Chinese Stocks Bounce On Short-Squeeze Over Funding Hopes

Tyler Durden's picture

Rumors of a new "preferred shares" program which could implicitly mean easier access to desperately needed liquidity for Chinese banks and real estate developers prompted what one analyst called "a short-covering-led recovery after shares had fallen a lot." The banks of the Shanghai Stock Exchanged rallied notably as chatter was they would be be first to be blessed with the ability to issue new stock and this boosting their capital. The 2.7% rally in the composite was the best day in 4 months (even as China CDS surged by their most in 9 months) but, as one trader noted, "we may see one or two more days of upside but China's fundamentals are still weak. We weren't falling for nothing."



Via Bloomberg,

China’s stocks rallied, sending the benchmark index to its biggest gain in four months, amid speculation the government is loosening funding restrictions for property developers and banks to support economic growth.




The Shanghai Composite Index (SHCOMP) climbed 2.7 percent to 2,047.62 at the close, the biggest gain since Nov. 18, after reaching record-low valuations yesterday. Policy makers are trying to bolster real estate and financial companies as the economy slows and bad debts increase. Allowing lenders to sell preferred shares would give them a new way to meet long-term fundraising requirements.


Investors hear talk that banks may be the first to be included in the preferred-shares program,” said Xu Shengjun, analyst at Jianghai Securities in Shanghai. “Investors are hoping this will bring a lot of benefits to the companies, including boosting their capital.”




Companies in the Shanghai Stock Exchange 50 A-Share Index, which includes at least 10 banks, can issue preferred shares, according to a statement posted on the official microblog of the CSRC. They can use the funds to pay for acquisitions and buy back stock, the CSRC said.


Selling the securities would enable banks to have a supply of capital without adding pressure on common stock investors, according to Masterlink Securities Corp. Lenders are facing increasing competition for deposits after the central bank engineered a cash crunch last year to curb off-balance sheet financing that evolved to circumvent official credit curbs.




Today’s stocks surge may be temporary, said Alex Wong, a Hong Kong-based director at Ample Capital Ltd.


“This is a short covering-led recovery after shares fell a lot,” said Wong. “We may see one or two more days of upside but China’s fundamentals are still weak. We weren’t falling for nothing.”

Just as that trader noted, this is far from over - as the smattering of headlines from last night suggest:





China CDS surged 10.5bps (the most in 9 months) and are back over 100bps (5 times that of the USA and double the risk of Japan).


China corporate bonds are at one-month lows.


China warns of risk in insurance industry due to heavy exposure to corporate credit (especially local government debt). Rather stunningly, new debt investment plans by insurance companies last year totaled 287.76b yuan, equal to the sum total amount of the previous seven yrs combined.


More stories of Hong Kong property sellers slashing prices is also raising tensions with at least 10 housing estates seeing sellers cutting prices yesterday. New homes are being discounted at 11.75% discount (and as we noted yesterday, existing homes at over 20%). Barclays warns this is only the start, noting it expects home price to fall by at least 30% by end-2015 from Oct. 2013 level. Current home-price-to-income multiple (13.3x vs historical avg 8.7x) is "very far away" from where end-users can support market


*CHINA TO 'DRASTICALLY' CURB NUMBER OF NEW SHIPYARDS: DAILY - China must restrain blind investment in shipbuilding industry. Li said small and medium-sized shipyards with few orders will gradually withdraw from the market in next 5 yrs: Daily

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SlipStitchPass's picture

Goldman Reiterates its $1050.00 Gold call.....WTF??? These guys have no shame!

new game's picture

if the cartels can't get this growth thing reramped with credit expansion i think gold at 1000 is very realistic. would be quite the buy! all in below 1100 imo...

cifo's picture

So the music re-started then?

LawsofPhysics's picture

Yes, but good luck taking delivery at $1000 an ounce.

SlipStitchPass's picture

Last time I checked Gold made the first leg of its bull run to $860 dollars during a period of stagflation/deflation with increasing interest rates.


wallstreetaposteriori's picture

So which is it bloomberg..... is china trying to stimulate its economy or slow it down?...... is there a bubble or isnt there? 

firstdivision's picture

I'm hoping they lower their forecast to $5/oz.  I have a bonus and tax return iou's to convert.

LawsofPhysics's picture

Look folks, if the banks (money-changers, fake-money providers etc.) are in fact the "market", remember that they have access to limitless capital and will make the "market" do whatever is best for them.  How many of us have zero losing days in a year?  Nothing changes until one of the following occurs;

1) The purchasing power or value of all paper goes to zero.

2) The supply lines break in earnest and the world goes to war.

Hedge accordingly.

Sudden Debt's picture

fundamentals... that's so pré 2008...

LawsofPhysics's picture

"fundamentals... that's so pré Federal Reserve..." - FIXED.

Oldwood's picture

OK, I know I'm nuts, but if a broke ass entity can save themselves buy issuing "stock" in their bankrupt entity, why the fuck can't the rest of us? And what level of stupidity and desperation would drive someone to buy such "stock"? Really, is it that fucked up that "investors" MUST buy this shit to keep what they have at current inflated values. The whole thing, in China as well as America just seems too stupid, too obvious, too insane, to be actually happening. Has TV fiction rotted everyone's brains?

Dr. Engali's picture

Never underestimate the stupidity of an "investor". Most will buy anything as long as it has yield. It's fucking amazing what the banks can do to keep thing going just a little bit moar.

new game's picture

so our futures up on a dead cat bounce, ha,ha...

Oldwood's picture

We got dead cats piled up everywhere. There is probably some bank securitizing them for future methane production from their rotting bodies. I saw a coffee table book once on 100 uses for a dead cat. It should be a big seller now.

new game's picture

i too, have thumbed thru the cat book, lol.

nice fur coat you have on! is that tabby?

Rising Sun's picture

a weaker Yuan will keep Chinese markets up


hopefully those communist fucks have figured this out

fijisailor's picture

Despite "tapering"  the FED expands the monetary base by $104.8 billion in February.

I knew it.  This whole tapering thing is a lie.

vote_libertarian_party's picture

They must live in that Superman Opposite World.


The less money they print the more there is.

SheepDog-One's picture

I don't care what lies they're telling, the free money firehose directly into TBTF bank f=vaults must keep increasing flow.

SunnyDD's picture



Ban KKiller's picture

China will be ready for the big alleged reset. Is China still buying gold and keeping all they produce? If their housing prices drop, as it appears, what are the new preferred shares in that soon to be bankrupt  company worth? 

China now leader in corrupt accounting displacing London as center of fraud.

No, London well have new crimes revealed, don't worry. RBS?

q99x2's picture

If necessary China like the FED will print electrons directly into their stock markets. It is a near zero cost tactic they will not be able to pass up.

SheepDog-One's picture

What are these 'fun-derp-mentals'? Everyone knows all you need now is a hint of free money and all your stawks markets will go up.