In that Empire, the Art of Cartography attained such Perfection that the map of a single Province occupied the entirety of a City, and the map of the Empire, the entirety of a Province. In time, those Unconscionable Maps no longer satisfied, and the Cartographers Guilds struck a Map of the Empire whose size was that of the Empire, and which coincided point for point with it.
And from David Cui, China equity strategist at BofAML, on the creeping direct ownership of shares by government bodies in China:
Shanghai Securities News reported today that SAFE (under PBoC), through its three investment arms, became a top 10 shareholder in at least 10 A-share companies in 4Q15. On March 29, Securities Times reported that Huijin (a subsidiary of CIC, which is under the State Council and has a close tie to the MoF) was among the top 10 shareholders in five ETFs at the end of 2015. We also know that CSFC (under CSRC) bought heavily in the market last year… the three main government bodies that run the economy, the financial system or regulate the market all have a direct stake in the market, literally.
What’s “Only when the tide goes out do you discover who’s been swimming naked” in Chinese?
That’s the Shanghai Comp, and this is from Bloomberg:
China Citic Bank Corp., a unit of the nation’s largest investment conglomerate, uncovered a fraud case at its bill-financing business involving about 1 billion yuan ($152 million) late last year, people familiar with the matter said.
But first, an updated, increasingly manic, chart of the moves by China to help its equity markets along, from Alberto Gallo at RBS:
And yes, that Jan 5 bit down the bottom right of the chart (which we assume you have all clicked to enlarge by now) alludes to the inevitable and now confirmed plan to
put off giving the market a decisive role “extend a ban on stock sales by large shareholders until permanent rules to restrict such sales take effect”. Read more
A short, occasionally speculative, always incomplete, list:
1. It makes following our rule — ‘don’t write about Chinese stocks before markets close because they can be relied upon to immediately move and make you look like a jerk’ — that little bit easier.
Those stocks now pause after a 5 per cent drop in the CSI 300 and, crucially, close for the day after a 7 per cent drop. Which happened yesterday. Not the biggest gap between those thresholds btw. As a comparison, via Nomura, “the US has set three thresholds of 7%, 13% and 20%, and Korea has set three thresholds of 8%, 15% and 20%.”
2. It’ll make writing about Chinese markets even more entertaining since these kinds of close together breakers tend to backfire. Read more
Would have been a shame not to road test the sucker…
And, per Bloomberg: Read more
Stabilise the A-shares? Benefit the people?
We dunno but we DO have another estimate of how much RMB the Chinese government spent propping up its stock market in Q3 AND the good news is the CCP is back in the black. Or the red, depending on where you are. Either way: up on its investment (from the most limited of perspectives).
From BoFAML’s David Cui, with our emphasis.
Largely based on top-10 shareholder information disclosed by A-share companies, we estimate that the government likely spent at least Rmb1.5tr in Q3 to support the market (Table 1). Given the potential damage to the PBoC’s and RMB’s reputation, economic growth and long-term financial system stability, we think it unlikely that the government has the resolve to keep buying if heavy selling pressure in the A-share market resumes at certain point.
Observe their glorious return.
Of course, margin debt in China is still massively off the peaks we saw earlier in the year when it was at world beating nutty highs, particularly vs free float, which came crashing predictably down to earth. But this latest tick back up is all the more notable considering that crash, no? Here’s the five-year view of the Shanghai Comp as a reminder. Read more
Go up, down, or stay flat. Dunno
What we do know is that China’s markets opened again today. Which is nice.
As FastFT said: “Trading for the first time in a week, China’s Shanghai Composite closed 3 per cent higher, while the Shenzhen Composite gained 4 per cent —the best one-day performance for both indices since September 16 …”
And it may be that there is a legitimate reason to suspect that a real floor of sorts is now in place under China’s A-shares. Or at least, that’s the tale is Goldman is telling. Read more
Oh yes, that was when the Shanghai index hit its “nadir of 3,507 points” and “when the government announced measures to prop up a market that had collapsed more than 30 per cent in less than a month.”
And oh look. We’re back there again. Well, a bit lower actually: Read more
Estimates of how much cash China has flung at its stock market, in the hope that some sticks, vary.
As the FT says, the “government has not disclosed either the amount of rescue funds it has allocated to the coalition of state financial institutions — known as the “national team” — or how much of this total has already been invested.”
But all estimates tend to settle, roughly, on different quantities of “lots”.
First up then, a Goldman note out on Wednesday which estimates that said ‘national team’ “has potentially spent Rmb860-900bn [some $144bn] to support the stock market in June-July 2015… equivalent to 1.6%/2.2% of total market cap/free float market cap”:
There’s a wild new theory going around that China’s (new and old) stock market slide is less down to this kind of thing….
Speaking before the investigation [into Avic Heibao, a listed manufacturing subsidiary of Mr Lin's company Avic, by the securities regulator on suspicion of illegal and irregular share transactions] was revealed, Mr Lin cast his company’s actions as part of a heroic struggle against foreign aggression.
“This stock disaster was a premeditated plot, a well-prepared case of malicious short selling and part of a powerful, tumultuous economic war launched against China,” Mr Lin said in an interview with state media. “The war launched against [the Chinese stock market] is an attack on the five-starred red [Chinese national] flag.”
In an editorial he penned for a state-run nationalist newspaper, Mr Lin also blamed US plots for the problems in the Japanese economy in the early 1990s and for the 1997 Asian financial crisis.
… and more down to distortions in China’s own markets. Now, particularly, those distortions introduced by China’s powers-that-be while trying to put a floor under the slide and target a level of 4,500 for the index, using a raft of measures. Read more
Chinese equity markets are nuts. And the search for a narrative to explain this week’s moves is becoming ever nuttier. As Deutsche said: “It ceased to be a free market a long time ago so analysing it is tough”. Read more
Chinese equity markets have continued puking. Yes, they’re still up on a longer timeframe, but were off a sudden 8.5 per cent on Monday, the worst fall since 2007. The Shanghai Comp now looks like this:
As the FT said, the Shenzhen Composite sank 7 per cent, and the ChiNext start-up board dropped 7.4 per cent. Significantly, more than 1,700 stocks fell by the maximum daily amount of 10 per cent, while only 78 rose. Large caps like PetroChina, the country’s largest company by index weighting, lost 9.6 per cent. Xinhua has thus declared the “The return of debacle!”.
So a reminder of the constraints that China’s powers-that-be are labouring under seems more than appropriate. The point is that, as quoted below, “what just happened in the A-share market will likely have profound impact on China’s economy and financial system one way or another”. Read more
It was the worst fall since 2007 and the second worst fall since 2000, chart courtesy of the FT’s Peter Wells:
Or as China’s Xinhua is putting it — “The return of debacle!”: Read more
We hate to concentrate on the dives alone, but this is getting serious. We’re off 8 per cent at pixel and on track for the biggest one day fall since 2007 — there was an 8.23 per cent drop on April 6, 2007 according to Fast — click through for the live Google finance price:
The Shenzhen Comp is off 7 per cent, CSI300 is also off by the same amount and Asian equities are generally looking unwell. We’ll update this post as we go, particularly as this could rally into the close.
UPDATE: Or not, Shanghai Comp closes down 8.5 per cent — the worst fall since February 2007 — with the the Shenzhen down 7 per cent and the ChiNext of 7.4 per cent. Read more
That’s Citi, protesting. We’ll leave it to you to decide if it’s too much:
Sentiment indexes are in despair and investors want to get more bearish still — It is rather strange that an asset class which is already in despair according to our sentiment indicators, and where valuations range from 1 stdev-below-mean to mean in terms of P/BV, and yet fails to generate much investor interest. On the contrary, as sentiment has worsened and valuations have fallen, investors have become more dismissive of the asset class. This is no truer than when it comes to the China. A market, which is either in a bubble or collapsing, and sometimes doing both the same day according to the bears….
The Chinese market corrects and the bears come out of hibernation all at once. Having been temporarily silenced by the rising market, all one needs to do is open a reputable newspaper or look at Bloomberg and you’ll get your fill of China doom and gloom. And while the momentum is down, why not extend the pessimism to all EM, which after all is just one big China trade anyhow? China and the EM asset class is doomed and for all the pulp and paper in the world there aren’t sufficient hankies in the world to mop up this mess, it would seem.
Classic bullish/ bearish signal with obvious buy/ sell implications.
As Bernstein say:
The rebound over the last week means we have entered a period where everyone was right. China bulls can argue that the Shanghai Composite is still up 94% over the last twelve months. China bears can argue that the Chinese regulators have effectively taken the market out of consideration by virtue of the ham-fisted approach to reversing the sell-off. However, “I told you so” doesn’t constitute an investment recommendation.
From the Peterson Institute:
Does this mean anything? Yes, probably. It just doesn’t mean as much as it would if the government wasn’t dominating the market at the moment. Read more
We’ll get to the hidden debt stuff below. But, first, an update on the health of the Chinese economy from your friends at China’s statistics bureau.
The poor fellas had to deal with a median expectation among analysts of a 6.8 per cent print for China’s Q2 GDP growth. Frankly, that betrayed a disturbing lack of confidence in China’s leaders. Leaders who eventually nailed it with a reading of 7 per cent — bang in line with Li Keqiang’s predictions for full year growth.
Of course, as per Capital Economics, these data are going to do three main things. First, bring attention to a smattering of recovery in the broader economy including some stabilisation in fixed asset investment after growth had slowed for nine of the previous 10 months.
But, more importantly, they will underline the trouble with Chinese stats — always watch the trend not the figure — and draw attention to the unsustainable contribution being made by the financial sector: Read more
We suppose you’re probably looking at something like this and may v well already be washed out…
From the FT’s James Kynge:
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’.”
Analysts are certain that the “super-bull” run in Chinese clickbait has to stop sometime.
But not just yet.
Courtesy of BofAML’s Hartnett:
Assuming that everyone can keep two economic train-wrecks in mind at once, we’d like to direct your attention away from Greece and over to China and its plunging equity markets.
We would have done so sooner but have a rule, rarely broken, that stops us writing about Chinese stocks before markets close. It’s called the ‘don’t write about Chinese stocks before markets close because they can be relied upon to immediately move and make you look like a jerk’ rule.
Still though, they’re closed now.
So, consider this from Citi: Read more
Right, so today the Shanghai Composite is up 5.6 per cent, Shenzhen is up 4.8 per cent and ChiNext has gained 6.3 per cent. And we have no idea what’s going to happen tomorrow
Over the past few days we got a clear government push to keep this thing up — including pushing something like an extra RMB1tn into the system via RRR and benchmark rate cuts over the weekend and, today, fund managers being told to help out — but it’s unclear how long that can keep things contained following near 20 per cent falls in these markets since their (admittedly v impressive) peaks in early June.
As of yesterday it was: not much at all as markets tumbled. As of today it’s: a bit more than that as they don’t.
To help clear things up, here’s Anne Stevenson-Yang of JCap Research with her most recent note: Read more
We’ll tear ourselves away from Greece to point out that Chinese markets are totally normal.
Title wise, That was nuts. Is this the crash? was already taken. In this exact context. Last week.
So… this time the Shanghai Comp has just closed down 7.4 per cent (with some 70 per cent of stocks hitting downward limits), Shenzhen fell 7.9 per cent while ChiNext dropped 8.9 per cent. Read more
Still rising until September based on broker capital, if you believe Macquarie.
And here is the bank, with our emphasis, after last week’s Chinese equity dive amid stories of broker crackdowns:
Last week’s sharp A-Share correction creates an opportunity for us to update our margin database and charts. It seems that hardly a day has gone by in recent weeks without some discussion of media reports about broker “crackdowns” on Chinese margin lending. But it may be more instructive to observe what brokers and their customers actually do rather than simply observing what the media reports they are doing. This is because the aggregate data on margin lending tells a very different tale from the “tightening” narrative.
Margin positions have continued to spike, climbing 16% MoM and 123% YTD to reach a new high of RMB2.3 trillion as of 18 June. This is 4.6x higher than a year ago. It brings the ratio of margin positions to market cap up to 3.4%, which is still below peak levels achieved in Taiwan in the 1990s. However, as noted previously, margin positions to free float – our preferred metric for considering the possible share overhang – is now 8.5%. Admittedly these numbers become less shocking with time, and cross-country comparisons are fraught with apples to-oranges risks, but we’ll say it one more time – this level of margins to free float is higher than any historical example that we can find.