Posts tagged 'Shanghai composite'

Lessons in distorting your own market from China’s “national team”

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

Markets go up, markets go down… apparently even in China

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

TANSTAAFL, China equities and the wider economy edition

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

Putting that Shanghai Comp dive into context

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

Shanghai Comp — tin hats back on please [updated]

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

“Where there has been a bubble is in articles containing the words China and bust”

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.

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Rorschach formation spotted in China stocks

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.

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China’s thawing, yet still very worthy of scare quotes, “market”

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

Of brokerage booms, hidden debt and Chinese GDP data

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

So you’re a leveraged stock market investor with poor timing in China?

We suppose you’re probably looking at something like this and may v well already be washed out…

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This is nuts. Revive the A shares, benefit the people?

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’.”

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17 days later

Analysts are certain that the “super-bull” run in Chinese clickbait has to stop sometime.

But not just yet.

Courtesy of BofAML’s Hartnett:

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Chinese percentages that will melt your mind, from JPM

As it says on the tin:

The median return of the China A-shares over 12 months to the market peak on 12 June is 200%. 185 companies are in the top 10 percentile; the median return is 410%. These companies declined by 57% from the peak on 12 June to 7 July. SHCOMP, SZCOMP and Chinext were down 28%, 38% and 40% during the same period…

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China and the delusion of control, redux

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

Chinese equities… and fat pipes of wealth extraction

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

How’s that Zhou put working out for ya?

We’ll tear ourselves away from Greece to point out that Chinese markets are totally normal.

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Calling a top in China

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

Cognitive dissonance and still rising margin positions in China

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.

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Your half year report

Do click to enlarge:

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That was nuts. Is this the crash?

Chinese stocks recorded their worst week since 2008…

More bullish observers say short-term factors are to blame for the 13.3 per cent fall in the benchmark Shanghai Composite Index this week, exacerbated by a 6.4 per cent fall on Friday…

The Shenzhen Composite was down 12.7 per cent for the week in late Friday trading — its worst since week since October 2008…

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Consensus bubble in China?

From Morgan Stanley’s China Pulse survey first (via @jjeswani):

In June, more than half of the investors believed Shanghai A-shares were already in a bubble vs. only 12% holding this view in January.

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This is nuts, what could possibly go wrong?

Seriously, it’s foolproof and definitely not something we’ve seen before in other bouts of market mania.

From the WSJ:

Chinese companies are turning to an unlikely source for profits in the soft economy: the country’s red-hot stock markets.

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This is nuts, find me a greater fool please

From Bocom’s Hao Hong, he of the “price to whatever ratio”, we get today’s China nuttiness fact du jour*:

When calculated on a free-float adjusted basis, Chinese market’s average holding period is about one week – a hallmark of intense speculative trades in the market. Everyone is busy looking for the greater fool. Note that at the height of the Taiwanese bubble in 1989, every available share on the exchange changed hands close to twenty times per annum. That is, the free-float shares on Taiwanese exchange changed hands every 15 days on average.

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China: staggered reform on one side, equities on the other

From SocGen’s Wei Yao, a chart we’re very tempted to plonk beside one of China’s equity markets:

Actually… Read more

In which the Shanghai Composite lords it over the rest (and allows for some handy listings)

Since it’s that time of the year again, here’s the state of play so far, courtesy of Deutsche (do click to enlarge):

On the standout star performer — Chinese equities — we’d recommend checking in on Matt’s recent piece on the potential upsides of China’s bull run — the question being, can it strengthen the real economy? And we’d add to Matt’s thoughts, quickly, that allowing broke companies to change out their unpayable debt into equity shouldn’t be underestimated as a reason for this rally, rather than as a byproduct. Read more

China and a short nuttiness debate

We assume we’ve made our position on this pretty clear… but apparently Citi remain unconvinced.

To wit: “If the Chinese market were to double from here it would indeed be in bubble. The same is true for Asia, a doubling would put us back at 3x book which over the last 40 years has been the peak – four times. When we get close to those levels we will be in a bubble, till then it’s a bull market.”

From their GEMs team, which has been preaching China equities for quite a while (with our emphasis): Read more

Your Shanghai equity frenzy, we have “a fresh crescendo” people

Just going to leave these few charts here for a second…

That’s from BNP Paribas, this is via Tom Orlik and a few others: Read more

Of Chinese exceptionalism and price-to-whatever ratios

A Chinese rendering of jusqu’ici tout va bien courtesy of Bloomberg:

The chief China strategist at Bocom International Holdings Co. points to soaring price-to-earnings ratios, the shrinking yield advantage that stocks offer over bonds and the fact that mainland-listed equities now trade at a 34 percent premium over nearly identical shares in Hong Kong.

So what’s Hong’s advice to investors?

Keep buying, of course.

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China’s “new 4 trillion stimulus” and its collateralised weight

Biggest fall in five years that, even if it’s still up 35 per cent this year. Might be time to talk about the potential consequences of all this, no? Read more

China’s equity frenzy: putting easing on hold?

Nice from Simon Rabinovitch at the Economist:

One middle-aged man, Mr Xu, had come to meet a manager to inquire about how to subscribe to initial public offerings; their average first-day gain has been about 40% this year. He said he had taken the afternoon off work for the meeting and could hardly conceal his glee. “I’ve been trading since 1992 (just two years after the Shanghai Stock Exchange was established) and I guarantee you this bull market will last,” he said. He confessed to getting badly bruised by the last big one – his portfolio of 500,000 yuan had swollen to 3 million yuan by 2007 at the peak of the market, before falling back to its original level.

At the other end of the spectrum in terms of experience was Ms Zhou, 25, an interior designer with dyed-blonde hair. Like many other young professionals, she had previously put a big chunk of her savings in an online investment fund marketed by Alibaba, an e-commerce company. The fall in interest rates has reduced the return on that fund, pushing her to look for alternatives. “I had been thinking for a while about buying stocks but I had to travel for work and missed the best opportunity,” she sighed. “I will be conservative at first. Just one or two thousand yuan. Or maybe ten thousand.”

Which says a lot about the mechanical nature of this “super-bull” run. There’s simply quite a bit of money in China and a limited number of places for it to go. Once one is found… Read more