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Regulators Try To Clamp Down On Soaring China Margin Loans "Without Triggering Panic"
As Chinese stock market capitalization topped $10 trillion for the first time in history, so the spectre of total and utter speculative mania looms as the balance of margin loans tops $2.2 trillion and remains among the most obvious early warning systems for an increasingly fragile government-sponsored equity bubble. The problem, as Bloomberg reports, is that any pullback by margin traders would undercut one of the biggest drivers of the rally leaving the "regulator trying to slow down the growth without triggering panic," as Bocom's chief China strategist explains.
As Bocom's Hao makes clear in the following chart...
“If margin loan growth starts to decelerate notably, the market will slow down. If non-compliant margin lending accounts must be closed, the market will crash.”
The China Securities Regulatory Commission is planning to curb the amount of margin finance and short selling to no more than four times a brokerage’s net capital, according to draft rules posted on its website June 12. There is currently no ceiling. The CSRC is also considering allowing brokerages to roll over margin trading and short-selling contracts, instead of closing them out after six months, which may quell volatility if the rally falters.
“Guiding markets like this with regulatory measures is incredibly hard to do,” said Michael Every, the head of financial markets research at Rabobank International in Hong Kong.
China’s stock-market tumble of 2008 shows how quickly investor confidence can evaporate, even in the absence of margin calls. The Shanghai Composite fell more than 70 percent in the 10 months ended Nov. 4, 2008, after jumping more than 400 percent in the previous two years. However, some confidently see no hiccups...
Leveraged investors have made so much money from rising stock prices that it would take a “big market slump” for them to start unwinding positions, said Yuliang Chang, the Hong Kong-based head of Chinese equities at Deutsche Bank AG.
"There are ample buffers given how much A shares have rallied,” Chang said.
But, as Bloomberg concludes, brokerages across China are already tightening requirements for lending to stock investors to try to limit their exposure to any market bust. GF Securities Co., Haitong Securities Co. and Changjiang Securities Co. have all raised margin requirements.
For leveraged investors who get caught in the next downturn, the losses may erode their faith in the stock market, said Neoh.
“A lot of people will lose money,” he said. “And it would be a long time before they will return to the markets.”
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Following the last week or two's action suggests the exuberance is stalling...
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We will know it's all over when the PBOC or CSRC says the word "contained."
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A lil' margin never hurt anyone. /s.
You sir have won the interwebz for the day with your handle. Welcome, you are new and obviously come preloaded with a sense of humor.
So very strange if a Chinese blow up and out is what brings the system down.
What a frigging masterstroke...
Wall street will come out looking all wronged and all.
So, cleaerly the chinese (and perhaps the Indian) stock markets will be the next stealth inflation exportation game.
Read that The Tadawool is nowo open for global investments. Al Saud ran a deficit. How do you fuck up so deeply that you rule the world with an iron grip for 60 years with endless oil and you run a frigging deficit. I know, rhetorical, the Brits run the kingdom.
So yeah, blow up China via easy money seems to be the trick, well played Wall Street. Who si going to deny the chinese rice farmer his day in the yUan?
Anyways, I wrote a song...English..... ZERO ONE
https://www.youtube.com/watch?v=AqO8IxnHLUs
Get with the program China. The cure to too much margin debt is moar margin debt. Sheesh, have you learned nothing from my magnificent mind?
I'm Paul Krugman and I approved this message.
WWKD-What Would Krugman Do.......
I'm going long popcorn. This shit is looking good.
They are going to buy until it hurts...
Stock market valuation has increased from $4 trillion to over $10 trillion in under a year. Do you really want to kill the goose that lays the golden eggs of prosperity?
Or is this just show for Western observers?
China is learning pretend and extend that has worked so well in the West since the last financial crisis.
Shouldn't the word "regulators" be in quotes?
Just keep printing moar.
Everyone knows the inflation over there is massive so just start bidding up the price of everything and keep lots of dollars in reserve.
Does appear Hong Kong is the new home of the Irish Republican Army though...
Don't forget Chinese margin loans via JP Morgan Chase and Wells Fargo.
Chinese deposit $1 billion in AAA Treasuries to US Banks. Banks then lend them dollars at margin (5 to 1).
Chinese proxy corporations then use that $5 billion to buy US commercial property, industrial parks, 60% of Manhattan, etc...
Here is something that most analysts MISS regarding China's debt. It is 100% internal, as opposed to America's $12 trillion or so that is held by foreign hands. China could at any time Jubilee their debts, deal with a short-term Iceland recession while they transition a new currency to a gold backing while at the same time use their dollar reserves to smooth over rough spots during said transition.
And they already have trade partners who will accept the Yuan so that they will have enough energy (Russia), resources (BRICS), and food imports to keep away mass revolt.
Dovie'andi se tovya sagain (It's time to toss the dice)
Got Karatbars?
Are there enough Chinese housewives to sustain this heater all on their own?
much like the "regulators" here, ever present, ever diligent to protect the small "investor".
and here in the states, i found a better 1 we are going to try & "clamp down" on. fuggin histerical: common denominator here is governments create the problem then try to probe the problem. this one made damn near made me fall outta my chair:
Generic drugs may be targets of congressional price probe, Bloomberg says In addition to branded drugs that were cited for "staggering" price increases in a congressional probe on drug prices being led by U.S. Senator Bernie Saunders, generic drug makers may also be targeted, stated Bloomberg Intelligence. Data show some generics, including clomipramine hydrochloride and tetracycline, have seen "aggressive" quarterly price increases, the report noted. Generic drug makers that could be caught up in the probe include Mallinckrodt (MNK), Teva (TEVA), Novartis' (NVS) Sandoz unit, Mylan (MYL), Taro Pharmaceutical (TARO) and Teva (TEVA). Mallinckrodt shares are down about 4% in early tradingThey just want their equal share of the healthcare bubble.
suteibu - its unfucking real. bernie sanders of all people?! i know he's doing this ploy cuz a poll overnight has him closing in on hillary in massachusetts, but this IS 1 of the symptoms of obamacare. im still shocked that there are people in this country who thought bringing in a whole bunch of people who are sick/prexisting conditions & no way to pay for treatment, was going to make THEIR healthcare go lower.
tax him, tax her, tax them - just don't raise mine.
incredible how european QE is working so "well"...you see the DAX down 1%+ during the european morning and then all of a sudden at 1PM there, 6AM over here, the DAX starts it's vertical rise to unchanged on nothing.
so european QE, fractured among their local central banks, doesn't work as there are too many parts involved to manipulated markets up in unison. for that there is someone else to help.
Because changing the rules and sending a bunch of unexpected margin calls is always a good idea. I have seen this trick before...somewhere.
Problem is that there's lots of margin outside of the system, from loan companies who advertise to stock traders. One guy already committed suicide because he was levered up 4 times. He was unlucky enough to pick one of the few stocks that went limit down two days in a row. If the market actually corrected, there might be be thousands of people in this situation.
Margin Assisted Suicide; Changsha Man Jumps After Losing Everythinghow is this any different than the FED printing for nothing....that all went to Wall Street?
There is a fundamental reality problem of agreeing on the one hand that asset prices not reflecting underlying values are bad, but on the other, that current valuations are always the most correct yet.
The error is produced by acknowledging, on the one hand, that technical facts like QE distort the investment environment to drive up stocks, yet at the same time trusting in the collective pricing wisdom of investors to properly measure value.
It's kind of a lazy 'win-win' mindset of 'I know it's wrong but as long as I'm winning it must be right'. Just like agreeing that there is a bubble but at the same time insisting that's where the prices should be (believing in a soft landing).
Still trying to figure out how stupid people think:
We know that prices are in a bubble. This is stretching reality (bad). So no additional stretching reality (good). We want to stay where we are because everybody is happy (wealthy). By countering the forces that drive up prices, we will exactly balance both out so they stay at the current level (at this point of our thinking we already forgot that we are in a bubble and that the prices are unreal).