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China's Plunge Protection Team Now Owns 6% Of The Entire Chinese Stock Market
Two weeks ago, in “The Cost Of China's ‘Manipulated Market Stability’ May Be Too High, BofAML Warns,” we revisited Beijing’s plunge protection national team, which during Q3 bought an astounding CNY1.5 trillion in stocks.
For those who might have forgotten exactly how this worked, the PBoC effectively transformed CSF into a giant, state-run, margin lending, prop desk and before you knew it, the government was stepping in just prior to the close on a near daily basis to keep the bottom from falling out. Every time CSRC attempted to step out of the market, chaos ensued. Indeed, even rumors that the government was preparing to scale back the plunge protection were enough to spook investors as we saw in late July when futures sank after a Caijing reporter suggested that the national team was set to rein in its purchases (that reporter was later arrested and charged with causing “panic and disorder”).
As August wore on, the cost of propping up the market (which desperately wanted to fall further as legions of semi-literate Chinese day traders who three months earlier had been willing to buy any and all dips suddenly had a mind to sell any and all rips in a frantic attempt to salvage their severely depleted life savings) simply became unbearable and so, Beijing decided to just start arresting anyone who was suspected of being a “malicious” seller. The crackdown - named “kill the chicken to scare the monkey” after a Chinese proverb - was designed to essentially make market participants believe that selling or worse, shorting, could land you in jail.
Subsequently, the market stabilized but by the time the waters calmed, China was left with an enormous stock portfolio, nearly a quarter of which was purchased at multiples above 40X.
Here's a look at the paper losses the government had incurred by the end of September (note that most of the CNY224 billion hit had been recouped as of mid-November):
BofAML's conclusion was that given concerns about what incessant stock buying might convey about both the future course of the yuan and about China's commitment to liberalizing capital markets, the PBoC may not be inclined to remain active in the market going forward.
Indeed, when the SHCOMP plunged on Friday in the aftermath of a new round of broker probes, a poor read on industrial profits, and the revelation that two more companies are set to default, the national team appeared to have stayed on the sidelines and maybe that's a good thing because as FT reports, the government now owns 6% of the entire mainland stock market.
"China’s 'national team' owns at least 6 per cent of the mainland stock market as a result of the massive state-sponsored rescue effort this year to prop up share prices following the summer equity market crash," FT wrote on Thursday, adding that "China Securities Finance Corp, the main conduit for the injection of government funds, owned 742 different stocks at the end of September, up from only two at the end of June." Here's more:
The figures are compiled from quarterly financial statements of listed companies, which are required to disclose their 10 largest shareholders. The actual size of national team holdings is probably larger, given that some likely hold stakes that are too small to rank among the top 10.
The estimate of the shareholdings of the national team covers positions held by CSF, which is the state-owned margin lender, and by Central Huijin Investment, the holding company for shares in state-owned financial institutions and a subsidiary of China’s sovereign wealth fund.
The market value of CSF’s holdings increased from only Rmb692m ($108m) at the end of June to Rmb616bn three months later. However, the market value of Huijin’s holdings fell by Rmb167bn in the third quarter to Rmb2tn, mostly reflecting mark-to-market losses on shares it previously held. This fall came despite Huijin’s additional share purchases in the period.
The significant role of the national team in propping up the market has raised concerns about the sustainability of the recent share rally, and about what would happen if the government unwound its holdings.
Yes, "what would happen if the government unwound its holdings?" That's difficult to say, but it might very well be that the psychological effect national team selling would have on market participants would end up doing more damage than the selling itself.
As we discussed earlier today, it looks like China may be trying to offset a rollback of the draconian measures imposed on markets over the summer by throwing more people in jail. That is, in an effort to dispel the idea that the Politburo controls what goes on in markets, Beijing is lifting some restrictions. But that means losing control and so, officials hope a renewal of the "malicious" market manipulator witch hunt will be able to keep things in check. Here's an example of what we mean: just days ago, Beijing lifted selling restrictions on brokerages' prop desks, but simultaneously, authorities launched investigations into at least three brokerage houses for alleged "rules violations." As we put it earlier: so you can technically be a net seller again, it's just that you might end up being arrested for it if the Party thinks your selling was particularly malicious or otherwise ill-timed.
This all comes as the country is facing its "Minsky Moment" wherein heavily indebted corporates will no longer be able to borrow money to pay interest on money they borrowed in the past. Once that threshold is crossed, the defaults begin.
Throw in rapidly decelerating growth and an acute over capacity problem and there's the very real potential for concurrent crashes in stocks, bonds, and the overall economy.
So time will tell whether Beijing will ultimately be satisfied with 6% of the equity market if things start to go south again as they did today and whether, when missed principal and interest payments are happening six times per week instead of six times per year, Xi will be able to keep his cool and refrain from bailing out the entire commodities and industrial complex at the expense of China's international reputation.
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How can China market take these body blows and yet the USA market doesn't seem to notice. I really don't get it.
We're exceptional
So the news here is how China’s government — the communists — are increasingly owning equities, i.e., exerting greater control over the means of production?
Ok. Just checking.
Same thing the Japs are doing .... and next step for the FED after they own all the Treasuries.
Socialism thru the Central Bank
And you thought fiat money was just for the rich!
Ho Li Fuc !
Tne last scam is convincing the rest of the world the dollar is safe. Then they move on to another host to live on.
the feds franchisees, the banks own what like 90% of the us market? the old flerp zerp.
I would love to know how much the Fed owns of the market through Goldman Sucks and other NY banks. I see BoAML so ready to spew China data - why doesn't it cough up US?
Because the US plunge protection team owns 10% of the US market? i don't know.
China, make it 20% and make it illegal to issue any new stock...squeeze out available shares, and just never sell. problem solved.
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Pregnant?
disabled
China still has investors that aren't controlled by their CB, i.e. retail. The US market is virtually all controlled by the Fed, or by funds so terrified of lost income/asset value (e.g. CALPERS and the like) that they de-facto do whatever the Fed wants, which is anything but sell stocks.
If you want to be like the Fed or Japan you have to own at least 10%.
The IMF won't let the Yen in the SDR until then.
When they get to 200%, sell.
This is August all over again.
No...no..no.. not August. worse...
Once they dont allow anyone to short their markets, there will be a panic and the stocks will go right to ZERO!
Reason being...Because there will be no short buyers allowed, which does control the decent of stocks, keeping them from going right to bottom.
Is this why China keeps getting its physical gold back from vaults and selling US T's so it can cover? Anyone do the math and figure out how much they've got left to use from the + column?
Welcome to North Korea. How's their economy doing?
No price discovery.
Good time for companies to offer more shares because the government will buy them.
6% is nothing. the chinese government owns a shitload of companies outright and certainly all the biggest companies. the fed will own more than that someday. there is no fed equity market put. hahahahahaha!!! http://fortune.com/2015/07/22/china-global-500-government-owned/
That article made me physically ill.
And I thought the us government was bad.
China is a joke.
The state owns ereryting!
They own a whole lot more than forbes would ever say aloud.
You can take the socialism out of the communism but you can't take the communism out of the socialism huh?
Only real capitalists and free marketers will get that ;-)
in china the gubbermint owns the companies (especially the banks). in the usa and eu the companies (especially the banks) own the gubbermint.
Yes, it's like Dante's ninth circle of hell...treachery.
Compare to the US FED's 60%? LOL. If you consider the $ given out and where it went. So make that 85%.
Ain't fiat wonderful?
NOT
No limit to manipulation when you can create literally endless fiat, fake, fraud, fiction, fantasy, fractional-reserve debt-bits out of thin nothing... and with NO external audits... EVER.
Cyber Monday + CNY deval = Black Monday
OK - fine. HOW MUCH does our very own Federal Reserve/Plung Protection Team now own in stocks across all markets it consistently manipulates?? Do they own any paper gold and paper silver??
CH it's probably safe to say that whatever trillions in debt the fed holds equate to how much they invested in markets and currency manipulations. I bet in stocks it is way bigger than 6%.
I wonder how much stock of the S&P 500 the US Federal Reserve owns??
It's clear the Fed has been buying stocks to prop up the market and keep investors from losing confidence despite all the bad economic data and uncertainty. The Fed is unaudited and can get away with it.
They ain't talking. I assume the amount they own in name is very small and probably zero, but the amount they control, even the amount they might trade in a single day, is still very small as things go, probably in the mere billions, hardly worth mentioning in polite company, maybe ten billion tops, or a hundred billion on a bad day, I mean really, who's counting?
funny, the irony is that they will only accept 'selling' if the mkts are up, and if going down, selling is verboten. they are forcing people to sell into strength....too bad the us and euro leaders are not so benevolent...luring people into buying high (and then alowing them to sell low)...but of course the western nations are so 'pro-letariat'
Based on China's rehypoticated metals markets x3. I think it's a safe assumption, those numbers are "understated".
This is like trying to peg a falling currency, it never works and will end up bankrupting the state. Why do people always seem to think this is a good idea? It's like trying to stop evolution or time.