Morning Commentary: Concerns about China, Korea pressure preferreds; RBS firms; HSBC declines

By Stephanie N. Rotondo

Seattle, Jan. 6 – Preferred stocks reversed course Wednesday, trending downward with the broader markets amid increased concerns about China.

Earlier in the week, China released weak PMI figures, which resulted in a 7% decline in the country’s equity markets. The government stepped in at that point, halting trading. The country’s currency was also devalued, causing an already jittery market to further fret that a growth slowdown in the Asian nation could have a global impact.

Also playing a role was North Korea’s claim that it had tested a hydrogen bomb. If confirmed, such a test would likely increase tensions throughout Asia – and potentially add to the discord in the Middle East.

“I thought we might see some selling pressure with the flight to quality after all this nonsense in Korea,” a trader said.

However, he further commented that the reaction was “not much.”

The Wells Fargo Hybrid and Preferred Securities index was down 28 basis points at mid-morning. By comparison, equities were off about 1% across the board and domestic crude oil prices were more than 3% weaker on the day in early trading.

Among early trades, Royal Bank of Scotland Group plc’s 6.08% noncumulative guaranteed trust preferred securities (NYSE: RBSPG) bucked the day’s trend, inching up a penny to $24.93. However, HSBC Holdings plc’s 8% perpetual subordinated exchangeable capital securities (NYSE: HSEB) were down a like amount, trading at $26.22.

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