China Bubble Trouble

[SaintessHeart]

Chinese Stocks Head for Biggest Two-Day Rebound Since 2008

Chinese stocks rose, capping the benchmark index’s biggest two-day gain since 2008, as unprecedented government intervention helped curb an equity rout that erased $3.9 trillion in less than a month.

The Shanghai Composite Index rallied 4.5 percent to 3,877.80 at the close, adding to Thursday’s 5.8 percent surge. With more than 1,300 companies still halted on mainland exchanges, trading was limited to 53 percent of the market. About 90 percent of stocks that did trade soared by the maximum 10 percent. The rebound helped the gauge climb 5.2 percent this week after tumbling to three-month lows on Wednesday.

Official measures to support shares became more extreme during the week as declines deepened. They include a ban on stockholders and executives from selling stakes in listed companies for six months, an order for companies to buy equities and an investigation by the nation’s public security bureau into short-selling. Even as stocks rebounded, foreigners have been net sellers of Shanghai shares every day this week, while local investors continued liquidating bullish bets on the exchange on Thursday.

“The measures introduced by the authorities needed some time to have an effect on the market and they have finally started to show results,” said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co. in Shanghai. Stock halts will continue for “some time” as “companies and regulators clearly want to have them coming back to trading without impacting the overall market.”
Stock Valuations

President Xi Jinping’s government is deploying the heavy hand of the state to prevent falling stock prices from eroding confidence in his leadership. China now has more than 90 million individual investors, outnumbering members of the Communist Party.

More than 1,300 companies rose by the 10 percent daily limit on the Shanghai and Shenzhen exchanges on Friday. Gauges of industrial, consumer staple and health-care stocks jumped more than 7 percent on the CSI 300 Index, which gained 5.4 percent. The Hang Seng China Enterprises Index advanced 3.6 percent in Hong Kong. The Hang Seng Index added 2.1 percent.

The rebound pared losses by the Shanghai Composite since its June 12 high to 25 percent. While the median price-to-earnings ratio in China has dropped to 57 from 108 at the height of the rally, valuations are almost three times as high as those on the Standard & Poor’s 500 Index.

Fidelity Investments, which oversees the largest China funds outside of the mainland, says Chinese stocks are a buy following the selloff.
‘Fully Invested’

“As far as the fundamentals are concerned, we are actually quite confident,” Robert Bao, a Hong Kong-based money manager at Fidelity, which oversees more than $2 trillion globally, said in a telephone interview. “We are fully invested.”

Bank of America Corp. said the market is now dependent on the state.

There is a decent chance of “another leg down” for stocks within the next few months when the government starts to withdraw its support in terms of liquidity, David Cui, Bank of America’s head of China equity strategy, said on a conference call on Friday. Unless the government keeps pushing the market higher, selling pressure will probably “stay relentless” because of leverage, he said.

Margin traders cut holdings of shares purchased with borrowed money for a record 14th day on the Shanghai Stock Exchange Thursday. The outstanding balance of margin debt on the nation’s two bourses has dropped by $132.6 billion from the peak on July 8 to $232.6 billion through Wednesday.

A five-fold surge in margin debt over the 12 months through June 12 had helped propel the Shanghai index to a more than 150 percent gain.

Foreigners sold shares through the city’s exchange link with Hong Kong on Friday, extending a record four-day outflow, according to data compiled by Bloomberg.

Sounds like a double bubble to me now the government stepped in. Holy.

[JokerD]

Sounds like an excuse for more state control of the stock market. But more seriously, I'm not sure if this is the start of an avalanche or a smaller market correction...

[SeijiSensei]

As one commentator on NPR observed this morning, the Chinese government is fine with capitalism as long as the market is rising. When it falls, it's time for a dose of socialism.

One reason for concern is the composition of the group of more recent investors. The recent investors are less well-educated and less-experienced than their predecessors and threw their savings into the stock market as the bubble grew. They were entirely unprepared when the market fell.

Then again, I don't know how well prepared I was when my retirement savings fell by half in 2007-2008.

[Xellos-_^]

Originally Posted by SeijiSensei

As one commentator on NPR observed this morning, the Chinese government is fine with capitalism as long as the market is rising. When it falls, it's time for a dose of socialism.

One reason for concern is the composition of the group of more recent investors. The recent investors are less well-educated and less-experienced than their predecessors and threw their savings into the stock market as the bubble grew. They were entirely unprepared when the market fell.

Then again, I don't know how well prepared I was when my retirement savings fell by half in 2007-2008.

they didn't just threw their savings into the stock market. They also borrow money to throw into the stock market.

China does have enough to buy the market up. But that is only temporary. Their best hope is for the small mom and pop players to cash out so the gov can let the market do the correction.
if nothing else, it will teach government officials to keep their mouth shut about the stock market.

[SaintessHeart]

Originally Posted by Xellos-_^

they didn't just threw their savings into the stock market. They also borrow money to throw into the stock market.

China does have enough to buy the market up. But that is only temporary. Their best hope is for the small mom and pop players to cash out so the gov can let the market do the correction.
if nothing else, it will teach government officials to keep their mouth shut about the stock market.

They won't. Those Western-U grads need to show off how top of the class they are.

[aldw]

Hong Kong used equity purchases during the Asian Financial Crisis in the 90's to counter aggressive short sellers to stabilize their market, while Malaysia used capital controls to stop western currency speculators back in 2001 (and both actions coming to good effect), so an intervention action by the PRC gov to stabilize things is well within the sound course of action to implement, as opposed to the "free-market" ideologues demanding things their way.

[FDW]

I've heard that some of the measures that China is using to stabs it's stock market are very similar to the initial approach the US took in the 1929 stock market crash.

[RRW]

Eastern and western market now up and down like crazy

[Jazzrat]

Originally Posted by SeijiSensei

As one commentator on NPR observed this morning, the Chinese government is fine with capitalism as long as the market is rising. When it falls, it's time for a dose of socialism.

It's state capitalism, there's nothing socialist in China these days since Deng Xiaoping's reform.

[SaintessHeart]

Trump got something right, unfortunately.

Donald Trump on stock market tumult: China will ‘bring us down’

[risingstar3110]

So heard from a source that there will be massive US and world wide stock crash in the next 24 days, somewhere or around the Fed meeting in mid September . But as illiteracy on economic as I am, I can't quite understand or confirm the whole theory and concept.

So anyone know more about this?

[Vallen Chaos Valiant]

Originally Posted by risingstar3110

So heard from a source that there will be massive US and world wide stock crash in the next 24 days, somewhere or around the Fed meeting in mid September . But as illiteracy on economic as I am, I can't quite understand or confirm the whole theory and concept.

So anyone know more about this?

If your source is an anonymous person on the internet, could it really be a source?

And economic crashes are like The End of the World. At any one time someone somewhere would always believe the world is going to end. It really isn't new, much like those with "End is Near" signs.

Look, what is going to happen is that China is going to spend a lot of its reserves to bail out the stock market. And things go back to normal. Catastrophic crashes are like plane accidents, unless you are involved there is no reason to worry. Deal with it as it comes.

[SaintessHeart]

It already started with China. Let's see how much China can pump into its economy before it runs out of cash.

[risingstar3110]

Originally Posted by Vallen Chaos Valiant

If your source is an anonymous person on the internet, could it really be a source?

And economic crashes are like The End of the World. At any one time someone somewhere would always believe the world is going to end. It really isn't new, much like those with "End is Near" signs.

Look, what is going to happen is that China is going to spend a lot of its reserves to bail out the stock market. And things go back to normal. Catastrophic crashes are like plane accidents, unless you are involved there is no reason to worry. Deal with it as it comes.

He is actually one of the leading financial planner/ investor here. More like because our stock price will also be affected if US stock market crash. The predicted if I remember correctly here is a 25-40% crash

But once again, we will see in 3 weeks. I means, It's not like he said "the sky is falling" or something. He just said that, that is how the trend he predicted it will be, and ask is it worth to earn 4-5% more at the risk of losing up to 80% of your saving (depend where you invest in).

I don't invest on stock market through. So I do not care as much. But it will be quite a show if it really could be seen so far ahead and still no one can avoid it

[aldw]

Originally Posted by SaintessHeart

It already started with China. Let's see how much China can pump into its economy before it runs out of cash.

I've got China stocks and hedge fund investments so I'm going at this for the long haul.

Originally Posted by risingstar3110

He is actually one of the leading financial planner/ investor here. More like because our stock price will also be affected if US stock market crash. The predicted if I remember correctly here is a 25-40% crash

But once again, we will see in 3 weeks. I means, It's not like he said "the sky is falling" or something. He just said that, that is how the trend he predicted it will be, and ask is it worth to earn 4-5% more at the risk of losing up to 80% of your saving (depend where you invest in).

I don't invest on stock market through. So I do not care as much. But it will be quite a show if it really could be seen so far ahead and still no one can avoid it

It does depend on the type of stock and market, for some industries can do well in an economic depression even if the rest of the market loses over half its value.

Here's a interesting article that covers this topic:

Stock investment in the Great Depression

[SaintessHeart]

I am thinking of shorting as much of it down as I can.

Still here are a couple of interesting reads.

How Do Asset Bubbles Cause Recessions?
By Investopedia

1930s Lessons: Brother, Can You Spare a Stock?

[Cosmic Eagle]

Originally Posted by SaintessHeart

It already started with China. Let's see how much China can pump into its economy before it runs out of cash.

Let's see how many people still dare to invest so heavily in such a volatile economy...

But eh, too late for them to pull out now I suppose since China is already too heavily intertwined with the system

[SaintessHeart]

Originally Posted by Cosmic Eagle

Let's see how many people still dare to invest so heavily in such a volatile economy...

But eh, too late for them to pull out now I suppose since China is already too heavily intertwined with the system

That is because they are thinking that they are buying at the bottom......the bottom is a long way down.

Short selling could kill all of these idiots and make a fortune doing so.

[Vallen Chaos Valiant]

Originally Posted by SaintessHeart

Short selling could kill all of these idiots and make a fortune doing so.

Only if you have the means. China is willing to ban short selling and force you to be left holding the bag. Until the situation improves, no one knows how far China is willing to go.

[SaintessHeart]

Originally Posted by Vallen Chaos Valiant

Only if you have the means. China is willing to ban short selling and force you to be left holding the bag. Until the situation improves, no one knows how far China is willing to go.

Shortsell their overseas holdings? As long as you list a GLC on a foreign exchange with FFA trading rules (like the US-of-A), you are exposed to a whole lot of risk. Then again, it is the best way to get capital because you can sell your company stock any way you want.

Still they are playing the take-you-with-me card. They are dumping US Treasury holdings to keep the yuan afloat. Given how liquid the US Treasury bonds are, I wouldn't be surprised if people would buy it, toss it around, short it when it goes down, buy more at the bottom for the yield, hedge against it, repackage it to sell to less investment savvy people......so much you can do with these pieces of paper.