Chinese stock market crash; has the bubble finally burst?

[Monoriu]

Mono, do you know if one can trade options on Chinaman markets?

No idea about Shanghai but tons of options are traded in HK.  We call them warrents here.  There are like thousands of them. 

[Admiral Yi]

No idea about Shanghai but tons of options are traded in HK.  We call them warrents here.  There are like thousands of them.

So could you have been shorting the mainland stocks through the HK market?  Or anyone, for that matter.

[Monoriu]

No idea about Shanghai but tons of options are traded in HK.  We call them warrents here.  There are like thousands of them.

So could you have been shorting the mainland stocks through the HK market?  Or anyone, for that matter.

Not sure.  That will require a human broker and an account with a securities firm (as opposed to a bank), and I don't have that.  There are quite a number of exchange traded stock index funds listed in HK, and a few of them track the Shanghai index.  I imagine that you can short those in HK, although there are also limitations on short-selling.  Anyway, I have never short-sold anything, so I really don't know.

[Monoriu]

Anyway, forget Greece.  The stock market crashes in China and Hong Kong have wiped out market capitalisation that is probably a hundred times Greece's annual GDP already.  If this goes further, Greece will become a sideshow.

[Admiral Yi]

Not sure.  That will require a human broker and an account with a securities firm (as opposed to a bank), and I don't have that.  There are quite a number of exchange traded stock index funds listed in HK, and a few of them track the Shanghai index.  I imagine that you can short those in HK, although there are also limitations on short-selling.  Anyway, I have never short-sold anything, so I really don't know.

FYI, short-selling is borrowing the stock (at a fee) and selling it.  That's different than buying puts.

[crazy canuck]

Since the debt owed by Greece is to other governments and not private lenders, it is a sideshow.  But a sideshow given a lot more prominence because the inadequacies of the EU are being exposed.  The story is not so much about Greece but the political future of the EU.

[Valmy]

Since the debt owed by Greece is to other governments and not private lenders, it is a sideshow.  But a sideshow given a lot more prominence because the inadequacies of the EU are being exposed.  The story is not so much about Greece but the political future of the EU.

Right the economic impact of Greece is insignificant. It is a political show not an economic one.

[DGuller]

Trading of half the stocks on the Shanghai Stock Exchange has been suspended.  Major shareholders (those with 5% stakes or higher) have been forbidden to sell.  All state owned companies have been asked to buy shares, and any selling is strictly forbidden.  Important shareholders who have sold shares in the previous few months have been...invited to talks with party officials.  The People's Bank of China has promised unlimited ammunition for securities companies in their patriotic duty in supporting the stock market.

So, selling is forbidden, but buying is "encouraged"?  How does that work?

[Monoriu]

Trading of half the stocks on the Shanghai Stock Exchange has been suspended.  Major shareholders (those with 5% stakes or higher) have been forbidden to sell.  All state owned companies have been asked to buy shares, and any selling is strictly forbidden.  Important shareholders who have sold shares in the previous few months have been...invited to talks with party officials.  The People's Bank of China has promised unlimited ammunition for securities companies in their patriotic duty in supporting the stock market.

So, selling is forbidden, but buying is "encouraged"?  How does that work?

You use cash to buy, knowing it is stupid.  Then you tell the party boss that you have fulfilled your patriotic duty, and hope he remembers your sacrifice at an unspecified future date. 

[frunk]

You use cash to buy, knowing it is stupid.  Then you tell the party boss that you have fulfilled your patriotic duty, and hope he remembers your sacrifice at an unspecified future date.

Yes, but who is selling?

[Monoriu]

You use cash to buy, knowing it is stupid.  Then you tell the party boss that you have fulfilled your patriotic duty, and hope he remembers your sacrifice at an unspecified future date.

Yes, but who is selling?

Unpatriotic retail investors.

[crazy canuck]

You use cash to buy, knowing it is stupid.  Then you tell the party boss that you have fulfilled your patriotic duty, and hope he remembers your sacrifice at an unspecified future date.

Yes, but who is selling?

Not all selling is prohibited.  Just the insiders (those with 5% or more stake in the company)

[Monoriu]

Overall I think this is great news for Hong Kong.  We still have a reason to exist.  Foreign investors who want to buy shares in Chinese companies but are worried about liquidity in the Shanghai Stock Exchange can do business in Hong Kong.  I guess we won't starve to death in the next few years after all.

[MadImmortalMan]

Yes, but who is selling?

[The Minsky Moment]

The over-leveraged, under-regulated banking system collapses, that's what.

What does "under-regulated" mean in this context?  The government owns majority stakes and controls the majority of the big banks.   And the government has vast financial reserves at its disposal.

Even after all the trading declines, the Big 4 Chinese banks are still sporting market caps in excess of a trillion Yuan.  So despite the panics the market isn't pricing in a generalized financial collapse.

The Chinese stock markets and the underlying fundamentals are so opaque that IMO its a fool's errand to talk about what price movements mean or what's under or over-valued or where prices are going.  Clearly some people did nicely early this year as prices went way up, and some people are doing not so nicely as they go down, and some of each of those categories of people are the same people, and some are not.  This basically comes down to a political problem for the Party and they will handle however they handle it, for better or for worse.

The interesting economic question is what the state of China's macro-economy truly is.  We know growth is slowing.  Is it slowing according to plan: i.e. gradually and steadily with consumption replacing investment?  Or is it falling much faster?  The uncertainty about that question is helping to drive the market gyrations but if there really is an enduring slowdown well beyond plan, that raises potential problems much broader than instability in the stock market.