Chinese stock market crash; has the bubble finally burst?

[jimmy olsen]

Doom???

http://www.theguardian.com/business/blog/2015/jul/03/china-stock-market-collapse-investors-margin-calls

What goes up, can also come down, as the old adage and the modern-day investor warning go. And that is precisely what the tens of millions of people who hold shares in China have been discovering.

Chinese stocks had doubled between last November and mid-June, to the delight of a fast-growing army of retail investors. In echoes of the dotcom bubble in the US, much of the speculation, fuelled by borrowing, has been on technology stocks. But now shares across all sectors are tumbling. After another punishing week, and despite a surprise move last week by the central bank to cut interest rates, shares are now down nearly 30% from their peak less than four weeks ago.

Analysts had doubted that cutting borrowing costs to stabilise a selloff in an overheated market would work even in the short term – there were fears it might well cause more alarm. In the longer term, making borrowing easier in response to a problem caused by debt-fuelled speculation made little sense. And so it proved. The panic selling continued this week and concern about investors' debt levels intensified.

At the centre of this dramatic stock market slide are individual investors borrowing from a broker to buy securities. Under that system the broker can make a demand for more cash or other collateral if the price of the securities has fallen – known as a margin call.

Such trading has been a key driver of the booming market, but regulators are cracking down. The resulting falling share prices have in turn triggered margin calls. Investors and policymakers are looking on with fear because if those margin calls continue, investors will have to offload other assets to come up with the cash they need.

For those who trade with China, the contagion fears add to worries that have been bubbling for some time. China's economy was already losing steam and the next GDP figures are expected to show the slowest growth since before the financial crisis. It might in time make the financial fallout from Greece look tame.

[Ideologue]

One way or another, Tim, yes.  Doom.

[MadImmortalMan]

Not doom for me.

[Tonitrus]

[Martinus]

How is it doom if it falls to the level from only two months ago?

[Admiral Yi]

It's doom for the people who bought on margin, which  I think is about 10% of the market.

[Monoriu]

I am ready to buy when it hits bottom.  I can't wait 

[Monoriu]

Incidentally, a lot of people have remarked that the daily swings in the market is a lot more than the entire GDP of Greece 

If they are going bankrupt anyway, may as well gamble everything in the Chinese stock market to see if they can win back everything in one stroke 

[Tonitrus]

Maybe the EU should sell Greece to China.

[Monoriu]

Maybe the EU should sell Greece to China.

Too much trouble.  Won't take it even if it is free.  I for one won't spend a cent on Greek debt.  At this point, giving me 100% yield is meaningless.  They have zero credibility.  The offer is not even valid.

[Martinus]

As I said before, Greece should exit Eurozone, get humanitarian aid to get through the rough patch of 2-3 years, devalue drahma and bounce back with revenues from cheap tourism (especially as there is now a great climate for North African tourism to shift there) and factories and logistic centers moved there from the Rich North.

[Zanza]

devalue drahma and bounce back with revenues from cheap tourism (especially as there is now a great climate for North African tourism to shift there) and

Greece currently has a considerable current account deficit (about 3% of GDP). If their tourism revenue goes down in nominal terms (otherwise it's not cheap for foreigners), they'll have an even harder time to pay for their huge foreign trade deficit. They import a lot of stuff they can't make themselves, such as pharmaceuticals. A low value drachma comes with a very high price. It's questionable if growth in tourism can compensate for that.

factories and logistic centers moved there from the Rich North.

Why would anybody invest in Greece? They rank dead last for competitiveness, ease of doing business, economic freedom etc. among the EU states. If you want cheap, go to Bulgaria.

[Martinus]

That's why I said they will need humanitarian aid - the past you conveniently cut out from my post.

[Zanza]

That's why I said they will need humanitarian aid - the past you conveniently cut out from my post.

Humanitarian aid? Greece is not a war or natural disaster zone. Even with their current economic malaise, they are still one of the richer countries in the world and much richer than some of the EU partners. Does Bulgaria next door get or need humanitarian aid?

Anyway, all the stuff I wrote - that you conveniently didn't answer to - will still be true after 2-3 years of "humanitarian aid".

[The Brain]

Humanitarian aid to Greece? Yes please! #oldyeller