This page has been archived and commenting is disabled.

China's Plunge Protection "National Team" Bought 900 Billion In Stocks, Goldman Calculates

Tyler Durden's picture




 

In, "The Complete Guide To China’s CNY 4 Trillion Margin Doomsday Machine," we presented a comprehensive look at the various backdoor channels the country has used to skirt official restrictions on leveraged stock trading. Here, courtesy of BofAML, is a breakdown of these channels and the bank’s best estimates of their size.

The dramatic sell-off that made international headlines last month and, along with the Greek drama, dominated financial market news, was precipitated by an unwind in these unofficial margin lending channels.

In a frantic attempt to restore the equity bubble that has for the better part of a year served as a distraction for China’s flagging economic growth and bursting property bubble, Beijing unleashed a plunge protection effort of epic proportions that included everything from threatening to arrest sellers to using China Securities Finance Corp. as a state-controlled margin lender.

In short, the PBoC, with the help of the country’s banks, helped CSF mushroom into a multi-trillion yuan Frankenstein and now that the mentality of the retail crowd (which in China had accounted for around 80% of daily turnover) has transformed from "buy the dip and get rich" to "sell the rip and break even,"any indication that CSF is set to exit the market is greeted with panic by market participants. 

Here with a breakdown of just how much money has been funneled into Chinese equities by the so-called "national team" and on how, just like the Fed with QE, the PBoC will find that a swift exit is effectively impossible, is Goldman.

*  *  *

From Goldman

China musings: How much has the government bought in the market?

The Chinese government's recent measures to support the domestic equity market through the so-called 'national team' institution are being frequently discussed by investors and in the media. In this commentary, we estimate the amount of money the 'national team' has spent to support the market, the remaining capital left available for use, the sectors that have likely benefitted from government support, the potential overhang on the equity market from government support measures, and our views on the equity market over coming months.

1. We estimate the 'national team' has spent around Rmb860-900bn to support the domestic equity market.

Our estimate is based on two dimensions: (1) top-down analysis based on our liquidity model; and (2) bottom-up analysis based on fund flow changes in key investment channels based on public information released by relevant media sources.

(1) Top-down approach: This method suggests the 'national team' bought approximately Rmb900bn in the market.

(2) Bottom-up approach: The 'national team' has bought around Rmb860bn if we sum up each channel.

Potential size, investment direction and the stock holders of the 'national team'.

(i) The potential capital available for market support is roughly Rmb2tn (including the money already spent). According to public information released by media sources including Sina and Caijing (July 24, 2015), 17 commercial banks have lent CSFC nearly Rmb1.3tn in total. CSFC's own debt issuance plus the PBOC's multi-channel liquidity injections imply a total of around Rmb2tn. It seems the government still has sufficient support capacity in the pipeline.

(ii) Government support has largely focused on large-cap blue chips and certain defensive sectors. Due to insufficient high-frequency data for fund flows across sectors, we used the sectors' performance fluctuation from end-June to July and concluded that supportive capital has mostly flowed into large-cap blue chips or certain defensive sectors, such as banks, insurance, F&B and healthcare. Admittedly, the 'national team' has also invested in some ChiNext stocks and SME stocks according to media reports and the listed companies' reports, although these investments appear to have taken up only a small proportion of the total government buying.

(iii) Which entities actually hold the stocks? Based on information from public media (Sina and Caijing), the 'national team' bought stock through three channels: 1) CSFC bought stocks directly (at least Rmb400bn); 2) subscribing to some major mutual funds (around Rmb200bn); and 3) CSFC provided credit lines for some brokers (around Rmb260bn).

3. Short-term market implications

(1) Potential index range-trading in the near term

a. Given the ample liquidity that the 'national team' still has, we expect market volatility to moderate and for A shares to find support in the mid-3000 level (around the previous dip, 3400 on the CSI300 Index). Recent trading patterns suggest that government support may be forceful around this level.

b. On the other hand, the media reports (Caijing, July 8, 2015) suggest that the regulatory authorities are dissuading institutional investors from reducing positions before the SHCOMP Index reaches 4500 (approximately 4600 for the CSI300 Index). Therefore, this level is now widely regarded as the upper range limit for near-term market performance. Once the index exceeds this level, we believe investors such as brokerage proprietary desks will be able to reduce positions.

(2) Market concerns over the exit by the 'national team' from its supporting measures

Many clients have expressed their concern over the 'national team's' potential exit from the market and view this as a supply overhang. In our view, the probability of a rash exit is low as the market has not yet stabilized and the government has no pressing need for the funds. Moreover, two notable examples of exits from government direct or indirect support for equity markets show long waiting periods: The Hong Kong Monetary Authority took four years to divest stock purchased during the Asian Financial Crisis in 1998 and the Federal Reserve in the US began to taper its quantitative easing policy in 2013, five years after initiating its first round of quantitative easing in late 2008.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 08/05/2015 - 20:08 | 6395525 Publicus
Publicus's picture

It's just a bunch of digits in a computer, none of this is of any consequence.

Wed, 08/05/2015 - 20:21 | 6395581 johngaltfla
johngaltfla's picture

They are going to have to sell more UST to keep this pace up, just sayin'.

Thu, 08/06/2015 - 03:38 | 6396423 Haus-Targaryen
Haus-Targaryen's picture

Equities are the same all over the world, like the Tower of Terror @ Disney Land/World.  You can check in, but can never check out.  

If you cannot sell -- in theory it means your actualy value is $0.  

Thu, 08/06/2015 - 05:11 | 6396459 Weisbrot
Weisbrot's picture

since currency is nothing more than perception, created out of nothing, I say BRAVO! at least the FRB is doing what others can or will not do. Thank You Madam

Wed, 08/05/2015 - 20:21 | 6395584 Stormtrooper
Stormtrooper's picture

Correct.  And with things like eggs headed for $6/dozen, we need to think about what real (and shiny) kinds of things we will be able to trade for essentials (note, I keep the brass of my .308 rounds shiny so many things may qualify as real money when the time comes).

Wed, 08/05/2015 - 20:32 | 6395611 Publicus
Publicus's picture

When the times comes, there will be no trades as the machine lauches their relentless assults on humanity.

There will be no currency nor economy as the remaining humans works together for survival.

 

The slave race that is humanity could only hope for the return of their gods, the Annunaki. But would the gods save their former creation created for the mining of gold?

Wed, 08/05/2015 - 22:01 | 6395898 TheReplacement
TheReplacement's picture

Nothing some well placed EMPs wouldn't solve.  This is assuming that at least one nuke force is able to sustain human control.

Wed, 08/05/2015 - 22:05 | 6395917 Publicus
Publicus's picture

The machines will be everywhere, unlike humans, who must cluster to sustain civilization. Not to mention, you can make machines that will survive EMP easily.

Wed, 08/05/2015 - 21:07 | 6395750 wisebastard
wisebastard's picture

yeah and the threat i made last week was just a bunch of fucking letters but the cops still showed up

Wed, 08/05/2015 - 23:33 | 6396164 Publicus
Publicus's picture

Only the little people have to play by the rules of the big boys.

Wed, 08/05/2015 - 19:57 | 6395483 BullyBearish
BullyBearish's picture

If AAPL breaks 125 on the upside, declines and CANNOT break it again...time to SHORT for a 50% gain

Wed, 08/05/2015 - 20:43 | 6395673 johngaltfla
johngaltfla's picture

If AAPL doesn't break 120 by next Monday, there's going to be a shitstorm in the markets.

Wed, 08/05/2015 - 19:51 | 6395463 Tinky
Tinky's picture

A trillion here, a trillion there, pretty soon...

kaboom!

Wed, 08/05/2015 - 20:09 | 6395535 Spitzer
Spitzer's picture

Goldman the dumb kunts dont see that the Chinese are selling US paper to buy these stocks.

 

equity positions in these co.s is better then treasuries.

Wed, 08/05/2015 - 19:56 | 6395466 JustObserving
JustObserving's picture

900 billion Yuan is only $144 billion.  The Fed or its proxies have been known to sell $20 to $30 billion worth of gold in a nanosecond.

How much did Citadel/Goldman and the US team targeting China short?

How big a fine will Citadel have to pay for screwing with the Chinese markets?

Wed, 08/05/2015 - 20:10 | 6395540 Son of Loki
Son of Loki's picture

China has a looong way to go before it catches up the Bernank.

Wed, 08/05/2015 - 20:28 | 6395610 JustObserving
JustObserving's picture

Since Friday, the Shanghai and Shenzhen stock exchanges have restricted the trading on 34 accounts involved in abnormal transactions, data showed.

How many of those accounts belong to team America especially the Vampire Squid?  

The economic war games have begun.  How many countries in this world are being regularly fucked by team America?

The man who drove the US economy into what is close to a decade long depression has a new gig, he is advising the hedge fund Citadel.

Citadel has been selling Chinese stocks short since Bernanke became an adviser.

http://www.economicpolicyjournal.com/2015/08/chinese-officials-flipping-...


Wed, 08/05/2015 - 19:54 | 6395473 Row Well Number 41
Row Well Number 41's picture

“Any man who retreats into a cave which has only one opening deserves to die.”
    -- Frank Herbert, Dune

#41

Wed, 08/05/2015 - 19:54 | 6395474 ted41776
ted41776's picture

"the markets"

Wed, 08/05/2015 - 19:58 | 6395489 Ban KKiller
Ban KKiller's picture

"attempt to restore the equity bubble"...

Wed, 08/05/2015 - 20:03 | 6395498 ramacers
ramacers's picture

right on! it's been goin' on in our "markets" for at least 8 yrs.

Wed, 08/05/2015 - 19:57 | 6395486 Yen Cross
Yen Cross's picture

 My platforms are closed. Call me Friday morning, just before N.Y. opens

Wed, 08/05/2015 - 19:58 | 6395488 Zero Cigarette
Zero Cigarette's picture

China people are chanting for the national team like there's World Cup everyday.

Wed, 08/05/2015 - 20:06 | 6395512 Big Corked Boots
Big Corked Boots's picture

When this bubble bursts, its gonna be epic.

Wed, 08/05/2015 - 20:06 | 6395515 Irishcyclist
Irishcyclist's picture

Chinese are putting the Bank of Japan in the ha'penny place with their level of "support" for the bourses.

 

It's all getting more and more frantic.

FED, ECB, BoJ, PBOC and SNB each "intervening" more regularly and with increasing amounts

Wed, 08/05/2015 - 20:06 | 6395517 H H Henry P P P...
H H Henry P P P Paulson's picture

Strategy:  IPO your own company in China, issue yourself 50% of the stock options, and then offload all shares to the government.  Government subsidy to the MAX

Wed, 08/05/2015 - 20:10 | 6395538 CHC
CHC's picture

How many chopsticks can you get with that - a lot?

Wed, 08/05/2015 - 20:16 | 6395560 I Write Code
I Write Code's picture

Somebody must have sold.

Wed, 08/05/2015 - 20:17 | 6395565 fltactical
fltactical's picture

900 billion in one short period of time.. WOW.. that's like crazy. Instead of 80 billion a month for 5 years like the Fed. Talk about the pot calling the kettle black. Hypocrites. 

Wed, 08/05/2015 - 20:30 | 6395615 JustObserving
JustObserving's picture

900 billion Yuan is only $144 billion, less than 2% of the market cap of the Chinese stock market.

Wed, 08/05/2015 - 20:37 | 6395643 fowlerja
fowlerja's picture

Was this 900 billion in yuan spent in the stock market from... taxes collected from the Chinese taxpayer or was this just printed money?  Either way no need for mr china man to open a stock market account .... the Chinese government is doing the buying for you... just sit back and relax... they have your back covered...

Thu, 08/06/2015 - 02:55 | 6395713 bid the soldier...
bid the soldiers shoot's picture

Confucius say when you play "buy-short-sell-cover" on other people's markets, you play with other people's rules.

 

It looks like the suspended stock are are gradually starting to trade, with buyers opening long positions favored and buyers covering shorts at the back of the bus.  Maybe under it.

When these stocks appreciate enough  --   and the shorts profits evaporate  --   full trading will resume.  Of course, then all selling will be to close positions.

And all the partners of all the Wall Street firms who had planned to buy matching Koh e noors for their mistresses when they returned from Shanghai on a naval Dreadnaught with their booty, suddenly find themselves butt naked over a barrel in Tiananmen Square.

 

Oh, anybody who thinks that these Wall Street firms are going to tell you anwhere near how much money they've lost will have their password changed.

Wed, 08/05/2015 - 21:07 | 6395749 Dragon HAwk
Dragon HAwk's picture

The Chinese government owns the whole country, what's the big deal about them buying a few trinket stocks... it's not like anybody in China is going to argue with them.

Wed, 08/05/2015 - 22:30 | 6395993 highwaytoserfdom
highwaytoserfdom's picture

Knock it off you engineers that run China  our lawyers invented POMO, ZIRP, BTFD...  and we put the IP property in Belgium with world bank WTO and IMF...

 

Only our actions are allowed...   Don't like it your are a terrorist...     

Ps can we get another ammo shipment?

Wed, 08/05/2015 - 22:36 | 6396006 TheAntiProgressive
TheAntiProgressive's picture

C'mon guys lets see 2-3T more on the old tote board.  This might teach the military cyber attackers on the USA, that actions, have have consequences.  They pumped this mother up, it is now time to dump it.  They can get a crash course in manipulated, financialized, leveraged markets.

Wed, 08/05/2015 - 23:22 | 6396131 InanimateCarbonRod
InanimateCarbonRod's picture

And the source of those funds were..drum roll please....oil and gold...

Thu, 08/06/2015 - 05:09 | 6396458 Weisbrot
Weisbrot's picture

since currency is nothing more than perception, created out of nothing, I say BRAVO! at least the FRB is doing what others can or will not do. Thank You Madam

Do NOT follow this link or you will be banned from the site!