Chinese stock market crash; has the bubble finally burst?

[Ed Anger]

Nationalize corporations.  Problem solved.

Nationalize peanut butter cups

Nationalize Normandy. We did it once and their shore defenses are far weaker this time.

Nationalize Blu-Rays

Don't tread on my blu-rays.

Also, nationalize movie tickets.

[Valmy]

Is this Chinese Stockmarket thing potentially destabilizing or is this mostly contained to the middle people's republican kingdom?

[Monoriu]

Is this Chinese Stockmarket thing potentially destabilizing or is this mostly contained to the middle people's republican kingdom?

This isn't the first time there is a correction in the stock market.  It is still up when compared to, say, a year ago.  Good luck if you bought at the peak though. 

Whether it is destabilizing is hard to say.  The thing with China is that anything and everything is potentially destabilizing.  Because the fundamental structure is unstable, so any movement is dangerous.  Tian An Men was triggered by the death of a senior official. 

[MadImmortalMan]

Trading halted today. Rumors that as many as 25% of the listed companies want to delist to protect themselves.

[Monoriu]

Trading halted today. Rumors that as many as 25% of the listed companies want to delist to protect themselves.

From what I have read, trading of 25% of companies listed on the Shanghai stock exchange have been suspended.  No talk about delisting yet, but there is not much difference if the shares are suspended indefinitely. 

[Monoriu]

Trading halted today. Rumors that as many as 25% of the listed companies want to delist to protect themselves.

From what I have read, trading of 25% of companies listed on the Shanghai stock exchange have been suspended.  No talk about delisting yet, but there is not much difference if the shares are suspended indefinitely.

Make that 40% as at this morning.  The Chinese internet users are cheering this move and hailing the companies as "socially conscientious"

Hosting a stock market is in some ways similar to opening a casino.  The casino wins some; the gamblers win some.  If the casino doesn't let the gamblers leave with their winnings, who is going to come back?

[jimmy olsen]

What a disaster. This is completely the government's fault. They encouraged millions of everyday people who knew nothing about the stock market to invest, and when a market correction inevitibly occured the Chinese government paniced and put it's prestige on the line to stop it. This makes the situation look worse to the average person. Many will think the government is only interevening because they know something the rest of us don't, that things are even worse than most know and that they should sell. Furthermore, the fact that this won't stop the slide will make the government look weak, and the situation even worse. After all if the situtation is so bad the government can't do anything then there's no choice but to sell, sell, sell. It's a self fullfilling prophecy.

http://www.theguardian.com/business/2015/jul/08/china-stock-markets-continue-nosedive-as-regulator-warns-of-panic

Chinese stock markets continue nosedive as regulator warns of panic

Main markets open sharply down as nearly 700 companies request their shares be suspended in unprecedented move


Jennifer Duggan in Shanghai and agencies

Wednesday 8 July 2015 07.22 BST 

Chinese stock markets tumbled again on Wednesday as investors shrugged off a series of support measures by Chinese regulators, including the central bank's first public statement in support of the market since it cut interest rates in late June.

Minutes after opening, the Shanghai Composite Index fell by just over 8%. while the Shenzhen Component was down almost 5%.

Within ten minutes of trading, more than 1,000 shares across China's two stock markets had dropped by the daily limited of 10% and had their shares automatically suspended. About 1,400 companies, or more than half of those listed – filed for a trading halt in an attempt to prevent further losses.

China's securities regulator said there was "panic" in the stock market with irrational selling off increasing and "leading the stock market to a situation of intense liquidity".

The People's Bank of China said it was assisting China's Securities Finance Corporation (CSFC), the national margin trading service provider, to acquire liquidity in an effort to steady the stock market.

It said it would do this through measures such as inter-bank lending, mortgage financing and floating financial bonds. It said it would keep a close watch on the market and continue to support the CSFC and guard against systematic and financial risks.

A spokesperson for China Securities Finance Corporation also said it would purchase more shares of small- and medium-size listed companies. It is these companies that have suffered the biggest losses.

Christopher Balding, a professor of economics at Peking University said that while it was not possible to know exactly why so many companies had suspended trading, a large number were doing so because they had used their own stock as collateral for loans and they want to "lock in the value for the collateral".

Ayako Sera, a senior market economist at Sumitomo Mitsui Trust Bank in Tokyo, said: "Today is all about China, with Greece in the background now that it's been given a new deadline."

"Shanghai's early losses were like a cliff-dive, which had a huge impact on investor sentiment."

Previous measures taken over the weekend by the Chinese government in an attempt to stabilise the markets appeared to have been unsuccessful. Analysts said the falls looked set to continue. Balding said: "I don't see it getting better. There is not going to be a turn around within the next week or two."

"It probably has a long way to go. Margin loans basically rose much faster and they are not falling nearly as fast, margin debt is not falling nearly as fast as the market is falling. What that is telling us is that there is a lot of stock that needs to be sold that hasn't been sold yet."

China's stock markets had previously been among the top-performing in the world, and had hit a seven-year peak in the middle of June. The Shanghai stock market had surged more than 150% in 12 months, but it has fallen 30% over the past three weeks – including a plunge of 12% last week.

Unlike most other stock markets, where investors are mostly institutional investors, in China, 80% of investors are small retail investors. This is a concern for the Chinese government because it causes a "political risk", according to Balding. The losses on the stock markets are going to cause a lot of people to lose money causing the government to "worry about people protesting on the streets", he said.

[The Brain]

Chexit?

[Josquius]

Important point- what does it mean for ROTW?

[jimmy olsen]

After a solid seven to eight years predicting DOOM here, I'm confident that that DOOM is finally here! Yay!?


Seriously, there's some Arabian level delusion and conspiracy theory thinking here. Oh noes! The market fell on the leaders birthday! The economy's fucked!
http://www.wsj.com/articles/chinas-stock-plunge-is-scarier-than-greecechinas-stock-plunge-is-scarier-than-greece-1436309780?tesla=y

China's Stock Plunge Is Scarier Than Greece
There are four basic signs of a bubble, and the Chinese stock market is on the extreme end of all four.


By Ruchir Sharma
July 7, 2015 7:23 p.m. ET
71 COMMENTS

China's state-sponsored stock-market rally is unraveling, with potentially dangerous consequences. The first major sign that all wasn't going according to script came on June 15. Chinese had awakened expecting big gains because it was President Xi Jinping's birthday, but the Shanghai market fell more than 2%. One deeply indebted day trader committed suicide by jumping out a window, his net worth wiped out by the collapse of a single stock that he had borrowed heavily to purchase. The market has since fallen by another 25%—and some fear that prices could go much lower.

In most countries, no one thinks there is a link between a leader's birthday and the market. That such a theory prevails in China reflects the widespread belief that Beijing's authoritarian government can produce any economic outcome it wants. Now trust in China's ability to command and control the economy is faltering. If trust collapses, the global repercussions could be more severe than those from the Greek debt crisis.

When China's economy slowed following the 2008 global financial crisis, Beijing pumped massive amounts of liquidity into the system. First that money went into the property market, later into the various debt-related products sold through the shadow banking system. But when property slumped and the shadow banks started to pose systemic risks, China had only one major market left to flood—stocks.

Funneling some of China's $20 trillion in savings into stocks was a last-ditch effort to revive flagging economic growth by giving the country's debt-laden companies a new source of financing. The aim was to trigger a slow and steady bull run, but the somnolent stock market exploded into one of the biggest bubbles in history.

There are four basic signs of a bubble: prices disconnected from underlying economic fundamentals, high levels of debt for stock purchases, overtrading by retail investors, and exorbitant valuations. The Chinese stock market is at the extreme end on all four metrics, which is rare.

The sharp equity rally took place despite sputtering economic growth and shrinking profits. By official count, margin debt on the Chinese stock market has tripled since June 2014. As a share of tradable stocks, margin debt is now nearly 9%, the highest in any market in history. At the leading brokerages, 80% of margin finance has been going to retail investors, many of them new and inexperienced.

Today China's 90 million retail investors outnumber the 88 million members of its Communist Party. Two thirds of new investors lack a high school diploma. In rural villages, farmers have set up mini stock exchanges, and some say they spend more time trading than working in the fields.

The signs of overtrading are hard to exaggerate. The total value of China's stock market is still less than half that of the U.S. market, but the trading volume on many recent days has exceeded that of the rest of the world's markets combined. Turnover is 10 times the level seen at the peak of the previous China bubble in 2007, and virtually the entire market inventory is changing hands every month. Such frantic activity has pushed up valuations for companies large and small, with the broad CSI 500 index trading at 50 times last year's earnings and the Nasdaq -style board Chinext valued at 110 times last year's earnings.

Since the June 12 peak, nearly $3 trillion in value has been erased, as Beijing takes increasingly desperate measures to arrest the price collapse. The authorities have cut interest rates and transaction fees. They have directed mutual funds and state pension funds to buy stocks. Over the weekend they panicked and reversed course by suspending new initial public offerings, suddenly choking off a source of the new corporate funding they had been trying to create. This comes when the real cost of corporate borrowing is high. Any further reduction in interest rates could accelerate the outflow of capital, after a record $300 billion has already left China this year.

The continuing crisis is viewed, locally and globally, as a test of China's control over the economy. The "Beijing put"—a perception that Chinese economy and markets are backstopped by the government—is under threat. That perception has underpinned the widespread belief that Chinese growth won't fall much below 7%, because that is the government's desired target and Beijing is omnipotent.

Looming over all of this is China's massive run-up in debt, which has increased by over $20 trillion—to around 300% of GDP—since the global financial crisis in 2008. All along, the bulls argued that Beijing has successfully managed every challenge to its three-decade economic boom, and that it could overcome the threat this debt represents. At a minimum, the argument went, China's financial woes would be smaller than those of other countries with high levels of borrowing. This faith in Beijing encouraged many global hedge funds to pile into Chinese stocks.

But if Beijing can't stop the market's tumble, there could be a sudden shift in the perception of exactly how far economic growth might fall under the weight of too much debt. If that floor crumbles and the Chinese economy spirals downward, it will make the drama surrounding Greece feel like a sideshow. China has been the largest contributor to global growth this decade; Greece's economy is about the size as that of Bangladesh or Vietnam.

There is no global drama that bears closer watching than Beijing's battle for control.

Mr. Sharma is the head of emerging markets and global macro at Morgan Stanley Investment Management and the author of "Breakout Nations: In Pursuit of the Next Economic Miracles" ( Norton, 2012).

[Valmy]

China's Stock Plunge Is Scarier Than Greece

I don't find anything scary about Greece so that is not saying much.

That perception has underpinned the widespread belief that Chinese growth won't fall much below 7%, because that is the government's desired target and Beijing is omnipotent.

Wait it is a widespread belief that China's government has super powers?

[DGuller]

Has Xi lost his mandate of heaven?

[Valmy]

Mono will be the Liu Bang of his age.

[Monoriu]

Mono will be the Liu Bang of his age.

I obey 

[The Brain]

Mono will be the Liu Bang of his age.

Liu Kang of his age would be cooler.