.

Repo Game

As well as negative effects on financial stability, using repos to game the requirement hinders access to the market for those who need it and obstructs monetary policy implementation, the BIS said.

In a repo, banks borrow short term against some of their assets with a promise to repurchase the collateral. The cash raised can then be lent out in a reverse repo and the collateral obtained used to back further borrowing. Closing the reverse repo at quarter-end raises cash that can be used to unwind the repo, shrinking the balance sheet and reducing leverage.

Banks’ ability to engage in this kind of window-dressing depends on the jurisdiction they are in, the BIS said. That’s because while countries including the U.S. and U.K. require lenders to report their leverage ratios based on daily averages over the period, others including France, Germany and Switzerland use end-period reporting.

Since early 2015, when banks began reporting leverage ratios, the size of the swings in the volume of repo transactions carried out by euro-area banks has been rising, according to the BIS. Contractions in the repo market have soared to more than $145 billion at the end of last year from about $35 billion over the period, the BIS said.

Emerging Stocks Reenter Zone of Underperformance

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The euro-area debt crisis, the so-called taper tantrum in 2013 and the oil-price meltdown of 2014 all have one thing in common. They tethered the MSCI Emerging Markets Index below the 1,100 mark.

An $8 trillion rally since 2016 helped the equity benchmark for 24 major developing nations break away from that pattern. But the gauge fell back into it on Tuesday, and now a bear market is just a bad week away.

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As Donald Trump’s trade war undermines risk appetite and spurs a flight of capital from emerging markets, stocks are taking the worst hit, belying expectations earlier this year that the slump would be largely confined to bonds. Tuesday’s drop below 1,100 suggests that the asset class -- which remained resilient in the wake of the Federal Reserve’s interest-rate hikes, numerous political crises and oil-price fluctuations -- is succumbing to concern that a tit-for-tat tariff showdown will crimp global economic growth.

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The index is showing other signs of strain. Losses in the past five days have taken it decisively below the 23.6 percent Fibonaccci Retracement level, setting it on course to drop another 3 percent to 1,052. If that support is breached, emerging-market stocks may enter a bear market at about 1,018, fall below the 1,000 mark and head all the way to 982.

That would hand investors a total loss of 23 percent from January, when the index was at a 10-year high.

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Bearish technical signals also appear at the end of a slump, thereby acting as a precursor to a rebound. A return above 1,100 will take the MSCI index back into a downward channel it has been trading in since January, indicating short-term gains within that band. A breach of its upper bound might suggest the second leg of the stalled rally may be round the corner.

Top 10 money making ideas by experts which could give 4-12% returns in 30 days

A roller coaster ride for Nifty50, but strong buying at lower levels helped Nifty50 climb 10,800 on weekly basis. The index bounced back after hitting a low of 10,709.05 on June 8 to close at 10,817.70, a gain of nearly 0.5 percent on weekly basis.

Volatility rose after the US Federal Reserve hiked interest rates by 25 bps and ECB signalling an end to the bond purchases by 2018 end while BoJ maintained its ultra-loose monetary policy.

��Rising interest rates in the US and expected increase in interest rates from 2019 summer may weigh on the foreign portfolio investors (FPIs) flows going forward. Going ahead the markets would also weigh the concerns coming from possible trade war between US and China,�� Teena Virmani, Vice President �� Research at Kotak Securities Ltd told Moneycontrol.

��Higher interest rates have resulted in valuation multiple contractions and going forward gains in the market would largely hinge on earnings recovery,�� she said.

related news Buy Nava Bharat Ventures, target Rs 163: Dinesh Rohira Remain long on Nifty till 10,700 sustains; 3 buys that may return up to 17% Market Live: Sensex, Nifty flat amid US-China trade tensions; Brent crude below $73/bbl

On the technical front, most experts are of the view that a possibility of breakout beyond 10,800 is on the cards and could possibly extend towards 10920-10,930 levels gradually. On the flipside, 10,698 followed by 10,650 would be seen as immediate supports.

��We expect some consolidation in benchmarks with a positive bias. Traders are advised to focus on individual pockets that are poised for decent moves. This optimism remains valid as long as index maintains its position above the 10550 mark,�� Sameet Chavan, Chief Analyst, Technicals, and Derivatives at Angel Broking told Moneycontrol.

��As far as sector-specific view goes, we have been quite vocal since the last couple of weeks about ��Pharmaceutical�� space getting bottomed out. Friday��s gigantic move in this basket certainly validates our contradictory stance,�� he said.

Stock specific moves likely to happen in selective IT, Pharma, NBFC stocks and heavyweights stocks are likely to take lead while PSU, Auto, Cement, Mid and Small Cap stocks would be under pressure with limited upside.

��Stock wise we see the positive formation in Bajaj Finance, Bharat finance, Tata Elxsi, TCS, Infosys, HCL Tech, Torrent Pharma, Sun Pharma, Lupin, Jubilant Foodworks, UPL, etc,�� Chandan Taparia, Derivatives, and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

Here is a list of top 10 money making ideas from different experts which could give 4-12% return in the next 30 days:

Analyst: Sameet Chavan, Chief Analyst, Technicals, and Derivatives at Angel Broking

Kaveri Seed Company Ltd: Buy| LTP: Rs 560.05| Target: Rs 625| Stop loss: Rs 524| Return 11%

Last week, after a long consolidation, the stock finally managed to burst through its recent congestion zone. If we look at the volume activity, it has picked up substantially during this development, providing credence to the breakout.

Since the last couple of days, we are seeing some subdued movement due to lack of follow up buying in the counter. But, if we consider the broader picture now, we would construe this as a good buying opportunity for a target of Rs 625. Traders can keep their stop losses at Rs 524.

Delta Corp Ltd: Buy | LTP: Rs 245.90 | Target: Rs 270 | Stop Loss Rs 229 | Return 10%

Last few months have not been great for this traders�� favorite counter after enjoying a relentless bull run throughout the calendar year 2017. Recently, stock prices consolidated within the boundaries of a ��Falling Wedge�� pattern.

Last week, we witnessed a breakout from this pattern with reasonably higher volumes. Although it would be too early for this call, we expect the stock to start the upward leg of the rally. Hence, one can look to go long for a target of Rs 270 by following a strict stop loss of Rs 229.

Analyst: Dinesh Rohira, Founder & CEO, 5nance.com

Nava Bharat Ventures Ltd: Buy | Target: Rs 163 | Stop-loss: Rs 132 | Return: 12%

Nava Bharat traded in a positive trajectory on its weekly price chart post its correction from its 52-week high of Rs 184 levels. It took a strong support at Rs 120 levels.

Despite a muted market breath, the scrip witnessed a strong momentum as it managed to break out from its multi-long moving average level of 200-50-days.

It also witnessed a substantial volume breakout on the weekly chart which indicates an upward trend. On the weekly price chart, the scrip registered a solid bullish candlestick pattern indicating a sustained rally post current breakout from crucial levels.

Further, the weekly RSI is placed at 58 which suggests a buying regime at a current level along with positive cues from MACD suggesting an upward shift.

The stock is likely to face resistance around Rs 168 while support level is placed at Rs 288. We have a buy recommendation for Nava Bharat Ventures which is currently trading at Rs 145.60

Hindustan National Glass & Industries Ltd: Buy | Target: Rs 113 | Stop-loss: Rs 95 | Return: 8%

After witnessing a sharp correction from Rs 167 odd levels in the past few months, Hind Nat Glass witnessed a reversal trend in the recent period. A strong support is placed at 78-76 levels.

The scrip registered a strong pullback throughout the session as it managed to decisively break out from its crucial moving average level of Rs 94 levels on closing basis coupled with positive volume growth above average.

The scrip gained about 12 percent on an intraday basis and about 32 percent on the weekly basis. The positive breakout on the weekly basis aided the scrip to form a long-solid bullish candlestick pattern indicating a strong reversal trend for a couple of sessions.

The weekly RSI trend registered an upward momentum at Rs 67 suggesting a buying regime along with MACD moving near bullish crossover.

The scrip has a support placed at Rs 78 levels and resistance level at Rs 128. We have a buy recommendation for Hindustan Nat Glass which is currently trading at Rs 104.90

Gruh Finance Ltd: Sell Target: Rs 309 | Stop-loss: Rs 335 | Return 4%

Gruh Finance witnessed a sharp correction on the weekly price chart despite making a decent move on the upside. The scrip came under pressure last week as it lost about 11 percent on weekly basis and slipped below the short-term moving average level of Rs 330.

It also witnessed a negative volume support indicating a sustained pressure on short-term basis.

The scrip formed a solid bearish candlestick pattern on its weekly price chart after breaching below important level indicating a sustained pressure.

Further, the secondary momentum trend continued to indicate negative signal with RSI slipping below at 39 coupled with the bearish outlook from MACD trend.

The scrip is facing a resistance at Rs 337 levels and crucial support from 100-days EMA is placed at Rs 305 levels. We have a SELL recommendation for Infibeam which is currently trading at Rs. 322.45.

Analyst: Rajesh Palviya �� Head-Technical & Derivatives, Axis Securities

CDSL: Buy| CMP: Rs 294| Target: Rs 308-320 | Stop loss: Rs 278 | Return 8.8%

With current week's 5 percent gains the stock has decisively broken out its five weeks consolidation range (290-265) on closing basis indicating a shift of short-term trend to upward. This breakout is accompanied with high volumes indicating increased participation on the rally.

The stock has also broken out past six months downward sloping "Trendline" breakout at 283 levels which reconfirms bullish sentiments in near term. Currently, the stock is well placed above its 20 and 50 days SMA which signals positive bias ahead.

The strength indicator - RSI is placed above its reference line on the daily and weekly chart which interprets rising strength on the rally.

Buying Range: Rs 294-290

Apollo Hospital Ltd: Buy | CMP: Rs 1,038 | Target: Rs 1064-1082 | Stop loss: Rs 980| Return 8.8%

On the daily chart, the stock has observed an "Inverse Head & Shoulder" - a short-term trend reversal pattern breakout at Rs 1,025 level on a closing basis. This breakout is supported with huge volumes indicating strength ahead.

The stock is sustaining above its 20 and 50-day SMA which supports bullish sentiments ahead. On the weekly chart, the stock has observed rising volumes which signal increased participation for short to medium term.

Daily as well as weekly indicators - RSI and Stochastic both are in positive territory which supports buying momentum to continue ahead.

Buying Range: Rs 1,030-1,010

Analyst: Mazhar Mohammad, Chief Strategist �� Technical Research & Trading Advisory, Chartviewindia.in

RIL: Buy | LTP: 1,013 | Target: Rs 1,130 | Stop loss: Rs 980 | Return 11%

With new lifetime highs, this counter appears to be heading for a fresh breakout above its multi-week ascending channel which has a potential target of Rs 1,130. Hence, positional traders are advised to buy into this counter now and on declines up to Rs 990 for a target of Rs 1,130 with a stop below Rs 1,180 on a closing basis.

Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

Muthoot Finance: Buy | LTP: Rs 386.40 | Target: Rs 420 | Stop loss: Rs 380 | Return 8.8%

At a recent low of Rs 383, this counter retraced around 62 percent of its last leg of the rally from the lows of Rs 369 �� 399.

We suspect some sort of accumulation in this counter as for the most part of the Friday��s session it has remained in positive terrain withering the market turmoil.

If it has bottomed out and fresh upswing is in progress then the initial hurdle around Rs 405 should be taken off.

In such a scenario, it should head all the way to test 200-day moving average (DMA) whose value is placed around Rs 420. A stop suggested for the trade is a close below Rs 380.

Mahindra Lifespace: Buy | LTP: Rs 570.40 | Target: Rs 620 | Stop loss: Rs 540 | Return 8%

The recent price action in this counter with the expansion of intraday price range on high volumes is pointing towards some sort of accumulation suggesting it can be in for a sustainable up move going forward.

Hence, positional traders should buy now and on declines between Rs 560 �� 555 range for a target of Rs 620. A stop suggested for the trade is below Rs 540 on a closing basis.

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. First Published on Jun 18, 2018 08:29 am