Impact from subprime crisis more than expected
Updated: 2007-11-16 15:01
The recent performance of Chinese financial institutes suggests China could suffer more from the subprime loan crisis than ever predicted, warned the China Securities News.
The initial bid of China Investment Corporation, purchasing a US$3 billion worth stake of Blackstone Group and holding at least for four years, suffered a book loss of approximately US$741 million as of this Tuesday.
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For instance, the net values of four QDII funds have fallen short of their nominal values, with their asset value having depreciated roughly US$847 million. The same is true for bank-linked QDIIs.
Considering only the above two items, the US subprime mortgage crisis has caused a potential loss of billons of US dollars for China. Adding other institutional overseas investments will certainly raise the total.
The China Securities News also warned the China's current forex reserves of US$1.43 trillion are in danger. The US Federal Reserve has lowered the interest rate twice this year due to the subprime loan crisis. The weak dollar has depreciated over five percent to renminbi.
Additionally, the return ratio of bulks of US treasury bonds held by China is decreasing under the impact of the subprime loan crisis. The yield of one-year treasury bonds, for example, has declined over one percentage point since August.
According to Deutsch Bank's estimations yesterday, the global banking industry will suffer a total US$400 billion yuan as a result of the subprime loan crisis, far exceeding the previously predicted dozens of billion dollars.
Stock markets around the globe experienced a "gloomy week" when Merrill Lynch, Citigroup, UBS, and HSBC released their huge losses related to the crisis almost simultaneously last week.
The Shanghai stock market plunged eight percent last week, a nine year record drop. Total market capitalization of the Shanghai and Shenzhen bourses slumped 2.45 trillion yuan (US$330 billion) in a single week.
Exact figures from Chinese bank losses haven't come out. However, China's three listed State-owned commercial banks, Industry and Commercial Bank of China, Bank of China, and China Construction Bank, had suffered a total floating loss of 10 billion yuan by the end of August.
The impact from the US subprime loan crisis needs to be revalued, proposed the China Securities News.
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