Chinese Stocks Crash Most In 19 Years, Re-Open Limit Down (Despite PBOC Hail Mary)

Tyler Durden's picture

Carnage...

  • *CHINA STOCK PANIC SELLING TO CONTINUE, CENTRAL CHINA ZHANG SAYS

This leave China's CSI-300 broad stock index futures up just 7% year-to-date...

  • *CHINA CSI 500 STOCK-INDEX FUTURES FALL BY MAXIMUM 10% LIMIT
  • *CHINA CSI 500 STOCK-INDEX FUTURES FALL BY LIMIT FOR 2ND DAY

  • *HKEX DROPS AS MUCH AS 7.3%, MOST SINCE SEPT. 2011
  • *SHANGHAI COMPOSITE INDEX EXTENDS DROP TO 7.5%
  • *SHANGHAI COMPOSITE HEADS FOR BIGGEST 3-DAY DROP SINCE 1996

Carnage-er...

  • *CHINA'S CSI 300 INDEX FALLS 3.4% TO 4,190.3 AT BREAK
  • *CHINA'S SHANGHAI COMPOSITE FALLS 3.8% TO 4,035.48 AT BREAK
  • *CHINA'S CSI 500 STOCK INDEX FUTURES EXTEND LOSSES TO 5.7%
  • *CHINEXT INDEX PLUNGES 7.8% FOR 3-DAY 20% SLIDE

After The People's Daily proclaimed... "investors were moved to tears" thanks to the PBOC's actions...

  • *FOUNDATIONS FOR A-SHARES ARE `SOLID': CHINA SECURITIES JOURNAL
  • *CHINA STOCK MARKET TO HAVE 30 YEARS `GOLDEN AGE': SEC. JOURNAL

 

The bounce is dead. CHINEXT - China's tech-heavy high beta 'Nasdaq' - is down 5-6% today, 19% in 3 days, and 33% from highs in early June...!

 

In 3 weeks, it has given up half its gain of the year...

*  *  *

All that pent-up demand to be ignited among the farmers and housewives of China thanks to a double rate cut (RRR and benchmark) enabled a mere 2.5% bounce in Chinese stocks at the open which has now completely been erased as Shanghai enters a bear market. As The South China Morning Post's George Chen notes, the most dangerous idea gaining traction in the Chinese stock market is the naïve consensus among ordinary investors that no matter how bad the market gets, the Communist Party will eventually rescue everyone. If not them then, as Chen concludes, "It's time to wake up."

 

Spot the double-rate cut 'bounce'...

  • *SHANGHAI COMPOSITE SET FOR BEAR MARKET AFTER 20% DROP FROM HIGH

 

Decidely not what the doctor ordered... and as The South China Morning exclaims, many Chinese investors who have a planned economy mindset, believing government should help them, may well have a surprise coming...

The most dangerous idea gaining traction in the Chinese stock market is the naïve consensus among ordinary investors that no matter how bad the market gets, the Communist Party will eventually rescue everyone.

 

The central bank surprised everyone with its announcement on Saturday that it will cut its benchmark deposit and lending rates by 25 basis points - the fourth reduction since November.

 

Meanwhile, it also decided to reduce the reserve requirement ratio at selected banks to further ease liquidity in the banking system.

The unusual "double cut" move came just 24 hours after more than US$760 billion was wiped off the value of mainland stocks - equivalent to the market capitalisation of US technology giant Apple. The reasons for the market crash are complicated, including margin calls, tight liquidity at the end of the month, and panic. Afterwards, the most frequently heard question was, what will the government do to rescue the market. Rescue? Is this really government's responsibility?

 

China has been through the planned economy model for decades. This is especially ingrained in the generation of my parents, who make up the bulk of individual investors. Just as everything once belonged to the government, many of these people believe the stock market should also belong to the government. So it's the job of the government - in other words, the Communist Party - to rescue the market.

 

Unfortunately, many Chinese experts and professors are also promoting this naïve view of the relationship between domestic investors and the government.

 

After the central bank's moves on Saturday, many experts told state media that they believed the central bank acted mainly to rescue the stock market, given the timing of the decision.

 

Suddenly, investors who felt that Friday was the end of the world - with more than 2,000 stocks sinking - began to talk about what stocks they should buy on Monday morning.

 

"You still don't get it? It's now like the government policy that the stock market must go up. Otherwise, why bother asking the central bank to rescue the market?" said one investor in a post on Weibo. Many others echoed his views on the social media network.

 

Beijing has been talking about how to do a better job with so-called investor education for years. Unless the government corrects an impression that it is a last-resort market rescuer, risks will grow in the market and sooner or later the bubble will burst.

 

It's time to wake up. Beijing has faced more serious challenges than a stock market that is becoming more risky. If you want to rely on President Xi Jinping for everything, then your thinking may just be too simple and too naïve.

*  *  *

With Central Bank bazookas seemingly un-omnipotent, the fate of the world is in the hands of illiterate Chinese farmers and Greek grannies.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
suteibu's picture

Interesting thought.  Well done.

suteibu's picture

Don't thank me, you're the one doing all the thinking.  What else you got up there?

Ms No's picture

Oh, not much.  I was just sharing a story about a hermaphrodite I met in a McDonalds once...lol

suteibu's picture

I read that.  Very strange.

adventursomeken's picture

SUM TING WONG !!       HO LEE FUK !!     BANG DING OW !!   WEI TU LO !!

q99x2's picture

Issue global bounties and arrest warrants for Blankfein and Dimon now.

biggestbrother's picture

BUY when it down another 40%

Ginsengbull's picture

It's just like when an airplane tries to climb too fast, and loses airspeed, stalls, and falls.

 

If they can point the nose down, they can gain airspeed, and try to climb again.

biggestbrother's picture

HA HA HA 

 

I TOLD YOU I SOLD ALL MY STOCK last week

 

HA HA HA

 

GOT THAT DEAD RIGHT

The Ingenious Gentleman's picture

Two weeks ago would have been better.

socalbeach's picture

If the PBOC had tried a Hail Confucius instead of a Hail Mary, maybe it would have worked.

polo007's picture

According to Macquarie Research:

http://personal.crocodoc.com/lHeFs3w

China drama & Greek farce

Are Central Banks at the end of the road?

Greek and Chinese dramas question role of Central Banks…

- The latest developments in China and the Eurozone inevitably invite the question whether Central Banks are coming to the end of the road. Given the limited impact of their policies on real economies with stimulus largely being confined within walls of financial assets, has the time of reckoning finally arrived?

- As discussed in the past (here & here), the only sustainable LT outcomes for the over-leveraged and over-supplied global economy are either: (a) allowing the deflationary cycle to go through, thus eliminating global excess capacity in service and merchandise economies; (b) elimination of excess debt via some form of hyperinflation and/or co-ordinated debt cancellation; or (c) banning capital markets via nationalization. Given that neither of these alternatives is attractive, involving pain for either borrowers or savers; intergenerational transfers or courting sharply lower ROIC, CBs would rather kick the can down the road in the hope that a solution would be eventually found.

…and should CBs place monetary policies in neutral gear?

- PBoC’s half-hearted attempts last week to slow the pace of appreciation of the equity market have inevitably and predictably resulted in severe correction. The double-barrel reduction in interest rates and RRR on Saturday is a belated realization that it is courting a significant economic backlash. As discussed here, we do not believe that China’s de-leveraging is either possible or desirable. Having reached leverage of ~3:1, any debate about the evils or virtue of debt has passed a long time ago, and the only viable choice from now on is to continue leveraging, though perhaps at a somewhat slower and safer pace.

- In order to continue leveraging, PBoC has to make sure that: (a) there is no sharp correction in any of the key asset prices; (b) at least some asset prices are appreciating; and (c) there is no further contraction in nominal GDP. This requires a combination of exceptionally stimulative monetary and fiscal policies as well as trust that a country is not yet in a liquidity trap and that it is capable responding to stimulus in safeguarding nominal GDP. The game is no longer about reaching 7% real GDP growth but avoiding zero nominal GDP.

- The same dynamics are playing out in Europe. The battle is between politicians who have not yet grasped that deleveraging is no longer feasible, and the ECB, which is fully onboard. Whether Greece is allowed to exit does not alter the basic argument that the numbers do not work, unless leveraging continues.

China is at very early stages of stimulus

- We maintain that China is at an early stage of significant (probably the largest globally) stimulative action. We expect that over the next two years, RRRs would be reduced to historic levels (i.e. 5-6%); interest rates would be lowered to zero and fiscal spending would become much more aggressive (including multiple banking re-capitalizations). The only question is whether China would send a massive inflationary pulse through global economy or would aim for more moderate impact. Initially, the PBoC would be aiming for moderate outcomes, ensuring support for asset prices but avoiding more disruptive action. However as we progress into 2016-17, more drastic actions might be needed. In the meantime, we remain O/W MSCI China, as equities remain the least systemic asset class that can be leveraged, at least for now.

SmokinMonkey's picture

What do you call a Chinese Billionaire? 

Cha CHING!

reader2010's picture

 when the musicians come back from the bresk, you've got to dance again. 

Jtrillian's picture

Historians will be the only ones who understand China's "RACE TO THE BOTTOM" was about exposing the systemic risk in Western markets and claiming economic world dominance.  China can correct just fine.  Western markets cannot. 

This concept is similar to Reaganomics where the US went on a military spending spree and Russia tried to keep up but went bankrupt in the process.  Only this time, it's not spending.  It's a challenge of who can recover from a significant market correction. 

China makes stuff.  They have a lot of undisclosed gold.  They have lots of assets... entire cities waiting for an up-and-coming middle class.  The US conversely hardly makes anything, refuses an audit of it's gold, and has a crumbling infrastructure.  In addition, China finances much of the debt in the US.  What do you think will happen when China stops financing this debt and floods the market with it's US dollars? 

Today's global markets are connected.  Derivatives create significant systemic risk.  We may be witnessing the second financial collapse.  And this time around, it will make 2008 look like a dress rehearsal for the MAIN EVENT. 

“China is a sleeping giant. Let her sleep, for when she wakes she will move the world.”
-Napoléon Bonaparte

The giant has awakened. 

Equalizer's picture

Jesus, who saw this coming? LOL

BoPeople's picture
BoPeople (not verified) Jun 29, 2015 3:36 AM

BULLSHIT ... so this is what ZH was created to do. When the time comes, to become MSM and misdirect with propaganda.

Both the Chinese and Greek situations are bank planned and executed actions. The Chinese farmers and Greek grannies have nothing to do with what the bankers are doing to the world.

Oh, yes, and by all means give more money to the Ukraine, ISIS and drug cartels. What the world needs is more propagandists, scapegoats and criminals to make the case for a war that no one wants.

And ZH is right there.

Aussiekiwi's picture

The Chinese love to Gamble, they simply moved from gambling in Macau to gambling on their own Stock market, with the complete confidence that if it all goes wrong the Cjinese government will step in and fix everything somehow.

TheRideNeverEnds's picture

They will.  Last I checked China has helicopters and printers same as the USSA.  

 

Get to work Mr. Xiaochuan

Wahooo's picture

Exactly what does "open limit down" mean?

gwar5's picture

Fate of the world now in the hands of illiterates and grannies because the bank sharpies running the world got us into this mess.

llamafuzz's picture

wait til the margin calls come

"some folks are selling against their will"