Chinese Stocks Suffer Second Biggest Crash In History, 1,500 Companies Halted Limit Down

Tyler Durden's picture

This was not supposed to happen.

After pledging, investing and otherwise guaranteeing the Chinese stock market to the tune of 10% of GDP, and intervening on at least 40 different occasions in the past month ever since China's stock bubble burst in late June, with the subsequent crash nearly taking the Shanghai Composite red for the year, overnight China officially lost control for the second time, when after a weak start to the Monday trading session, things turned very ugly in the last hour, when the Shanghai Composite plunged by 8.48%, closing nearly at the lows, and tumbling some 345 points for its biggest one-day drop since February 2007 and its second biggest crash in history!

 

The selling was steady throughout the day, but spiked in the last hour on concerns China would rein in its market-supporting programs following IMF demands to normalize its relentless market intervention. According to Bloomberg's Richard Breslow: "fear that the extraordinary support measures employed to hold up the market may be scaled back caused heavy afternoon selling resulting in a down 8.5% day." Of course, one can come up with any number of theories to explain the plunge: for example the PBOC did not buy enough to offset the relentless selling.

 

The last thing the communist party and the PBOC wanted was another massive sell off after having not only fired the "bazooka" but come up with a different bazooka to halt "malicious sellers" virtually every day, including threats of arrest.

 

Nobody was spared in the selloff and of the 1,114 stocks in the Shanghai Composite, 13 closed higher on Monday.

Here, courtesy of the WSJ, are some of the more amazing numbers of today's selloff:

  • The Shanghai Composite Index ended down 8.5% at 3725.56, its second-straight day of losses and worst daily percentage fall since February 27, 2007. The smaller Shenzhen Composite fell 7% to 2160.09 and the ChiNext, composed of small-cap stocks and sometimes known as China’s Nasdaq,  closed 7.4% lower at 2683.45.
  • More than two-thirds of the stocks in the Shanghai Composite, or about 765 companies, hit their down limit on Monday. Those limits prevented hundreds of stocks from logging sharper declines, though they can also make it harder for investors to exit positions.
  • Since the Shanghai Composite peaked in June, it has lost 28% of its
    value.
    Massive intervention by authorities in Beijing engineered a
    rebound for the country’s stock markets earlier this month, but Monday’s
    selloff eroded much of that recovery.
  • Although hundreds of stocks have resumed trading since the market bottomed earlier this month, 126 stocks on the Shanghai Composite are still halted.
  • International investors have been ditching Chinese stocks for the past few weeks, spooked by widespread share suspensions that locked up capital. Investors sold stocks during 13 of the past 16 trading sessions via the Shanghai-Hong Kong Stock Connect, a trading link connecting the two cities that launched in November. Cumulative outflows now total 39.9 billion yuan, or U.S. $6.43 billion.

According to Reuters, there was little to explain the scale of the sell-off. Some analysts said fears that China may hold off from further loosening of monetary policy had contributed to souring investor sentiment.

Sure enough, narratives to "explain" the selling which beget more selling, were promptly offered, as can be seen in this Bloomberg summary of aftter the fact research reports;

NORTHEAST SECURITIES

  • “The decline, extending losses on Friday, is a technical correction after hundreds of companies rebounded 50% with dozens of stocks even doubling after the sell-off,” analyst Shen Zhengyang says by phone
  • “The rebound from the earlier sell-off has pretty much come to an end and the market needs to take a breather”
  • Possible expansion of yuan band may put the currency under  depreciation pressure, while pick-up in home prices in 1st-    tier cities may mean weaker-than-expected monetary easing policies going forward
  • Mkt might enter range-bound consolidation after technical correction, but upside will be limited as investor confidence was shattered in earlier sell-off

CHINA SOUTHERN FUND

  • Mkt slumps due to “fragile” investment sentiment, investors locking in profit from previous rebound: chief strategist Yang Delong says in phone interview
  • A shares extend decline as investors started to take profit from last Friday after recent mkt rebound
  • Investors lose faith in a longer-term rebound
  • Expects China to roll out more measures to boost A shrs if SHCOMP drops below 3,800
  • Govt backed funds, with big enough war chest, may buy stocks after mkt slump today

SHENWAN HONGYUAN GROUP

  • Pullback today mainly due to profit-taking, while news on possible govt exit of mkt rescue also has impact on mkt: analyst Qian Qimin
  • Weakness in heavyweight stks may lead to “double dip” in mkt, sees “policy bottom” at 3,500 points as index below that level may trigger panic again
  • Fundamentals underpinning bull mkt may have disappeared given low probability in further monetary easing, potential investment shifting to property mkt, more cautious mkt sentiment

SINOLINK SECURITIES

  • A share slump today is an “aftershock” as mkt sentiment needs longer time to recover from previous mkt correction: analyst Huang Cendong

We agree with one thing: having gone all in, the Chinese government can't stop now, and after pledging half a trillion for its Plunge Protection Team (recall China skipped all the QE pleasantries and proceeded straight to buying stocks, launching a quasi-nationalization of the market and making the China Securities Finance Corp a Top 10 shareholder of numerous stocks), it will be forced to do even more, in the process crushing confidence that much more, since investors both offshore and domestic, realize that the fair value of stocks is far lower than current price ex. government intervention.

"Investors are not confident that the bull market will return any time soon," Jimmy Zuo, a trader at Guosen Securities, told Bloomberg.

"People want to pocket profits after the benchmark index rose past the 4,000 mark."

And who can blame them? The only question we have is when will people in other "developed" markets wake up to their own just as manipulated markets, and decide they too have had enough with the rigged casino.

Actually, there is another question: the last time Chinese stocks had a near-record crash, the PBOC somehow "discovered" 600 tons of gold hiding under the couch to prop up confidence. We wonder how much it will "discover" this time.

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Tinky's picture

“I cannot imagine any condition which would cause a ship to founder. I cannot conceive of any vital disaster happening to this vessel. Modern shipbuilding has gone beyond that.”

 Edward Smith, Captain, RMS Titanic

Bokkenrijder's picture

Don't worry though, the Chinese are smart and honest people who don't manipulate things and treat their own citizens like human beings. Furthermore, they buy gold and will soon introduce a new gold standard and send gold to >$5000 per TRoZ.....

HAHAHAHAHA! Dream on suckers!

Squid-puppets a-go-go's picture

still, dutsche bank says gold to $750

apparently safe havens arent ever required , we just let asteroids of sewerage rain on our exposed heads

kliguy38's picture

They just don't know how to manipulate a "free market" economy......."no one coulda seen this coming"

Headbanger's picture

SUM TING WONG!

 

Just had to say it....

BTW.. Anybody else notice S&P futures just broke below Friday low??

Didn't think so..

Occident Mortal's picture

This is going to be very bad for world trade.

If China's current account contracts, does that mean China will stop exporting deflation?

 

 

Could this actually be inflationary in the OECD?

Headbanger's picture

Could be but only because of the massive, epic, biblical crushing deflationary implosion already starting in the OECD on its own.

DeadFred's picture

The Chinese leaders aren't wringing their hands in angst over this. This was the plan all along and they know how it will affect the West. They have always been willing for their people to suffer some pain to further their goals.

VinceFostersGhost's picture

 

 

Maybe we should have actually fixed something in 2008.....just sayin.

secretargentman's picture

"When you make peaceful fixin' impossible, you make violent fixin' inevitable."  I think it was JFK who said something like that.

Vampyroteuthis infernalis's picture

Throw in a little nihlism and angst from my generation. The Black Hole Sun is going to consume all economies worldwide.

www.youtube.com/watch?v=3mbBbFH9fAg

Save_America1st's picture

I thought the Chinese put guns to everyone's heads to keep them from selling?

I guess today they're going to start pulling the triggers...

invisible touch's picture
invisible touch (not verified) Save_America1st Jul 27, 2015 9:04 AM

hft computers with sharp sticks in the...usb ports.

Handful of Dust's picture

Wicked bad serious deflation ... followed by wicked bad serious inflation.

 

Classic.

Waylon Bits's picture
Waylon Bits (not verified) Handful of Dust Jul 27, 2015 9:34 AM

Chinese art markets can stop this crash.  It looks just like western art, but cheaper.

CheapBastard's picture
China woman swallowed by escalator

 

A woman was killed after falling into an escalator in a shopping centre in central China, local media report.

Surveillance footage from Sunday's incident shows a metal panel at the top of the escalator giving way, causing the woman and her toddler to stumble.

 

http://www.msn.com/en-us/news/world/china-woman-swallowed-by-escalator/a...

 

Reminds me of when my friend was travelin gthru China; he fell into one of their man holes when the metal cover gave way and broke several ribs and got a concussion.

Richard Chesler's picture

All I can say is hahahahahahahaha

 

PrayingMantis's picture

 

 

... keep calm and take a deep breath ... it's just a correction to Jan 2015 levels  ...

kaiserhoff's picture

Transitory, but so is planet earth..

bigkahuna's picture

Turn those machines off! Or was it - back on!

stopthejunk1's picture

China is the U.S. 100 years ago.

The Triangle Shirt Factory fire was in 1911.

In another 100 years, China will be America, and America will have stagnated like Japan or any of the postwar European nations. We will also hopefully have become more socialist (read: humanist) like those nations.

crazytechnician's picture

Socialism works just fine. It just requires a lot of capital to get it started , it only fails when that capital has been depleted.

Scarlett's picture

So China will have military bases all over here then?  

 

trulz4lulz's picture

Not in Merikistan specifically, just lined up against the boarders of Mexico and Canada.

Gold...Bitches's picture

No they won't.  100 years ago the USA already had a working court sytem, laws, checks and balances, etc... and the people for the most part bought into the system and believed in it.  That is long gone.  That USA you reference is fast fading to a dream like status never to be seen again.

 

Whatever China becomes in 100 years is going to be something different than what you imagine.  100 years from now could be a post nuke world for all anyone knows with all of China and many other parts of the world unable to support life as we know it.  Or it could come together in a total world communist governement.  Don't pretend to be able to predict 100 years ahead from today - its ridiculous.  

Here is my equally valid prediction.  100 years from now technology will have solved all of mankinds ills with the success of fusion leading to terra forming of Mars and colonies there as well as our moon will provide all the materials and space/land anyone will ever need and humanity will coexist in peace forever after.  And then we genetically engineered unicorns so that the picture would be complete.  And if ya believe that I got a few bridges to sell you.

Four chan's picture

if you are in the first world you have won the game, if you have it made in the first world you are one of the luckyist humans in all of history. count your blessings my friends.

pparalegal's picture

Now I know who made the faulty metals for gas tanks & front end parts.

More bad news for Fiat Chrysler: After today’s announcement that the company must pay up to $105 million in fines for improperly handling 23 separate recalls, the automaker has announced that it is prepared to buy back some of the 578,000 Dodge and Ram pickup trucks and Dodge and Chrysler SUVs that it failed to fix during multiple recalls. Update: FCA responds with clarified numbers.

NHTSA has recorded one death and 32 crashes stemming from the steering issues involved in the three recalls. FCA admits that it violated the law in the three recall campaigns by failing to fix vehicles in a timely fashion—NHTSA reports that some owners have waited as long as two years for the recall repair.

The vehicles eligible for buyback are as follows:

  • 2008–2012 Dodge/Ram 1500 pickups (265,000 vehicles)
  • 2008–2012 Dodge/Ram 45oo and 5500 heavy-duty pickups (35,942 vehicles)
  • 2009–2011 Dodge Dakota
  • 2009 Dodge Durango
  • 2009 Chrysler Aspen

 

stopthejunk1's picture

I don't think there's any "fix" for the real underlying problem, which is a culture of greed.

The banksters will always find ways to "innovate" around the regulations. Capital *will* get its returns.

Bindar Dundat's picture

The trouble is , an hour after I dump some Chinese stocks -- I want to dump some more....

COSMOS's picture

If I was the Chinese here is what I would do.  Handle any foreign orders by hand, any order seeking to dump chinese securities I would execute it at far below their asking price, maybe pennies on the dollar, then immediately turn around and sell it back to myself at the normal price it was selling for on the market and only show that trade.  Voila market looks healthy and the fucking zion hedge fund trying to trigger a panic and short my markets is left without any fucking kidneys.  Nothing wrong with this, the zio crooks write the rules to benefit themselves in western markets and exchanges.  I am sure I can bury the regulations for my actions in a back dated hard copy book of regulations and procedures on the Chinese exchanges in the basement of one of those unoccupied buildings in the ghost cities of china.  Voila.  Ziocrooks can then come to China if they need to proceed with any lawsuits, but be forewarned, chopsticks may end up in most odd and unfortunate places in the human body.

ah-ooog-ah's picture

Ha!  logged in just to upvote that

IRC162's picture

Even their equity market is made of chintzy plastic.  Just took a web tour of ABC, NBC, CBS news sites, you would think this would be breaking news, but not so, not even a mention on front pages.  Bobbi Brown and Obama's African trip are more pressing matters to the people... alphabet media is an absolute disgrace. 

cnmcdee's picture

QQQ ($111) Put Option Strike Price $48 Expiry Jan 15, 2016 is selling for $0.02.  It is the play of the century.  If QQQ goes to 75% ($37.20) of strike price before that date you will net approximatley $400,000 for every $1000 invested.

The market *always* goes where people cannot believe it will - always.  In 2008 nobody expected that Bank of America would drop from $20 to $4, the Financial index would drop from 500 to 81, and that QQQ would drop from $54 to $26..

And right now nobody will believe that the market is about to collapse again.

stopthejunk1's picture

Sure, but if you are going to buy 500 contracts, watch out for your commissions.

Also, given the open interest at those levels, I'd say there are at least a few people that are betting on (or insuring against) exactly the collapse you mention.

schadenfreude's picture

Sure, but are you sure your counterparty does still exist then?

Heterodox economics's picture

I gave your post an upvote simply becasue it gave food for thought.

Four chan's picture

pushing the multiculturism adgenda by the media is their number one program.

Hitlery_4_Dictator's picture

Hey, you stole my avatar....Hitlery is mad

Bill of Rights's picture

Deflation where? prices continue to rise especially at the grocery store, fees of all kinds are rising, housing is up across the board where is this deflation you speak of?

Almost Solvent's picture

Exactly.

 

Deflation won't happen until companies are finally allowed to FAIL & Go out of business with the resulting liquidation of any remaining assets. 

 

Liquidation of assets is fundamentally what leads to deflation - and there has been no real liquidation of companies/assets for that last 20+ years.

 

This plays into my belief that gold/silver/etc. will likely fall in the short-term if SHTF due to margin calls, scramble to stay solvent, etc. and once that inital shock wears off and the true shit-storm is seen by the masses, then gold/silver/etc/ will take off in the final scramble to replace hyperinflated fiat. 

CheapBastard's picture

It's in various sectors like retail, O&G, etc. But otherwise I agree and the bad thing is while some sectors are getting creamed, other sectors of essential items -- health insurance, food, etc--are skyrocketing. How all these fired folks in oil and retail are going to pay their mortgages, etc is a mystery.

 

No worries though; it's all part of Barry's rekovery.

Supernova Born's picture

The Chinese apparently don't believe government manipulation can sustain a market.

Antifaschistische's picture

The only thing that surprises me is that anyone would be surprised.  Let's see, you have 50 million day traders who are all taught to SELL at a particular fibonacci retracement level!!  What do you think will happen!!   Everyone was happy when these marginal buyers were pumping the valuations of ALL portfolios higher. 

YHC-FTSE's picture

"If China's current account contracts, does that mean China will stop exporting deflation?"

I like the way Occidental thinks. That elastic band has a lot of tension in it.

As for this second crash, I'm trying not to feel a bit of schadenfreude, but it's not possible. :) I did say that they should have left the market alone so the politburo deserve everything they get. The sad bit might be seeing all time highs again at the end of the year, in line with all the other batshit crazy manipulated markets.

nmewn's picture

Its those evil, unpatriotic, disrespectful Chinese short sellers again!!!

What happened to all the benevolent Chi-Com government "minders" that follow people around, don't they hang out at the stawk markets?

Government bouncers at the door of the Shanghai mawkit in 3-2-1 ;-)

Squid-puppets a-go-go's picture

well, the Chinese govt said theyd arrest people shorting, but the chinese people know their govt doesnt incarcerate people with the same proclivity as the american govt ;)

nmewn's picture

True enough. I see where the DOJ has launched an investigation of those evil people who outed Planned Parenthood ; -)