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China Crashes: Shanghai Composite Plunges 5.4% Amid Record Trading, Biggest Tumble Since 2009
Those who have been following the ridiculous moves in the Shanghai Composite in recent months, knew it was only a matter of time before yet another major stock market (one which recently surpassed the Nikkei for the second largest spot in the world) crashed violently, further eroding faith in the centrall-planned "price discovery" process. The only question was when.
Following our report last night about China's change in collateral rules, in which we noted that none other than the PBOC was now eager to pop the equity bubble following the PBOC simultaneously fixing the CNY significantly stronger (implicit tightening) and enforced considerably stricter collateral rules on short-term loans/repos - a move which according to estimates from Shenyin Wanguo Securities, would disqualify some 1.25 trillion yuan in corporate bonds as repo collateral, or 60% of all outstanding corporate bonds listed on China’s two stock exchanges - we were not surprised to see the tumble in the market-traded Yuan (which crashed the most in 6 years), and the surge in interest rate swaps, coupled by the plunge in corporate bonds. The only thing that puzzled us was why, after the correct kneejerk reaction lower in the Shcomp, did stocks proceed to surge even higher.
That said, we summarized it as follows:
- The PBOC has aggressively taken action to reduce leverage in stock and bond market speculation
- The PBOC has tightened monetary policy - raising FX and cutting collateral availability
- The PBOC has created a major squeeze in USDCNY - stalling carry trades
We concluded as follows: "We will see what kind of fallout this creates but for now stocks are holding up as FX and bond markets are turmoiling."
* * *
We didn't have long to wait, because literally a few short hours after we wrote that sentence, this happened:
- CHINA’S SHANGHAI COMPOSITE INDEX DROPS 5% AMID RECORD TRADING
Because the higher they rise the quicker and more violently they plunge. Here are the details via Bloomberg:
Benchmark index falls as much as 6.2%, most since Aug. 31, 2009, on record volume.
- Value of shares changing hands on Shanghai and Shenzhen stock exchanges reaches 1.18t yuan at 2:51pm, highest on record
- Shanghai Composite earlier rose as much as 2.4%
- Index set to snap five-day 13% win streak
- CSI 300 -4.8%; HSCEI -4.5% in H.K. trading
- CSI 300 snaps record win streak, dropping for 1st time in 13 sessions
- Shanghai margin trading, short-sell balance rose yday to 601.7b yuan
Ironically, and as has been the case throughout the western world, the crash in stocks promptly led to a capital reallocation, and all the earlier moves in other asset classes were quickly reversed as panicked speculators rushed out of stocks into everything else that had been sold off earlier:
- Yield on 4.13% govt bond due Sept 2024 reverses rise, falling 12 bps to 3.730%
- 1-yr IRS drops 4 bps to 3.3400%, reversing earlier rise by as much as 29 bps; 5-yr contracts down 6 bps to 3.5400% after rising by as much as 30 bps
- 7-day repo rate rises 9 bps to 3.5719%
- Yuan falls 0.21% to 6.1855 per dollar after earlier dropping by as much as 0.55%, most since Dec. 2008; PBOC sets reference rate 0.08% higher at 6.1231
That said, it is likely to get much worse before it gets better as the government will now be running and popping bubble after bubble until it extinguishes all the excess liquidity:
- China Securities Depository and Clearing Corp.’s announcement yesterday will significantly reduce source of funds for securities firms and funds as these institutions usually pledge bonds for funding in exchange (bond repurchase) market, ANZ says in note; overall liquidity conditions could be tightened as many financial institutions will have to lower leverage ratio
The liquidity crunch may have already taken place, with the FT reporting that Industrial and Commercial Bank of China, China Construction Bank, Bank of China have raised rates on time deposits to 20% above benchmark over past week. Why else would they be doing this if not to entice depositors to park their cash at just these banks. And how long before everyone else follows, and what happens to inflation then and the biggest bubble of all: housing, which as we have been reporting since the beginning of the year, is teetering on the verge of total collapse?
Here is a more detailed narrative of the Chinese crash from the WSJ:
China’s stocks, currency and corporate bonds suffered their largest tumbles in years Tuesday after Beijing took fresh steps to rein in growing risks in the country’s debt-laden financial system.
The selloff started in the bond market, as traders rushed to sell and raise cash after a regulator banned investors from using low-grade corporate debt as collateral to borrow cash. The turmoil then spread to the yuan, which recorded its biggest two-day tumble ever. Later, the benchmark Shanghai index slumped 5.4% to record its biggest fall since 2009.
The sudden moves serve as a reminder to global investors about the country’s shaky finances, just as China opens up its capital markets more to overseas cash. Policy makers gathering in Beijing this week for a key summit are signaling to the investing public that they should prepare for a lengthy period of slower economic growth after years of amassing debt to fuel high growth levels.
The slump in the stock market was especially stark, though not entirely unexpected, after it had surged recently to become the world’s top performing index. Retail investors had fueled the rally, returning to stocks after once-popular investments, including high-yielding wealth management products and gold, turned sour.
“I was actually doing a presentation in my office during the last ten minutes of trading, when my boss asked to me to stop and asked everyone to look at stock prices. Then I saw the incredible fall of the Shanghai index and my stocks that have turned from black to red in just a few hours,” said Wu Yunfeng, a Shanghai-based retail investor.
And so another Meep Meep learns his lesson. If only this time it was for more than 15 minutes...
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It does
Yuan prosperity? It can only be counterfeited by a select few, and you ain't one of them.
Sorry, was cut off in my earlier post. It does seem paradoxical that a country with 7% economic growth and $4 Trillion+ in reserves (Not including probably 8K Tonnes of Gold) should be the first to see an equity market correction. Of course, that is as a direct result of the CB not wishing to see a bubble in equities.
The above in marked contrast to certain other countries?
Suckers.
Tis but a flesh wound....
Shanghai was at ~2250 about a month ago. It went parabolic to nearly 3100, now it pulled back 5% to ~2850.
For those corrupt multimillionaire officials,who can no longer risk being seen gambling in Macao, there is still the Shanghai Composite
It does crash when they run out of physical silver to deliver on their exchange.
BULLISH !
Haven't the Chinese learned anything from the brilliant economist Paul krugman? All they have to do is print moar money. Problem solved....
exactly. currently, on this planet we find some CBs that do not wish to see a bubble in equities, some that have lost any hope to do anything about it and some that actively encourage bubbles. add in the phenomenon of "hot money" that regularly returns back to "safer shores"...
you ever had one of those stacks on a pushbike or motorbike where you wobble violently from one side to the other and back, before you crash? Thats chinese capital going from one assett to another trying to regain balance as we speak
On a skateboard we used to call it speedwobbles. Death was imminent when going down a steep incline and you got speedwobbles.
Still knocks the wind out of me to this day to remember those times. Yes, I do have the scars to prove it.
This is nothing.
bullish
Quick! Get Krooogman on the line so he can tell us what to do! ;-)
Camping would be a good start.
We got him!
Hopefully these senseless banker deaths will cease to be.
Senseless banker deaths...I've never imagined such a thing.
Neither did they.
Can you give any examples of banker deaths that were senseless?
This is nothing. Greek stock market is down 10.75% (ten point seven five percent) as of mid-afternoon their time. More than an hour left of trading with the trend line point down.
How are the plans for the Grexit coming?
BIS Offers More Reveals From the Bankster of the Criminal Cabal
http://winteractionables.com/?p=17060
Precious metals take down imminent in 3,2,1....
Divide the Comex by zero......again.
My money can only be safe with Wall St.. USA!USA!USA!
Your sarc is noted, however you may be onto something at least for the time being. Wall St stinks, but it's the least stinkiest twat out there right now at least by some standards: I'm not saying those standards are that high.
I dunno. When stinky twats are all that's available, I generally prefer masturbation....
bla bla bla!!! Same old song and dance when it's over wake me up! even though I am not asleep. they will never allow this to happen before Christmas
China markets love you long time.
Happy ending!
Squirt.
Now Tap Sum Bong!
The world economy is so interconnected now, we are all on the same insane bus ride over the cliff.
Some of us are asleep, while others are pushing the accelerator thinking it is the brake. Those of us who won't even bother trying to wrestle the steering wheel, are smashing the back windows and jumping outta this one. Of course nobody will get away 100% unscathed, but some much less so than others.
The only thing is, are the drivers on the bus itself or are they controlling it remotely from afar? Sometimes you really wonder.
But...but... I don't UNDERSTAND!!! They all said there will be PBOC stimulus!!!
"Weak factory data prompt talk of more PBOC action"
"China stocks surge on PBOC stimulus hopes"
"Will PBOC do 'whatever it takes' to boost economy?"
"PBOC stimulus talk spurs stocks rally"
The end of the beginning or the beginning of the end?
I vot for beginning of the end. 2015 will be interesting. I suspect Obummer and the Fed want to make sure Congress has plenty to deal with other than repealing socialist laws.
It was only a matter of time befor ethe bubble burst... the last time the global markets collapsed it started in Asia first. redux.
http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...
Paging mad max
We clashed some forks.
We tightened some folks
This actually does sound like it's from the torture report...
Sure, we washed some folks' faces. But they were very dirty. Besides, they each got a free face drying hood and free yoga lessons afterwards.
We fukked sum fox. Y u cry?
China's real growth is maybe 4% at best.
The communist Chinese government lies and manipulates the numbers to keep order.
It's probably hegative with all that real estate inventory just sitting out there. They've projected their GDP and spread it over decades.
To quote a famous short-seller: "Wooooo!! Gonna get me some cold cuts today!"
http://www.breitbart.com/Breitbart-TV/2014/12/09/Tavis-Smiley-Blasts-Oba...
Some black folks got some lectures
Goldman Sachs CNBC propaganda division in response states:
Americans to spend, spend, spend: CNBC Survey Holiday spending expected to increase this year.
Americans plan to spend more on Christmas gifts this year than in any holiday season since 2009, the CNBC All-America Economic Survey finds.
Just went there to get the futures data. Got assualted. Ouch.
"CNBC Survey"
LOL.
Joe Kernan trolllng the bars in jersey.
Houston, we have a problem....
...And Greece crashes 11% , the banks being the worst hit ?
http://www.cnbc.com/id/102251328?trknav=homestack:topnews:1
Dec. 4 (Bloomberg) -- The ruble's retreat is not as big of a deal for most Russians as you might think, according to Oleg Tinkov, founder of TCS Group Holding Plc. Tinkov argues only a fraction of Russians travel outside the world's largest country and the dependence on imports is over-stated. One of Russia's leading entrepreneurs spoke exclusively with Bloomberg Television's Ryan Chilcote. (Source: Bloomberg)
Russian President Vladimir Putin has tried everything from selling dollars to threatening speculators in his bid to stem this year’s plunge in the ruble.
None of it has worked.
The attached graph provides an up-close look at the ruble’s collapse over the past two months. It dropped 25 percent during that time to 53.40 rubles per dollar, extending this year’s slide to 38 percent. The only currency in the world that’s fallen more is that of Ukraine, the country where all of Putin’s financial troubles began when his troops invaded the Crimea peninsula in March.
Putin’s frustration with the ruble showed during his annual address to parliament last week. He pledged “harsh” measures for those speculators betting against the currency while promising to repel any effort to force Russia to back down over Ukraine. With his finance officials now appealing to state-controlled exporters to take measures to help shore up the ruble, speculation is mounting that he may turn to capital controls next as oil revenue dries up.
“Intervention, rate hikes and capital controls are in the mix,” Win Thin, Brown Brothers Harriman & Co.’s global head of emerging-market strategy, said by phone from New York. “And I wouldn’t be surprised to see all three of these in some form or another.”
"...Ukraine, the country where all of Putin’s financial troubles began when his troops invaded the Crimea peninsula in March"
I got as far as this tripe and stopped reading.
{shrug}
Right on queue, just as Chindit says all the Chinese are going to dump their gold and buy stocks. ROFLMAO.
C U E
Don't have a clue, do you ...
Crash? Wake me when it's zero. I don't think your definition of "crash" is the same as mine.
If lower oil crashes wall street I'm all for it!!
If I want to borrow Money I have to have good credit..so should the gamblers in shale ...
I can't go to the pit boss and ask for a 2 million marker ...I'm good for it..watch as I roll the dice ...
Who wrote this ridiculous article, an oil man? Basically it says that we'll lose some energy production jobs as if that would be the sum total effect of falling oil prices.
Bullshit.
This will put discretionary dollars in the hands of consumers, the single thing this economy needs more than anything else.
Like I said yesterday, valuation and values are not the same thing these days.
So when people learn to distinguish between the two, they will experience a sort of divine revelation.
How about Value Vs. Price?
Therein lies the big disconnect...
I was in the dot con bubble, I should know :-)
https://aadivaahan.wordpress.com/2010/07/24/value-vs-price/
SUM TING WONG
I feel like eating some gold leaf I'm so happy.
Awe sooo chop suey ginsu!!
That's what you get for wanting to model yourselves after a failed system.
The falling value of both the yen and euro over the last several weeks has the potential to reek havoc through contagion. For months the major world currencies had traded in a narrow range this allowed people to think was on sound footing as central banks across the world continued to print and pump out money chasing the "ever elusive growth" that always appears to be just around the corner. Recently several major currencies made multi-year highs or lows depending on the match-up .
Because of weak demand for goods and most of this freshly printed money flowing into intangible investments inflation has not been a major problem, but the seeds for its future growth have been planted everywhere. John Maynard Keynes said By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.
While there are not many Bond Vigilantes there are a slew of Currency Vigilantes and they are ready to make their presence known. Weakness in the value of the Yen, Pound, and Euro must not go unnoticed. More on why this may be a signal that currency trading is about to get very wild in the article below. Please note, this may also be sending a signal that the whole system is unstable and the stock market could drop like a stone due to contagion.
http://brucewilds.blogspot.com/2014/09/caution-alert-currencies-may-get-wild.html
If this spills over into China's house market the wheels will come off their economy. A big reason dropping house prices in China is so important is that is where almost 75% of household wealth is stored. Here in America a much larger share of household wealth, approximately 71% is stored in financial instruments. The end of the housing bubble in China has the potential to become a huge deflationary "house of cards."
China is already suffering from massive overcapacity. Much of the recent growth in China after 2008 came from a massive 6.6 trillion dollar stimulus program that expanded credit and poured huge amounts of money into the system. This money encouraged expansion and construction with little regard as to real demand or need. The article below delves into how the unwinding of China’s giant credit spree could be very painful.
http://brucewilds.blogspot.com/2014/03/china-and-great-credit-trap.html
Our Aussie banking review said the big 4 banks need a whopping 1.6% more banking reserves to back the system, There stress test, A hole 50 - 60 billion, And we all know all the new banking rules. So theres is no True value left in anything on any banks books.As anyone knows our property bubble is a ballon ride.Losses with a population of 25million would stuff up the banks big time, hence there bullshit warning inquiry.And the chinese buy our gold at cost and 66% of our production. Currency reset . USSA screwed
paper tiger
Chinese central bank to begin buying stock future in 3...2...1
Saw it coming, the market took off from 2250 and skyrocketed to 3000 in no time flat. When I started hearing normal people talking about buying stocks yesterday, I knew it was time to cash out and wait for another entry point. Looks like I was not alone in this thinking.