China's Plunge Protection Team Holds $150 Billion In Stock, Claims "State Meddling" Stabilizes Markets

Tyler Durden's picture

It was two years ago, in June of 2015, when just as the Shanghai Composite was flirting with 5,000 and when literally the local banana stand guy was trading stocks, that the Chinese stock bubble burst, unleashing an unprecedented selling spree, a 40% drop in just two months, and Beijing's nationalization of the stock market, courtesy of the domestic plunge protection team, the China Securities Regulatory Commission also known as the "National Team".

The decision by local authorities to effectively shut down price discovery had a huge confidence crushing impact on local investor confidence. As Gavekal Research put it overnight, "the lack of trust was crystallized by the decision in the summer of 2015 to “shut down” the equity markets for a while and stop trading in any stock that looked like it was heading south. That decision confirmed foreign investors’ apprehension about China and in their eyes set back renminbi internationalization by several years, if not decades."

Understandably, with the realization that China (or any other nation for that matter), no longer has a an efficient, discounting stock market, but merely a policy tool meant to inspire confidence on the way up, and punish short sellers and "speculators" on the way down, the China Securities Regulatory Commission kept a low profile: after all why remind traders and investors that the local market only exists in the imaginations of several Beijing bureaucrats who sit down every day to decide the "fair value" of all market-traded equities.

That changed last week, when for the first time in years, the Chinese Plunge Protection Team broke its silence and said that "state meddling has successfully stabilized China’s US$7 trillion stock market by curbing volatility and steering valuations to rational levels."

For those stunned by the idiocy in the circular statement above, don't worry it's not just you: China indeed just said that the local market has become more efficient as a result of more manipulation. What is far more shocking, however, is that most central bankers around the world would agree with this statement.

As SCMP adds, in this rare move to comment on the market performance, the China Securities Regulatory Commission said in a statement on its website on Tuesday that the gauges tracking the nation’s big-cap blue-chip stocks beat the world’s other major benchmarks such as the Dow Jones Industrial Average and UK’s FTSE 100 Index in the first seven months of the year. In spite of the outperformance, the valuations were still lower than the global peers, it said.

It did not say that the "valuations" would be whatever the CSRC decided they should be, and not a penny less or more. That much was assumed.

Here are some striking facts showing what state intervention in quote-unquote markets looks like: within the 140 trading days in the period, the benchmark Shanghai Composite Index had not closed up or down by more than 2% and registered only eight days with daily movement exceeding 1 per cent, the CSRC said in the statement.

Clearly unaware of the Efficient Markets Hypothesis and what "price discovery" means, the Chinese regulator produly attributed the tame market performance to state-linked funds, which were created during the equity crash in 2015 to shore up stocks, and said maintaining market stability was the pre-condition for carrying out reforms. In other words, China's stock market will never again be allowed to suffer a crash, and in the process, the whole concept of a fair and efficient market has been thrown out of the window.

“The CSRC has put the prevention against financial risks at a more important position and taken a series of strong measures to rid any potential risks in collaboration with relevant departments,’’ the regulator said in the statement.

To be sure, nothing about the above statement is a surprise: even after the 2015 market rout that almost erased $5 trillion in market value, the state funds, also known as the "national team", continue to frequently interfere and meddle in the market, usually in the last hour of trading when an "inexplicable" force sends the stock from sharply lower to just barely in the green, in the process "restoring confidence" in the stock market, or so they think. The most prominent case this year was January 16, when the Shanghai Composite almost recouped an intraday loss of as much as 2.2 per cent in the last 30 minutes of trading to end the day only 0.3 per cent lower. The miraculous recovery happened shortly after Beijing ordered "no market selloffs during Xi Jinping's Davos Trip, and sure enough...

... that's precisely what happened.

Unlike the US, China is not ashamed to admit that there is no such thing as "price discovery" in its stock market, where everything is a function of daily government intervention. State-linked funds, mainly operated by China Securities Finance and Central Huijin investment, are estimated to hold stocks worth about 1 trillion yuan (US$150 billion) now, according to fund tracker Howbuy.

And if Beijing has to hold 1 trillion yuan in stocks when the "market" is stable, one wonder what will happen when things start turmoiling once again: will Beijing simply nationalize the entire stock market during the next market crash?

Meanwhile, it did not take long for the adverse consequence of China manipulating its market to emerge: while state intervention reduced price swings in what until recently was the world’s most volatile emerging stock market, it has come at a cost of waning trading activities among retail investors, who make up 80% of transactions. The number of new investors is growing at the slowest pace in almost two years, and turnovers remain down 80% from the all-time high, as nobody has any confidence or trust left in any displayed "price."

Just like in the US, the 100-day volatility on the Shanghai Composite fell to a record low of 8.6 in May and it currently stands at 9.3, according to data compiled by Bloomberg. China’s CSI 300 Index of the nation’s 300 most valuable companies climbed 13 per cent in the January-to-July period, outpacing Dow Jones Industrial’s 11 per cent gain and FTSE 100 ’s 3.2 per cent advance.

As long as China, along with every other central bank, continues to supress volatility artificially, it is unlikely that any major market turmoils will emerge. The flipside is that the longer China, and other developed nations, kick to can on realizing fair market value, the more dire the collapse will be when (or maybe if) price discovery is once again permitted.

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cossack55's picture

Gotta love that stabillatee

GUS100CORRINA's picture

China's Plunge Protection Team Holds $150 Billion In Stock, Claims "State Meddling" Stabilizes Markets

My response: ROFL!!!!!

Colossians 2:8a New International Version (NIV)

See to it that no one takes you captive through hollow and deceptive philosophy, which depends on human tradition and the elemental spiritual forces[a] of this world.

dead hobo's picture

How is China's PPT worse that Pets.com being bid higher and higher? Or an Amazon PE ratio of 196?

remain calm's picture

There are no more markets just interventions

The Cooler King's picture

Naturally, though...

 

These GREAT MEDDELERS:

 

- who are in complete control of the a country with the largest population

- who are the largest bitcoin miners in the world

 

& whereby, 'admittedly' meddle in these markets

& whereby, the BITCOIN market is a drop in the bucket (in terms of meddling)

& whereby NOBODY knows who 'Satoshi' is

& whereby, the number of 'possible' bitcoin wallets is 2^160

& whereby NOBODY really has an answer as to whether or not a 'single entity' could own, say, 10 million out of the 15.8 bitcoin wallets

 

Well, there's probably NOTHING TO SEE HERE ~ you should just 'move on over' to OVERSTOCK.COM and buy yourselves 8 living rooms full of CHEAP CHINESE FURNITURE ENSEMBLES before next weeks babysitting gig, or, because you FUCKED UP & sold your bitcoins AT A PROFIT and now the IRS is on your ass because you bragged about it on the internet using a...

 

wait 4 it...

 

PSEUDONYM!

remain calm's picture

FAKE MARKETS, FAKE NEWS, FAKE HISTORY, FAKE MONEY, FAKE PEOPLE, FAKE PROTESTS, FAKE PORN. The world is FAKE.

The Cooler King's picture

Take the BLUE PILL & you'll feel a lot better... It'll only cost you one bitcoin with the Obamacare discount.

remain calm's picture

150 Billion. You believe them. Fuck its probably 1.5 TRILLION

robertocarlos's picture

Yup but why stop at 1.5 trillion? Spend the whole 7 trillion.

Son of Thor's picture

I’m making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do… http://disq.us/url?url=http%3A%2F%2Fwww.jobproplan.com%3A68UoF1LgzM-Yo3S...

DelusionsCrowded's picture

Their world is fake . Our world is real . The litmus test is those who believe in the fable 6 and those who Know .

ReturnOfDaMac's picture

"Tradition" --- did someone say gold?

steverino999's picture

The "real" global economy is circling the proverbial drain, and central bank intervention is keeping every country from perpetual recessions. Central Bankers will tell us that the financial crisis is responsible for their constant intervention, but what they don't want us to know is it's not that simple and short-lived a problem. Global demographics are their real nightmare, because of new birth rates post 1960-ish, therefore global growth would shrink into the abyss without perpetual QE and near-zero interest rates. The biggest lie in history can't be told for fear that the entire world community would panic if they knew this to be true. Central Bankers must continue to manipulate and lie until they no longer can. Truly sad how we have devolved as a global economy.

steverino999's picture

GOLD IS THE ONLY ANSWER ONCE REALITY IS "FOUND OUT"....

Justin Case's picture

First they learn Keynesian economics and fractional reserve banking and now they copy Gov't buying stawks. Swiss Gov't owns a shit load of APPL stawk.

I think China has done some very intelligent maneuvering particularly since the 2008 crisis. They figured out US fractional reserve scheme was toast but they played along anyway. They even levered up as much or more than we did since then. However, with this increase in credit they have built infrastructure in the form of roads, bridges, cities, plant and equipment …all for and with future uses. The West on the other hand has thrown a “standard of living party” and neglected infrastructure to the point of dilapidation. Yes China’s financial system will implode with all the rest, they may even lead it! But, they will be left with new infrastructure and “money” (meric's gold) to get started again. President Xi has even said this to his people and to the world. He said the short term would be difficult but the long term beneficial. I think he is telling the truth!

veritas semper vinces's picture

Agree. They also have the manufacturing base,the one we so foolishly got rid off.

Their debt is internal.

They have 20,000-30,000 tones gold.Jewmerica has ... how much? Lets ask Rubin/Clinton.

And ,why,oh why nobody talks about our PPT ,the one which deals in Trillions?

Jewmerica suffers from monumental hypocrisy.we never see our faults .

DelusionsCrowded's picture

The just have to create a Gov structure that has long term viability . It will be interesting to see if they can use the internet to generate a powerful direct democracy.

This is the key to any long term viability of humane technocratic state . Switzerland shows the staying power , stability and equanimity of real democracy .
Block chain has the answer , will the calls be heard in the west ?

Justin Case's picture

China is, indeed, going through a transition, but it is not a transition from capitalism to communism. The evidence supports a conclusion that feudal appropriation has prevailed in both agriculture (during the commune-era) and industry (during the SRE-era) in the recent past and is now being displaced by capitalism in industry and increasingly in agriculture. In other words, China is going through a transition from feudalism to capitalism. I just don’t see calling such a transition socialism.

Capitalism will be much more robust if it’s not a monopoly of the West, but flourishes in societies with different cultures, religions, histories, and political systems.

ET's picture

The Chinese, meanwhile, are quietly accumulating gold and selling their US Treasurys.

I would not be surprised if they are behind Bitcoin to suppress the money flow into gold.

Just another way to suppress the gold price so that they can achieve their gold accumulation with the dollars and US Treasurys that they still have.

equity_momo's picture

The only time i remember a PPT getting it right was in 1998 when HK propped up their market after LTCM.  Then they sold into the highs a few years later.

So far since 09 , no PPT or CB have sold their purchases.  That is the measure.   And they havent been buying panic plunges either. They are buying an already over-inflated market to keep it over-inflated. Stock and bonds. Same deal.

I would love to be a fly on the wall when the SNB realise theyre the last bagholder for Apple and cant get out. Although i dont really think they care. Its Monopoly money to these clowns.

EuroPox's picture

Hong Kong's "Lifeboat" worked because they were transparent about it - everyone was told what they had bought and that restored confidence.  

But it was 1987 not 1998.  Today's PPTs... not so much.

equity_momo's picture

Ah right you are thanks for the correction.

Yes they seemed to use some common sense back in the day.  

Iskiab's picture

Interesting thing about the end of day trading, I saw a lot of that end of day volume to end up a couple points higher on the DOW within the last couple months. Though it's hard to tell if it's something else like ETF rebalancing, but I don't know enough about how the ETFs rebalance to tell.

besnook's picture

over the past 50 years the fed acting with its proxy tbtf banks in coordination with the exchanges have worked to remove volatility from usa markets leading to the (over-) confident declaration by old yellen that there will neve be another stock market crash. volatility is a boon for traders but a real horror for banks, investors and corporations. the chinese learned from the fed that direct intervention is a legitimate tool to use to avoid stock market crashes. exuberance on the positive side is good(fangs). exuberance on the negative side is bad, therefore intervention is good. that is the mantra of modern markets. picking on the chinese for being honest is misdirected.

two hoots's picture

So is that 2.1% of the equity market that CSRC is holding (150B of 7T)?   If so, 2.1% doesn't seem like much to control the other 97.9%?

Blue Steel 309's picture

So, China PPT bad, but Western Banking PPT's good?

Justin Case's picture

Throw commies in there, to make it complete. Lotta tarts here love to hear it, without realising how stupid they look.

Not My Real Name's picture

From the article: "The flipside is that the longer China, and other developed nations, kick to can on realizing fair market value, the more dire the collapse will be when (or maybe if) price discovery is once again permitted."

What we have here ... is a reading comprehension problem.

JLee2027's picture

Sounds like it's all about to blow in China. 

More_sellers_than_buyers's picture

So ... there is no pricing mechanism...btw if they say 150 billion...probably more like 1.5 trillion

Father ¢hristmas's picture

There was no idiocy in China's statement.  In China, the state is God©.  

It's a helluva lot better than the "Let's manipulate markets but not tell anybody because everything is supposed to be carried by a bald eagle rising from the ashes of tyrants who wish to suppress freedumbs and dimocracy but are crushed by imaginary desert prophets speaking on behalf of human avatars of celestial bodies" ass bullshit we have in this failed state over here.

backspaceone's picture

chichty china the chinese chicken 

Justin Case's picture

A little boy goes to his dad and asks, "What is politics?" The dad says, "Well son, let me try to explain it this way: I'm the breadwinner of the family, so let's call me capitalism. Your mother, she's the administrator of the money, so we'll call her the government. We're here to take care of your needs, so we'll call you the people. The nanny, we'll consider her the working class. And your baby brother, we'll call him the future. Now, think about that and see if that makes sense." The little boy goes off to bed thinking about what dad had said. Later that night, he hears his baby brother crying, so he gets up to check on him. He finds that the baby has soiled his diaper. The little boy goes to his parents' room and finds his mother sound asleep. Not wanting to wake her, he goes to the nanny's room. Finding the door locked, he peeks in the keyhole and sees his father in bed with the nanny. He gives up and goes back to bed. The next morning, the little boy says to his father, "Dad, I think I understand the concept of politics now." The father says, "Good son, tell me in your own words what you think politics is all about." The little boy replies, "Well, while capitalism is screwing the working class, the government is sound asleep, the people are being ignored and the future is in deep shit."

PrezTrump's picture

"capitalism is screwing the working class" . Code word for you're a COMMIE

ReturnOfDaMac's picture

PPT:  If I do it, its saving capitalism from itself, if you do it, it's "communism",  Capiche?

Golden Phoenix's picture

Front running central banks in cryptos FTW.

DelusionsCrowded's picture

In my opinion , markets have to be collared and governed to prevent bad actors from manipulations .
Price discovery is via both speculation as to future profits and current profits . The future is anyone's guess.
If markets are not collared in the West its because State Actors Want the power to frighten the cattle .