Market commentary: Chinese stocks and oil tumble, UBS 2Q profit soars

The optimism of investors, prompted by the unprecedented intervention of the Chinese Government and the country’s financial Authorities aimed at attempting to shore up a stock market in complete meltdown, appears now to be rather short lasting. After rebounding 16% from their low on July 8th, today Chinese stocks tumbled again during the Asian trading session, with the Shanghai Composite Index losing over 8.5% in its worse decline since beginning of 2007.

Large stocks such as PetroChina Co., which dropped 9.6%, and brokerage companies such as Citic Security Co. and Huntai Securities Co., both losing over 9%, led the indexes lower, adding onto one of the worst stock market decline this year.

Although the Chinese Authorities and the major brokerage and investment firms have poured billions into the local stock market hoping to stop prices from free falling, today investors seemed to have understood that such interventions will not be sustainable, and that even after the sharp correction, Chinese stocks may still be somewhat overpriced.

Together with China, oil, has also disappointed bullish investors who saw the commodity price’s stabilization over the last couple of months as the first step for a rebound. In New York, oil has lost almost 20% from its high reached in June this year, and it has been trading lower over the past sessions. The WTI Crude Oil dropped 1.78% on Friday and is poised to continue declining today, while the Brent Crude, the international oil benchmark, dropped 2% through the morning after falling 1.55% at the end of last week.

With a market still largely oversupplied, the intention of OPEC countries to continue their price war against US shale production and the probable resumption of Iran’s crude exports, the slump in the black commodity may indeed extend further than analysts were expecting.

In Europe, UBS took the spot light this morning after releasing its second quarter results which beat analysts’ estimates. The largest Swiss bank, which decided to release its results a day earlier than planned due to indiscretions appeared on Sunday on Swiss newspaper, posted a soaring profit following a further reduction in costs and a substantial increase in equity trading.

Once again UBS demonstrated solid fundaments and the strength of its business model, with revenue and profit driven by its strong wealth management division. The bank’s net income rose to CHF 1.21 billion from CHF 792 million last year, exceeding the CHF 915 million forecasted by analysts interviewed by Bloomberg.

The Wealth Management division, that controls the largest private bank in Asia, posted its best second-quarter result in 6 years, showing the strong position of the Swiss bank within the fastest growing market for money managers. The bank also reported that net profit attributable to shareholders jumped 53% from a year earlier to CFH 1.209 million, equivalent to a diluted EPS of CHF 0.32 per share.

Although shares in UBS opened 2% down today before partially recovering throughout the morning session, the stock has delivered a 29% capital appreciation over the past 12 months while also distributing a yearly dividend of CFH 0.5 per share, yielding 2.34%.

This article was issued by Paolo Zonno, Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.