China Halts Trading After Market Tumbles More Than 7 Percent

[Keel]

Journalists are calling the effect upon the U.S. stock market, "China in a bull shop" - mindless destruction of capitalization due to poor currency rate and liquidity management by China's PBC. They have lost a lot of their hard-won international credibility today.

While the PBC has started injecting liquidity into the system, they are not doing so to scale, they are thinking like China is a middle-size economy, and they aren't taking all the measures they should to alleviate consumer (not just business) liquidity demand.

Nor, apparently, are the Chinese yet appealing to other CBs for reverse currency swaps and other necessary interventions that would prop the renminbi. (Perhaps that's because ownership of some of China's foreign assets like mines and commercial property would go into other hands.)

They can call whatever they want and they should know we are not working according to their directives

Is the japanese yen value rising? the japanese have been QE-ing for ages but why the americans dont complain about it?

Now the Fed wants to raise their interest rate just by a very modest 25 basis point and I think they shoud raise it again soon

Our folks should stop travelling overseas spending their hard-earn money as foreign currencies and their commodities aint cheap no more!

Cut that "credibility" out as the Fed and the BOJ have lost theirs to save their own economies at the expense of the rest of the world

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[mike2000 is back]

China should shut down its stock market for about 1 year until it becomes a proper stock market. This is not a stock market. 90% are old people pretending to be investors.

Chinese stock market has become a national embarrassment. Every few weeks this thing crashes like 20% in 1 week. Then goes up again 15% the next week. Then crashes again. It's worse than a casino.

Shameful. The regulators should be arrested for their incompetence.

People say Chinese stock market is not representative of the real economy but when it crashes every few weeks it further damages China's economic and financial reputation and shows the regulators have absolutely no idea what the hell they are doing. People won't even buy the renminbi as Chinese financial markets are incredibly volatile.

3% movement is considered massive.

I agree with you on this one. Chinese stock market is surprisingly one of the few field in which China still lags far behind other developed(and even some developing) countries. It's like the the wild wild west version of the stock market.

In the US/U.K and other advanced western countries, the stock market is quite mature, both in terms of the mechanisms built into the market (shorting, options, circuit breakers, futures, indices and rebalancing) as well as the experience of the key participants (hedge funds, institutional funds, pension funds, and retail investors etc).

In contrast, the Chinese market is quite young(so we need to give China time as well.). Much of the mechanisms in western markets do not yet exist or are very limited in the Chinese market (retail investors don't have access to options, shorting is limited to those with 1/2 Million already invested in the market). More importantly, many Chinese citizens don't seem to understand the market or even have basic impressions of the inherent risks in the market.

Now add to that a government that is eager to inject value into the market (perhaps to boost the value and balance sheets of state-owned companies as my friend @Economic superpower pointed out earlier). The market was basically stuck in neutral for a number of years, but moves to increase economic growth by improving liquidity and easing borrowing woke the market up. In addition, steps taken to open the market to international investors (first via links to HongKong) provided a huge catalyst.
However, Suddenly, the market was moving up, and folks who had no idea what stocks were were racing to open new accounts(i red in FT that over 30 millions account were opened from April to July last year alone).
Funny thing is, People were/are not only betting their lives savings, but selling physical assets and borrowing money to put into the market. something like borrowing 10x your actual portfolio value to trade. The more injection of new yuan/dollar, the higher the market goes. Since much of the market is now dominated by inexperienced investors, there's little attention paid to fundamental valuation metrics, and P/E ratios for some small caps went as high as 1300..
It is for such reasons that the Chinese stock market is generally far more volatile than most others as it is a market driven by pouring money instead of the inherent value recognition, which makes it is like a Ponzi's Scheme most of the time. As the stock rally is completely depended on the new money invested by new investors, without money pouring in, the bubble is destined to burst soon or later.

Granted that forced liquidation via margin calls is a common contributor to most corrections/crashes in the US/western markets as well, but the difference is that those margin calls are often triggered by hedge funds who made big bets the wrong way, not individual investors as in China.

Anyway, Chinese stock market is more detached from the Chinese economy, so any crash wont have a serious effect/impact on China's economy per se, unlike in western countries whose stick market is closely linked to the economy. Nevertheless it does tarnishes the image of China's stock market as economic superpower said earlier. and we all know that its difficult to gain back trust/recognition in this case since perception matters alot(more than even reality at times).lol

 

[Solomon2]

They can call whatever they want and they should know we are not working according to their directives

The point is that China SAID it wouldn't seek further devaluation but then the currency continued to fall. In the past when a CB (British, French, U.S., Argentine - your credibility criticisms are not wholly without merit) did that it meant it was prepping for a MAJOR devaluation - and once markets realized that, the currency dropped even further. And since November, China has joined the same honor-stained club, but only as of now has it been tainted - while the market judges the others to have been "clean" for the past six years.

 

[Aepsilons]

@Shotgunner51

Changes to fiscal rules have made it harder for local governments to spend money. With consumer-price inflation running at a five-year low of 1.1% and producer prices deep in deflation, there is a case to be made that China’s economy, restrained by the government, is performing below its potential. The good news is that neither the cyclical nor the policy explanations for China’s slowdown are permanent. As the cycle turns and policy changes, the outlook should improve.

 

[Solomon2]

Our folks should stop travelling overseas spending their hard-earn money as foreign currencies and their commodities aint cheap no more!

China has enormous reserves to stabilize the renminbi but I don't think the PBC grasps the scale of intervention required and the simultainiety of the mechanisms to do so. It has to increase domestic liquidity while stabilizing the currency. The have to engage in (1) monetary sterilization and (2) provide a domestic alternative to sending money overseas, especially dollars.

#1 they can do (though maybe they've never done it before, there are bankers to advise them).

# 2 can't - for a time - be the stock market, because confidence vanished and needs to be rebuilt. Domestic bond markets are insufficiently developed, right? So what the Chinese gov't can do is sell gold to its citizens. Chinese don't think of gold so much in the way Indians do - as a good to be treasured - they think of it more as Americans do, a means to an end.

The 19th century U.S. experience was that confidence was quickly restored once gold was in hands, because then people realized their wealth was safe but what could they do with it but invest it once more? One banker-turned-general, William Tecumseh Sherman, reports that during a run on his bank one of his customers who demanded all his money be redeemed in gold immediately, looked at his money for a few seconds, then redeposited all again. What else could he do, if he didn't need it?

 

[Keel]

The point is that China SAID it wouldn't seek further devaluation but then the currency continued to fall. In the past when a CB (British, French, U.S., Argentine - your credibility criticisms are not wholly without merit) did that it meant it was prepping for a MAJOR devaluation - and once markets realized that, the currency dropped even further. And since November, China has joined the same honor-stained club, but only as of now has it been tainted - while the market judges the others to have been "clean" for the past six years.

give the link to the "said" statement please

 

[Solomon2]

give the link to the "said" statement please

The statement itself isn't important, only what the markets think was meant -

“The more alarming thing is that they weakened the currency after saying they wouldn’t,” said Patrick Chovanec, New York-based chief strategist at Silvercrest Asset Management Group. “So that raises all these issues of mixed signals, confusion. It is very unclear what the policy is, whether they know what the policy is, whether they know how to implement the policy.” link

 

[Keel]

China has enormous reserves to stabilize the renminbi but I don't think the PBC grasps the scale of intervention required and the simultainiety of the mechanisms to do so. It has to increase domestic liquidity while stabilizing the currency. The have to engage in (1) monetary sterilization and (2) provide a domestic alternative to sending money overseas, especially dollars.

#1 they can do (though maybe they've never done it before, there are bankers to advise them).

# 2 can't - for a time - be the stock market, because confidence vanished and needs to be rebuilt. Domestic bond markets are insufficiently developed, right? So what the Chinese gov't can do is sell gold to its citizens. Chinese don't think of gold so much in the way Indians do - as a good to be treasured - they think of it more as Americans do, a means to an end.

The 19th century U.S. experience was that confidence was quickly restored once gold was in hands, because then people realized their wealth was safe but what could they do with it but invest it once more? One banker-turned-general, William Tecumseh Sherman, reports that during a run on his bank one of his customers who demanded all his money be redeemed in gold immediately, looked at his money for a few seconds, then redeposited all again. What else could he do, if he didn't need it?

1, we have enormous reserves that does not mean we are presenting ourselves to the world we are the "cash cows"
2. liquidity is needed every second for all purposes
3. gold is one of our means for storage of value and we are not lacking of it
4. devaluation is good to inject lives into the sluggish exports also it discourages people to spend as if there is no tomorrow on cheap foreign commodities and irrational overseas investments

The statement itself isn't important, only what the markets think was meant -

“The more alarming thing is that they weakened the currency after saying they wouldn’t,” said Patrick Chovanec, New York-based chief strategist at Silvercrest Asset Management Group. “So that raises all these issues of mixed signals, confusion. It is very unclear what the policy is, whether they know what the policy is, whether they know how to implement the policy.” link

I would just say dont be getting into naivities easily as financiers of the world
politics is getting so volative as well
how do we know the fierce conflict that have arisen in the M East between Iran and SA and more on the DPRK nuke test
I think this is a lesson to learn on both sides
Lets see how the PBOC is responding to those blames

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[Solomon2]

1, we have enormous reserves that does not mean we are presenting ourselves to the world we are the "cash cows"
2. liquidity is needed every second for all purposes
3. gold is one of our means for storage of value and we are not lacking of it
4. devaluation is good to inject lives into the sluggish exports also it decourage people to spend as if there is no tomorrow on cheap foreign commodities.,

All arguments used by other central bankers in the past, especially the French, whose greed for preserving their gold reserve doomed the world (including France) to depression in 1929, and France to its own economic and political mess in 1968-9. So congratulations, China! - you are no longer a developing country, you're just as bad as the other capitalist nations' banks have been.

 

[Keel]

All arguments used by other central bankers in the past, especially the French, whose greed for preserving their gold reserve doomed the world (including France) to depression in 1929, and France to its own an economic and political mess in 1968-9. So congratulations, China! - you are no longer a developing country, you're just as bad as the other capitalist nations' banks have been.

Haha what a sarcasm!
Thanks but no thanks We still have about 80 mio folks living in abject poverty
But China is the world largest producer of gold in the world
China should have purchased more than conducting excavations from our own mines

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[Solomon2]

Haha what a sarcasm!
Thanks but no thanks We still have about 80 mio folks living in abject poverty

It was not an offer.

...China is the world largest producer of gold in the world
China should have purchased more than conducting excavations from our own mines.

Pretty sure China did. That money went to pay miners and the balance into the markets. Now China needs to sell the same stuff to its citizens, to give them confidence in the system rather than resort to capital flight that would exacerbate currency problems.

 

[Keel]

It was not an offer.

I am putting myself into perspective taking the brighter side of it

Pretty sure China did. That money went to pay miners and the balance into the markets. Now China needs to sell the same stuff to its citizens, to give them confidence in the system rather than resort to capital flight that would exacerbate currency problems.

Hmm I dont have the info which can show the % distribution of gold sales but I am quite sure by tradition a handsome size of it should go into the hands of civilians

There are many ways of restoring confidence in the system but nothing is more precious than strong fundamentals. It wont be solved just by encouraging people to hold gold as assets. Anyway the stock market is in process of revamping. Even seasoned market like in the USA, you can easily find this roller coaster chart at hand:

 

[Solomon2]

...There are many ways of restoring confidence in the system but nothing is more precious than strong fundamentals.

"China is a mystery as far as nobody ever really trusts the economic data that is produced," said Gaffney. "All of a sudden investors are saying the Chinese leaders are confirming our thoughts that China is in worse condition that they were previously telling us."

....It wont be solved just by encouraging people to hold gold as assets.

No doubt, gold is just an element - probably a necessary one in the solution.

Anyway the stock market is in process of revamping. Even seasoned market like in the USA -

Do you want Chinese to have confidence in China or the USA?

 

[Keel]

"China is a mystery as far as nobody ever really trusts the economic data that is produced," said Gaffney. "All of a sudden investors are saying the Chinese leaders are confirming our thoughts that China is in worse condition that they were previously telling us."

No doubt, gold is just an element - probably a necessary one in the solution.

Trusting or not trusting at their own risks but there is some golden words from your late president who said " Trust but verify " - I think this is a useful reminder for all financial analysts

Our Premier Li is practising it well

Do you want Chinese to have confidence in China or the USA?

I love my Country and I hope our folks to know China should be a much better China today if not because of the wars

Despite all odds, China can become even stronger by each passing year and the world would be more welcoming for this

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[Solomon2]

Trusting or not trusting at their own risks but there is some golden words from your late president who said -

Now that China's broken tryst with the markets it's up to China to establish what credibility it can; quoting others won't help convince billions of dollars to stay.

I love my Country and I hope our folks to know China should be a much better China today if not because of the wars

Wars?

Despite all odds, China can become even stronger by each passing year and the world would be more welcoming for this

Such statements do not increase the confidence of financial markets, sir.