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China Financial Crisis Thread (1 Viewer)
- Thread starter Fennis
- Start date
Fennis
Footballguy
Beijing Makes Emergency Move to Relieve Markets
Chinese stocks rose on Monday, as an unprecedented series of support measures unleashed by Beijing brought some relief to a market whose headlong slide over the past three weeks had raised fears about the stability of the world's second-biggest economy.
In an extraordinary weekend of policy moves, brokerages and fund managers vowed to buy massive amounts of stocks, helped by China's state-backed margin finance company, which in turn would be aided by a direct line of liquidity from the central bank.
The CSI300 index <.CSI300> of the largest listed companies in Shanghai and Shenzhen closed up 2.9 percent, while the Shanghai Composite Index <.SSEC> gained 2.4 percent. [.SS]
That represented a significant pullback, however, from an initial burst of euphoria that pushed both indexes up around 8 percent when trading began, raising questions about whether the rebound can be sustained.
Oliver Barron, China policy research analyst at NSBO, said it wasn't just faith in the markets at stake after investors had ignored official measures to prop up equities as indexes slid around 12 percent last week.
"After the market continued to fall despite myriad support measures, the government reached peak panic mode and must have worried that investors would not only lose confidence in the markets, but in the government itself," he said.
The rapid decline of China's previously booming stock market, which by the end of last week had fallen around 30 percent from a mid-June peak, had become a major headache for President Xi Jinping and China's top leaders, who were already struggling to avert a sharper economic slowdown.
In response, China has orchestrated a halt to new share issues, with dozens of firms scrapping their IPO plans in separate but similarly worded statements over the weekend, in a tactic authorities have used before to support markets.
Recent falls in commodity markets, which are sensitive to expectations of Chinese demand, underline the broader fears among global investors about the strength of the economy.
Shanghai copper <SCFcv1> posted its steepest daily drop in 5 months on Monday, Chinese steel prices <SRBcv1> are at their lowest level since the depths of the global financial crisis and iron ore <.IO62-CNI=SI> has fallen 17 percent since mid-June. [COM/WRAP]
BANKS SURGE, SMALL CAPS SLUMP
Monday's stock market gains were focused on blue chips, the explicit target of the stabilization fund, particularly the big banks, with the likes of Bank of China <601988.SS>, Agricultural Bank of China <601288.SS> and ICBC <601398.SS> all surging nearly 10 percent.
In contrast the ChiNext growth board <.CHINEXTC>, home to some of China's giddiest small-cap valuations, fell 4.5 percent.
"Whether the blue chips will calm the small caps, or the small caps will continue to unsettle the rest of the market remains to be seen," wrote Hong Hao, chief strategist of BOCOM International.
Hong Kong shares fell <.HSI>, widening the valuation gap between the domestic "A" and Hong Kong "H" listings of Chinese firms, with foreigners net sellers through the Connect scheme that connects the Hong Kong and Shanghai exchanges.
China stocks had more than doubled over the past year, despite a cooling economy and weakening corporate earnings, resulting in a market that even China's bullish securities regulators eventually admitted had become too frothy.
But the slide that began in mid-June quickly showed signs of getting out of hand.
A surprise interest-rate cut by the central bank at the end of June, relaxations in margin trading and other "stability measures" did little to calm investors, many of whom have borrowed heavily to play the stock market.
STILL EXPENSIVE
In a series of announcements on Saturday, China's top brokerages pledged to collectively buy at least 120 billion yuan ($19.3 billion) of shares to help steady the market, and said they would not sell while the Shanghai Composite Index remained below 4,500, a level last seen on June 25.
Underlining scepticism beyond mainland China about the sustainability of the measures, Hong Kong listed shares of Chinese brokerages took a beating on Monday.
In addition, 28 companies that had been approved to launch IPOs announced they had suspended their plans.
The U-turn is consistent with past IPO freezes in China when share markets were falling sharply, though they are usually spun as spontaneous company decisions, not as government directives.
The aim was to signal to China's army of retail investors, who conduct around 85 percent of share transactions, that the government is standing behind the market.
Analysts cautioned, however, that the latest policy moves may only bring short-term respite.
"The government measures are only aimed at stabilising the market, and providing an exit for those who want to get out," said Liu Li, analyst at Shanxi Securities Co.
"Theoretically, the central bank's money is unlimited, but you cannot expect the government to use public money to buy sharshares which are still expensive, such as ChiNext shares."
Chinese stocks rose on Monday, as an unprecedented series of support measures unleashed by Beijing brought some relief to a market whose headlong slide over the past three weeks had raised fears about the stability of the world's second-biggest economy.
In an extraordinary weekend of policy moves, brokerages and fund managers vowed to buy massive amounts of stocks, helped by China's state-backed margin finance company, which in turn would be aided by a direct line of liquidity from the central bank.
The CSI300 index <.CSI300> of the largest listed companies in Shanghai and Shenzhen closed up 2.9 percent, while the Shanghai Composite Index <.SSEC> gained 2.4 percent. [.SS]
That represented a significant pullback, however, from an initial burst of euphoria that pushed both indexes up around 8 percent when trading began, raising questions about whether the rebound can be sustained.
Oliver Barron, China policy research analyst at NSBO, said it wasn't just faith in the markets at stake after investors had ignored official measures to prop up equities as indexes slid around 12 percent last week.
"After the market continued to fall despite myriad support measures, the government reached peak panic mode and must have worried that investors would not only lose confidence in the markets, but in the government itself," he said.
The rapid decline of China's previously booming stock market, which by the end of last week had fallen around 30 percent from a mid-June peak, had become a major headache for President Xi Jinping and China's top leaders, who were already struggling to avert a sharper economic slowdown.
In response, China has orchestrated a halt to new share issues, with dozens of firms scrapping their IPO plans in separate but similarly worded statements over the weekend, in a tactic authorities have used before to support markets.
Recent falls in commodity markets, which are sensitive to expectations of Chinese demand, underline the broader fears among global investors about the strength of the economy.
Shanghai copper <SCFcv1> posted its steepest daily drop in 5 months on Monday, Chinese steel prices <SRBcv1> are at their lowest level since the depths of the global financial crisis and iron ore <.IO62-CNI=SI> has fallen 17 percent since mid-June. [COM/WRAP]
BANKS SURGE, SMALL CAPS SLUMP
Monday's stock market gains were focused on blue chips, the explicit target of the stabilization fund, particularly the big banks, with the likes of Bank of China <601988.SS>, Agricultural Bank of China <601288.SS> and ICBC <601398.SS> all surging nearly 10 percent.
In contrast the ChiNext growth board <.CHINEXTC>, home to some of China's giddiest small-cap valuations, fell 4.5 percent.
"Whether the blue chips will calm the small caps, or the small caps will continue to unsettle the rest of the market remains to be seen," wrote Hong Hao, chief strategist of BOCOM International.
Hong Kong shares fell <.HSI>, widening the valuation gap between the domestic "A" and Hong Kong "H" listings of Chinese firms, with foreigners net sellers through the Connect scheme that connects the Hong Kong and Shanghai exchanges.
China stocks had more than doubled over the past year, despite a cooling economy and weakening corporate earnings, resulting in a market that even China's bullish securities regulators eventually admitted had become too frothy.
But the slide that began in mid-June quickly showed signs of getting out of hand.
A surprise interest-rate cut by the central bank at the end of June, relaxations in margin trading and other "stability measures" did little to calm investors, many of whom have borrowed heavily to play the stock market.
STILL EXPENSIVE
In a series of announcements on Saturday, China's top brokerages pledged to collectively buy at least 120 billion yuan ($19.3 billion) of shares to help steady the market, and said they would not sell while the Shanghai Composite Index remained below 4,500, a level last seen on June 25.
Underlining scepticism beyond mainland China about the sustainability of the measures, Hong Kong listed shares of Chinese brokerages took a beating on Monday.
In addition, 28 companies that had been approved to launch IPOs announced they had suspended their plans.
The U-turn is consistent with past IPO freezes in China when share markets were falling sharply, though they are usually spun as spontaneous company decisions, not as government directives.
The aim was to signal to China's army of retail investors, who conduct around 85 percent of share transactions, that the government is standing behind the market.
Analysts cautioned, however, that the latest policy moves may only bring short-term respite.
"The government measures are only aimed at stabilising the market, and providing an exit for those who want to get out," said Liu Li, analyst at Shanxi Securities Co.
"Theoretically, the central bank's money is unlimited, but you cannot expect the government to use public money to buy sharshares which are still expensive, such as ChiNext shares."
johnnycakes
Footballguy
They're too big to fail. 
Cliff Clavin
Footballguy
Does this make it cheaper to go there and get a wife?
Fennis
Footballguy
Not sure it can be prevented. The currency is way overvalued. So (was) their stock market. They have propped up their economy using non sustainable methods (we have all seen the ghost city stories). They still have an extremely large number of people living in poverty.They're too big to fail.
MaxThreshold
Footballguy
Is Fennis too big to fail?
Mario Kart
Footballguy
So, how can a good ole capitalist take advantage of this looming collapse?
Sell every international stock or get out of the markets now or buy gold or invest in what?
Who rises from these ashes?
http://blogs.reuters.com/great-debate/2015/04/21/the-myth-of-chinas-ghost-cities/
New city after new city with no one in them. Why keep building them?
Sell every international stock or get out of the markets now or buy gold or invest in what?
Who rises from these ashes?
http://blogs.reuters.com/great-debate/2015/04/21/the-myth-of-chinas-ghost-cities/
New city after new city with no one in them. Why keep building them?
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johnnycakes
Footballguy
Rohn Jambo
Footballguy
Some people playing the big short already made a killing... Could it be a bottomless pit?
Rohn Jambo
Footballguy
johnnycakes
Footballguy
I have known the published financial statements for virtually all Chinese companies have been highly unreliable for years.Not sure it can be prevented. The currency is way overvalued. So (was) their stock market. They have propped up their economy using non sustainable methods (we have all seen the ghost city stories). They still have an extremely large number of people living in poverty.They're too big to fail.
Fennis
Footballguy
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Mister CIA
Footballguy
It's all Greek to me.
Mario Kart
Footballguy
But, what are they shorting? Which sectors go first?
Is China going to have their own Cash-for-Rickshaw program?
cstu
Footballguy
The way China is seen as a major threat to America always made meNot sure it can be prevented. The currency is way overvalued. So (was) their stock market. They have propped up their economy using non sustainable methods (we have all seen the ghost city stories). They still have an extremely large number of people living in poverty.They're too big to fail.
They've got a huge economy but extremely serious structural issues standing in the way of them becoming the world leader. Their economic success has been preventing a revolution, will be interesting how the Chinese people react.
Rohn Jambo
Footballguy
All short sells are banned now.
Rohn Jambo
Footballguy
RedmondLonghorn
Footballguy
RedmondLonghorn
Footballguy
Rohn Jambo
Footballguy
Oops. Trading halted on 20% of the listed stocks?
Mario Kart
Footballguy
Is this hitting the fan quick, like this week, or is this going to happen gradually?
Rohn Jambo
Footballguy
Wha? It has been down 30% since mid June. The Chinese government pumped $20 billion into the market yesterday but the sell off continues today.ETA: The Chinese stock market is a little different, I think. There is more margin trading and a lot of it is funding by shadow banking (mom & pop loan sharking).
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GroveDiesel
Footballguy
Is this just stock market adjustment or does it reflect an underlying financial/economic issue overall for them? I thought I just read recently that the Chinese have ridiculous amounts of cash on hand that they're looking to spend on foreign investments.
johnnycakes
Footballguy
Definitely an adjustment but could be a huge one. Again, one issue we have had for a long time is with regard to confidence in their financials. Corruption is too much apart of the way things are done their and even the biggest companies have been known to keep multiple sets of books, depending on who is looking. So yeah their markets are overpriced but where it may finally settle... My feeling is it could equal our 1929 depression. We shall see about that. I'm also waiting to see if the ripples from the Chinese economy will combine with the ripples coming from Europe to create a really big global mess.
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Dinsy Ejotuz
Footballguy
Saw an argument a few years ago that it was the mountains of US dollars the Chinese are holding that allow them to keep the ball rolling.
Basically that the stock market and real estate mal-investment bubbles should lead to a financial crisis similar to the S&L version here in the 1990s, but the banks were constantly being recapitalized using US dollar reserves.
i.e. that the Chinese might ultimately be squandering their savings, but not have a total financial meltdown as a result. Assuming they stop at some point anyhow (which, well...).
Basically that the stock market and real estate mal-investment bubbles should lead to a financial crisis similar to the S&L version here in the 1990s, but the banks were constantly being recapitalized using US dollar reserves.
i.e. that the Chinese might ultimately be squandering their savings, but not have a total financial meltdown as a result. Assuming they stop at some point anyhow (which, well...).
RedmondLonghorn
Footballguy
It isn't just the stock market. In fact, the Chinese stock market had been bucking the trend in the underlying economy for a while (in other words, the underlying economy was soft, but the market was going up). China has been mired in a "slow" growth period for the past few years. For them that is anything under about 7% per year, officially. But the economy is so managed that a lot of that growth is either artificial or completely illusionary. So official growth of 5-6% for China is really a recession, basically.
The Chinese stock market is also set up in such a way that the signals it sends are fairly artificial. There are actually two equity markets there, one that foreigners can participate in, but locals don't, and one that foreigners are prohibited from participating in.
saintfool
Dead sexy
i heard somewhere that most chinese don't invest in the big chinese companies while foreign investors do. conversely, local chinese investors put their investments into smaller companies.
RedmondLonghorn
Footballguy
That may be true. The Chinese with the means and ability to invest outside China seem to be very enthusiastic Real Estate investors. The RE markets in the Seattle area and Vancouver, BC are seeing a huge surge in demand for properties in the low millions of dollars due to affluent Chinese buyers.
http://www.bizjournals.com/seattle/news/2014/12/15/2-billion-and-counting-chinese-shake-up-puget.html
johnnycakes
Footballguy
This just in: Real Estate is the one investment the Chinese government CAN'T take in one of their corruption shakedowns... and finding real estate owned abroad may be very difficult for Chinese authorities as well.
jonessed
Footballguy
It's causing a big stir in SF. They are buying up a lot of the new condos and just letting them sit empty in the middle of a massive housing shortage.
The city council was trying to levy a fine/tax of dome sorts, but I don't know where that went.
jonessed
Footballguy
My understanding is these people are largely smuggling the cash out of China through Hong Kong.
johnnycakes
Footballguy
The money is leaving through many ways... the Chinese government has been on a big anti-corruption drive under the current leadership.... if someone runs afoul of the wrong people, especially... if they have a lot more wealth than their official position would allow, that opens the door to prosecution. By investing the money in real estate abroad, it gets much more difficult to show someone has been illegally enriched... and, even if successfully prosecuted, I don't think they can force someone to transfer title to real estate held outside of China, so the property can be passed to other family members. It's part of the reason why Chinese investors favor real estate in the U.S. and Europe so much. Not just because they think it's a good investment or not.
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Rohn Jambo
Footballguy
The folks with the most money are people in the Chinese government and their families.
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Rohn Jambo
Footballguy
This was exactly how the mega ghost cities get created in China.
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Paulymaggs
Footballguy
Rohn Jambo
Footballguy
There is no such ban on Chinese stocks traded on foreign exchanges. As expected, they are getting clobbered today.
RedmondLonghorn
Footballguy
moleculo
Footballguy
I'm having a hard time wrapping my head around this. My company does a lot of contract manufacturing in China. We have had a hard time with costs lately - my understanding is that our manufacturers experience a lot of turnover because there are a lot of jobs out there and they have a hard time keeping laborers from jumping ship. Also, wages have been increasing, partly because their currency has been pegged to the USD.
The Chinese economy in the tank is counter to all of this - of course, I'm several levels removed from the decision makers, so my data is likely several years old.
The Chinese economy in the tank is counter to all of this - of course, I'm several levels removed from the decision makers, so my data is likely several years old.
RedmondLonghorn
Footballguy
saintfool
Dead sexy
Rohn Jambo
Footballguy
The Communists just doubled down with $40B after trading halted for 40% of the stocks.
Fennis
Footballguy
Over 50% of stocks have now stopped trading
http://money.cnn.com/2015/07/08/investing/china-stocks-suspended/index.html
