It's looking worse and worse for Shanghai and Shenzhen. Granted, these stocks still had massive gains for the year, but they're being wiped out.
The Chinese government is putting limits to try and stop the bleeding. For example, the Shanghai index can only fall 6% daily. It got maxed out yesterday at 5.9%. I read that institutional holders of 5% or more of a company cannot trade their stock for 6 months. Companies are also stopping trading of some of their securities.
Some people are saying the Chinese stock market is small and not important compared to the American stock market - that the stocks are in the hands of few rather than most in America. However, at peak, the Shanghai became the 3rd largest exchange behind the NYSE and NASDAQ. It nearly passed up the NASDAQ at ~7 trillion. I personally don't feel that's insignificant.
July 8th:
The Shanghai peaked at 5,166 and closed today at 3,507.
The Shenzhen peaked at 3,140 and closed today at 1,884.
Thoughts? Implications for the US/Europe? Asia is getting hit reasonably hard at the moment.
No real implications. It's not like foreign institutions can get a hold of those shares to begin with.
I think I read somewhere that only 1.5% of Chinese stocks are owned by foreigners through some kind of special vehicle.
I think the larger concern is that the crash might have some implication on consumption spending in China. Consumer spending accounts for 36% of Chinese GDP whereas it accounts for 66% of American GDP. The government was encouraging a lot of people (that wouldn't normally invest) to buy on the margin. If things get bad I could see consumer spending get hit pretty hard. Which might have a significant effect on the global economy considering the Chinese economy is ~$10 trillion.
I think the real implication is on household wealth. The Chinese market seems to include a huge number of retail investors trading with leverage. I'm not sure if this has much of a contagion effect towards the US though, but for Australia, I can see this as an issue.
Imo, unless China has significant fundamental change, there economy will blow up eventually. This smoke and mirrors affair isn't sustainable for long-run growth.
Why Australia specifically as opposed to the rest of Asia? Or are you saying that Australia will be the only "Western" country affected (in addition to other Asian countries)?
Also the Shanghai rebounded 5.7% today. Some are saying because the government suspended trade on investors that have 5% or more shares. That's hella sketchy to me.
if they didn't have max daily losses of 10%, this would look a lot worse. it's what happens when a lot of your economy is smoke & mirrors (see NQ mobile Muddy Waters report), like a string unraveling a sweater...
When it becomes an issue, China will join the cool cats' table by printing some money and buying up unconventional assets. #BuySomeStox
This week I am powered by schadenfreude.
Chinese stock market crash-flavoured schadenfreude.
knowing you, you must really be loving this...
My issue with what is happening over there is its effect on energy prices here, specifically what I'm trading, crude oil. Basic macro outlook theory is that as their market collapses, the economy begins to follow in the medium term. As the Chinese economy slows, their demand for various basic materials will decrease. A demand downtick out of China for crude oil would have a relatively significant impact on short term pricing as the supply side battle rages on. That said, I don't even need to dive into how this will affect other raw forms of energy as well as refined products.
I'd like to think this is purely theoretical at this point but some of the worst days in their markets correspond well with some of our larger down moves in crude oil as we slip back down to a sub-50 barrel price over the last 2-3 weeks.
I cobbled together this timeline of the CCP's attempts to control the stock market in the last month from a few sources.
[EDIT: See also http://www.zerohedge.com/news/2015-07-07/presenting-chinas-plunge-prote… for a tidier wrap up]
Timeline: What have the regulators done to save the A-share market?
June 12th CSRC allow brokers to roll over margin trading contracts with clients CSRC loosen the bar for institutional investors to participate in margin trading
June 27th PBoC cut the interest rate by 25bps, together with selective RRR cuts. It is unusual for the PBoC to move interest rate and RRR together
June 28th CSRC sooth market by saying that “market correction is a natural adjustment to the over-accelerated rally”
June 29th CSRC announced to punish major holders who “illegally” short. The investigation process has already begun CSRC made a statement suggesting that a sharp correction is harmful for equity market development CSRC urged investors to be rational on market and not believe in “shorting rumors” CSRC soothed the market by saying that “margin risk is controlled”, “liquidity is ample” and “although price dropped, trading volume actually improved since June 12th” CSRC announced that the amount of forced margin account liquidation is very limited. MoF and MoHRSS jointly issued the public consultation version of "basic pension fund management rule", stating that basic pension funds can invest up to 30% in equity market-related products
July 1st CSRC cut trading fees by 30% CSRC wiped out the rules of 1) debt repayment time limit of 6 months and 2) maintenance guarantee ratio of 130%. Brokers can now make up their own rules Brokers are allowed to finance with short term corporate debt CSRC announces brokers are allowed to finance by securitizing the right to return of their margin products If the client already has a margin account, he can keep trading even if this 20-day average total asset falls below 500K
July 2nd CSRC vows to investigate market manipulation. CSRC said that there is still room for margin growth
July 3rd Some large brokers suspend new margin short business. CSRC increases the cpaital of the China Securities Finance Corporation (CSFC) from 24bn to 100bn China Financial Futures Exchange (CFFE) increases the cost of short selling and vows to investigate speculative short selling.
July 4th 21 Large securities brokers announce they will not sell their principal investments if the Shanghai composite stays below 45000 and they should increase their holdings CSRC asks 21 brokers to invest no less than RMB120bn (or at least 15% of their net asset) in blue-chip A share ETF. Brokers jointly announces that they will do so 28 central SOEs announce to postpone their IPOs in support of the A share market, as ordered by the State Council.
July 5th PBoC will inject liquidity to China Security Finance Corp to expand its business and stabilize the stock market (government buying stock) China Central Huijin bought A share ETF and announces it will buy again soon CSRC meeting agreed that IPOs and private placements >5bn Rmb will be postponed until market goes above 4500 points. Management from 25 Chinese mutual funds announced that, to support market stability, they will accelerate the registration and issuance process of equity funds to buy stock funds and hold for at least 1 year. By 9 July, 95 mutual funds said they will do this.
July 6th National Council for Social Security Fund said to disallow mutual funds to sell stocks in their social security portfolio (social security fund takes about 30% of the A share secondary market). China Insurance Regulatory Commission orders insurance funds to maintain net buy of equity on a daily basis.
July 8th Central Huijin Investment issues a statement, vowing to protect capital market stability MoF issues statement, vowing to protect capital market stability CSRC bans listed companies' large shareholders (>5%), directors and senior management from selling own company's stocks in the coming 6 months SASAC issues statement to encourage SOEs to conduct share buy backs. All central SOEs promised to not sell, increase buy of stocks and increase their SOEs PBoC announces it will provide sufficient liquidity support to the CSFC through repos, collateral financing, relending and other measures CSFR issues RMB280bn crdit line to 21 large brokrers for the purpose of increasing principal equity holdings PBoC injected ~500bn Rmb into China Securities Financial Corp (CSFC), which will provide 250bn credit quota for 21 brokers to buy stocks. The CSFC will also invest 200bn Rmb in 5 mutual funds, increase its purchase of mid and small cap stocks CSRC is talking to major stock sellers. If they sold under 500mm, they need to buy back 10% of the value they sold. If they sold over 500mm, they need to buy back 20% the value they sold
July 9th SFC finished its 80bn short term backed by PBoC CSRC ordered all listed companies to do at least one of the following: 1) major shareholder stock purchase 2) management stock purchase 3) share buyback 4) giving equity incentive 5) employee stock ownership plan The Ministry of Public Security is also involved in investigating and punishing “malicious” short selling. All violators will be fined. China Insurance Regulatory Commission: insurance companies cannot force brokers to prepay for margin businesses.
Completely admitting that the US has done market supporting moves in the not so recent past (although not to the equity markets directly) these moves are comical. It's interesting to see what's happening with a communist, central command/capitalist economy. When the market's skyrocketing they get to play capitalists, and now that it's crashing not only can't people sell, everyone is forced to buy. Really awesome.
The Party has now declared "malicious" short selling is criminal and they have launched investigations. Rumours of brokers refusing to take some sell orders are circulating.
From ftalphaville/ft-
On Sunday, the new graduates of Tsinghua University are set to gather in their smartest attire to celebrate degrees from one of China’s most prestigious institutions, a place that has fostered generations of political leaders. Just after the ceremony starts — according to a written agenda — the graduates must “follow the instruction and shout loudly the slogan, ‘revive the A shares, benefit the people; revive the A shares, benefit the people’.”
http://ftalphaville.ft.com/2015/07/10/2134143/this-is-nuts-revive-the-a…
I don't understand why the party goes to these lengths. Print more money and buy more stock. #$85Billion/Month #EaseItRealHard
To the new middle class in China: Invest all your wealth in the nation's stock market they said...
Everything they are doing just adds more fear/risk into the equation, which exacerbates the problems they are trying to fix. Hopefully this puts the spotlight on their economic "prosperity" and we'll finally stop hearing about the imminent rise of China over the US. Generally speaking, when someone else is getting kicked down the US tends to flourish.
The problem of China is that stock market itself is not that much of a problem. As someone mentioned above, household sector's wealth tied to equity is like only 10~20% on average. The real problem is their overall industry has slowed down significnatly, and there are simply too many companies that should've went bankrupt but are still getting financing and rollovers of their debt. This can have a massive impact on their banking sector and the overall health of the company, which will adversely Impact consumer spending as well
After a while of "recovery", it looks like the Chinese market is at it again. Monday, 7/27/15, the Shanghai composite dropped 345 points, or 8.48%. The Shenzhen dropped 7%.
Any thoughts?
Can't think. Laughing at China too hard.
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