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How The Shanghai Composite Can Rise 461% From Here
If there’s one capital markets-related story that just never seems to get old it’s the unrelenting rally in Chinese stocks. The country’s equity mania truly is the gift that keeps on giving, and not just for those who are riding the wave, but also for those who, like us, appreciate the humor in a giant, margin-fueled bubble that’s captivated millions upon millions of semi-literate housewives and banana vendors turned day traders. Unfortunately, Chinese regulators threw a bit of cold water on the party last month, suggesting a move to curb margin lending may be in the cards.
Nevertheless, a new note from Macquarie suggests the margin madness may be just getting started. Because investors can borrow 86 yuan for every 100 yuan they have in collateral, margin debt could “theoretically” balloon from 1.7 trillion yuan to a hilarious 9.4 trillion yuan, a 461% increase. Here’s more via Bloomberg:
Openings of Chinese brokerage accounts have surged in recent months as has the take-up of margin accounts which offer investors the ability to borrow against their stock portfolios…
How high could the whole thing go, you ask? The Macquarie analysts estimate that, at an extreme, investors could borrow RMB 85.7 for every RMB 100 of collateral in their portfolios. That suggests the theoretical ability to increase margin finance loans from the current 1.7 trillion yuan to as much as 9.4 trillion yuan, or 461 percent higher than the current level. While it's doubtful that would ever happen (banks, after all, do not have unlimited lending capacity and the government has already instituted some curbs on margin lending) even a moderate increase in margin borrowings could be meaningful. At 3.2 percent of total market cap, China's margin debt has already eclipsed bubble-era Japan as well as pre-Asian Financial Crisis Korea...
One word: parabolic:
* * *
And, as if on cue, Shanghai Securities News is reporting that some Chinese brokers are set to raise their margin trading requirements:
Huatai Securities and Tebon Securities raised margin requirement for margin trading and short selling to control risks, Shanghai Securities News reports, without citing anyone.Haitong Securities cut the amount that clients could use securities as collateral for margin trading and short selling.
We suspect this will not be welcome news to China's legion of rabid day traders.
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Confucius say, shark fin powder good for that.
If someone jumps off a bridge and tells you they are flying would you jump off expecting to fly?
Um, they would be flying if they hovered there long enough to tell you that.
And that being the case, when they hit the water they would take off like a Fuku-scared dolphin.
Datz lazitz
How can one tell the gender of China's e-Trade baby? It' always male. Dammit, i screwed up this joke somehow.
Using accounting tricks we'll all be rich!
Uh huh. There's always an idiot somewhere.
Oil could go to $20, too. Except it didn't.
Oh I can play this game.
Silver to $5. That's the cost it takes to get it out of the groundz.
"survey monkey" demise. whad up?
"Up, Up And Away" (by Jimmy Webb)
Wouldn't you like to ride in my beautiful balloon?Wouldn't you like to glide in my beautiful balloon?
We could float among the stars together, you and I
For we can fly
Up, up and away in my beautiful, my beautiful balloon ...
You talking up stocks or gold?
/s
The whole of the human race can be summed up thusly:
“In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule.”? Friedrich Nietzsche
Tulips.
that's some degenerate shit right there
any good ETF's for this?
Interesting some emerg. market ETFs tracking performance of Chinese stocks cancelled their products right before the ramp up....
Anything is possible with digital zeros. Until we blow ourselves up as a result, carry on.
If it goes up another 461%; they will be able high enough to talk to Jesus in person; maybe Allah or Confucius too.
Sum-ting wong
How are day traders making money when nobody is selling? I think that's a much bigger problem because Chinese aren't taking profits.... until they do collectively and the whole thing crashes anyway.
Buy and hold until Uncle Mao says "no more funny money"...