Chinese Stocks Plummet: Shanghai Tumbles Most In 17 Months As Bond Rout Spreads

Tyler Durden's picture

The euphoria from the year-end melt up in Europe and the US failed to inspire Chinese traders, and overnight China markets suffered sharp losses, with the Shanghai Composite plunging 2.3%, its biggest one day drop since June 2016, over growing fears that the local bond rout is getting out of control. Both the tech-heavy Chinext and the blue chip CSI 300 Index dropped over 3%, as the sharp selloff accelerated in the last hour, as Beijing's "national team" plunge protection buyers failing to make an appearance. There were sixteen decliners for every one advancing share.

In addition to tech, consumer non-cyclical and health-care sectors, the hardest hit names were banks such as ICBC, Ping An Insurance and Kweichow Moutai. Over in Hong Kong, the Hang Seng Index slid 1 percent from a decade-high, one day after closing above 30,000.

Confirming our report from last week, that traders were stunned by an official warning from Beijing that some stocks - in this case Kweichow Moutai, one of the most popular stocks among investors  - had risen "too far, too fast", Ken Peng, strategist at Citi private bank, told CNBC Thursday that over the weekend he had heard views about particular Chinese stocks having moved too fast. He also said that Thursday's downward move was impacted by "relative tight liquidity conditions in financial markets overall, because of a more stringent liquidity policy by the central bank."

"The decline in Moutai has triggered selloffs in some of this year’s best performing stocks," said Zhengyang Shen, Shanghai-based analyst at Northeast Securities. "When those giant stocks fall, retail investors will follow to sell their holdings. The ChiNext stocks do not have much support from the national team, so they fell even more," he said, referring to state-backed funds.

As Bloomberg adds, today’s tumble was especially jarring given this year’s relative placidity in the stock market - the world’s second-largest. Volatility on the Shanghai Composite Index fell to the lowest level in decades earlier this month amid signs the government was curbing speculation in the wake of 2015’s $5 trillion rout. For Dickie Wong, executive director of research at Kingston Securities Ltd. in Hong Kong, it’s too soon to talk about panic selling.

At the same time, just days after we warned that "A "New Era" In Chinese Regulation Means Turmoil For $15 Trillion In China's "Shadows", yields on sovereign debt and top-rated local corporate notes climbed to the highest level in three years as China's deleveraging campaign accelerated (don't worry, it will stop the moment one or more corp or sov issues go bidless). As Bloomberg adds, with more than $1 trillion of local bonds maturing in 2018-19, it will become increasingly expensive for Chinese companies to roll over financing.

"Cash is king now on the mainland," Castor Pang, head of research at Core-Pacific Yamaichi HK told Bloomberg. "Rising bond yields will be negative for corporate profits, since it will increase financing costs. That’s very bad news for the stock market."

Meanwhile, the yield on 10-year sovereign bonds rose above 4% on Wednesday, while yields on five-year top-rated local corporate notes have jumped about 33 basis points this month to a three-year high of 5.3 percent, according to data compiled by clearing house ChinaBond. That said, selling eased a little in the nation’s sovereign debt market on Thursday. The 10-year yield fell two basis points to 4.02%, after climbing 39 basis points this month, although the yield on five-year bonds rose three basis points to 4.04%.

Not even the PBOC's generous 100Bn yuan net liquidity injection helped ease liquidity and deleveraging nerves.

There was some good news, if only in terms of narratives: "You can say this is a correction but I don’t think it’s a market meltdown," Wong said. "Market sentiment is still okay but after recent gains it’s time to pull back."

"The plunge in China’s bond market is driving mainland stocks lower, especially financial-related shares," said Steven Leung, executive director at UOB Kay Hian (Hong Kong) Ltd. "Most A-share investors believe there will be further tightening in financial markets. Investor sentiment has been quite cautious in China, even though Hong Kong kept hitting 10-year high. There’s a lack of further momentum to move up."

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TheSilentMajority's picture

When asked for his feedback on the recent slump, professional trader Hung Lo commented “Ho yee fook! Sum ting wong!!”.

jeff montanye's picture

if one had to ask which is more likely, that the amount (ten to fifteen trillion dollars now) of negative yield notes and bonds, which has never occurred at these maturities before in the history of the world, increases or decreases, i'd go with decreases.

so likelier interest rates rise, traditional poison for equities of all stripes.  

MAGA's picture

Sometimes English also sounds stupid and funny in other languages. This only shows how arrogant and stupid you are!

kamikun's picture

I can second this. Living as an expat, English itself has started to sound weird to me now when I hear it... lots of stretched out vowel sounds with an occassional consonant "pop", "cut" or "crack"..... but most distrubingly, all of those damn "Sssssss" sounds stringing words and phrases together. 

When my students speak mock-English, it sounds something like "Krrreeeeduhsss swesssss esss ouz gah rasss ssuzrrrrr." (I think the 'r's are because I'm an American.)

Rubicon's picture

The European Commission has announced an agreement whereby English will be the official language of the EU, rather than German, which was the other contender.

Her Majesty's Government conceded that English spelling had room for improvement and has therefore accepted a five-year phasing in of "Euro-English".

In the first year, "s" will replace the soft "c". Sertainly, this will make sivil servants jump for joy. The hard "c" will be dropped in favour of the "k", Which should klear up some konfusion and allow one key less on keyboards.

There will be growing publik enthusiasm in the sekond year, when the troublesome "ph" will be replaced with "f", making words like "fotograf" 20% shorter.

In the third year, publik akseptanse of the new spelling kan be expekted to reach the stage where more komplikated changes are possible.

Governments will enkourage the removal of double letters which have always ben a deterent to akurate speling. Also, al wil agre that the horible mes of the silent "e" is disgrasful.

By the fourth yer, peopl wil be reseptiv to steps such as replasing "th" with "z" and "w" with "v".

During ze fifz yer, ze unesesary "o" kan be dropd from vords kontaining "ou" and similar changes vud of kors be aplid to ozer kombinations of leters. After zis fifz yer, ve vil hav a reli sensibl riten styl. Zer vil be no mor trubls or difikultis and everivun vil find it ezi to understand ech ozer. ZE DREM VIL FINALI COM TRU!

amadeus39's picture

Wow! Luv it. Logikal speling. Hu wood of thunk it.

 

 

SybilDefense's picture

"I know nuffing!"

~Sargent Schultz

"I dindu nuffin"

~%13 of American population (%60 if you believe MSM advertizing portrayal, %99 NBA/NFL).  These folks are ahead of their time wrt the new phonetic spelling.  It's called Eboniks

Leveraged Algorithm's picture

We continue to have very short memories.  I look around my office and there now exists a complete generation of completely uneducated idiots who have been in the financail business and just walk in everyday expecting the market to be up.  They have never seen a bear market of any type in the past 9 years.  Our financial firm does not discuss anything related to true risk - they just feed off the "historical" efficient frontier graphs - just total bullshit!

The pain to come will be many times worse than anyone expects and the fucking banks will sit there and say they had no way to tell.  Now they can say they were giving fiduciary advice because of the Obama fiduciary rule.

As a PM I am now mostly cash as of November 7th for my clients.  My indicators are neutral at best and I hope this fucker burns for the next 6 months to snap people back to reality.

Nomad Trader's picture

So true. It's totally bizarre to me that these kids think a 3% down move is a correction and even make that point that "I don't think it's a meltdown." I mean WTF! When the turn comes they'll be hurt so bad that they'll never touch financial markets again. In fact, they'll probably be in PTSD for the rest of their snowflake little lives. That is how the system works. This time is not different.

Leveraged Algorithm's picture

I continue to read the "Big Short" every 6 months or so to remind me just how ugly it can get. I have PTSD from 2008-09 and I was defensive at that time.  The snow flakes have never read it and couldn't tell you who Michael Lewis is...

They don't get that the easy money has been made and they are just lucky and the greed of the average client will be justly rewarded.  Banks hedge everything in their own trading, but advise no risk strategy for the common man.  I am considered the non-believer (Bear) in the office but it is funny how they come to visit when they get the 3% correction saying "do you think this market can go down?"  No - I tell them -  just BTFD and they leave knowing the Firm and the FED has their back....

Not My Real Name's picture

If the next financial crisis is a currency crisis -- and I strongly suspect it will be -- holding cash is not an option.

peterk's picture

this  selloff and the ones to come  especially in property  markets are all due to the BOJ loosing control of their interest rate markets and now excusing the situation as a necessary evil to support BANKS.

rmopf2010's picture

Where's the problem ?

just print another gazilion

jeff montanye's picture

kind of works until it doesn't, as the reichsbank discovered in 1921-3.  

daveO's picture

From 1971...Shortly after taking the Treasury post, Connally famously told a group of European finance ministers worried about the export of American inflation that the dollar "is our currency, but your problem."[21]

https://en.wikipedia.org/wiki/John_Connally#Secretary_of_the_Treasury
Chinese debt collapse should push various prices up until all of the escapees are out of danger. A deflationary aftermath will then trigger the next round of CB printing. Germany never was the reserve currency. The US can keep this racket going until the political pressure becomes too great.

Restorative_Ally's picture

WE ARE IN RECESSION. A different kind of one. Terminal recession. Possibly hyperinflationary.

I use GE stock (general electric) as a bellwether for the condition of the underlying economy. If you compare the price oscillation of GE with the S&P 500, you will see GE times the market nearly perfectly. 

We entered a traditional recession cycle in January 2017. We are not seeing a stock market crash this time, the market is CRASHING UP. This is because of dedollarization. The dollars that are no longer wanted around the world are finding a home in the US stock market, driving prices up.

We are being dumped. The US has lost our status, and nobody wants the dollar anymore. This is it. You are seeing the beginning of it now. We cannot fix this.

Arnold's picture

Interesting.
De dollarization, rather than Safe Haven.

JohnGaltUk's picture

Folks exiting bonds and the Euro......... just has'nt caused a stampede yet.

Arnold's picture

Yeah, the comment above and this article met in my brain for a minor fender bender for some reason.

http://www.zerohedge.com/news/2017-11-21/real-reason-why-treasury-curve-...

anonymike's picture

Well said. Dedollarization by foreigners causes us dollars to find their way home by purchasing real items in the land currently known as USA. These are things that will still exist after the fall of the dollar. This does not include buying debt, because that will be paid back in worth less dollars, maybe. Beyond equities, other things to watch for signs of international dedollarization are foreign purchases bidding up real estate, privately held manufacturing/mining companies, and us exports with a currency exchange rate premium paid compared to sales elsewhere in other currencies. As with stocks, the reason for the strong bids will only be obvious to a few.

Hyperinflation has two main drivers. First is the increasing stock of fiat currency, which has been happening with us dollars for many decades, but is quietly starting to be concentrated where it originated. This is a necessary condition.

The second driver is the trigger, popular loss of confidence, which happens on a very short time scale. This hasn't happened yet, but could any day, starting outside the land now known as USA. Collapse of the petrodollar system is a very likely catalyst, but it could be something else. Whatever it is, the result will first be a flood of dollars back to the current USA. Smart money will be buying the things listed above and the dumb money will buy debt, keeping rates surprisingly low in the price inflation environment for a while. Watch for these signs as the first stage of hyperinflation.

Capital controls to stave off the flood will apply only to non-debt items to keep rates low, while also alerting the masses of us public education victims to the problem. That's when things will get interesting and the financially challenged masses will start to look at us dollars as something other than a good store of wealth. Consumer good price inflation will start to go hyper and then its off to the races for all prices.

With the current stock of us dollars in the world, the hyperinflation will be bad enough. However, there is no bad situation that the criminals who call themselves US government can't make much much worse. If money starts spewing forth from the fed to cover inflation adjustments for salaries and entitlements, hang on for a serious hyperinflationary ride. Then, price controls imposed by the criminal gang writ large can still make things beyond miserable, causing things like toilet paper to become unavailable at any price.

Don't count on non-debt retirement investments to hold some value for you. At some point international buyers of treasuries will dry up and rates will start to rise. At that point you can count on uncle sam to do you some kind of a favor and convert all the retirement funds it can into "safe" us government debt, to then hyperinflate away into nothing.

If the monetary and subsequent societal collapse breaks the labor availability and supply chains required for electricity generation, things will get worse than all but a few can imagine. With the grid down, societal collapse will go hyper, but it gets even worse. Nuclear power plants require a grid connection to avoid overheating fuel from melting down in the core, even with control rods fully deployed. Even worse, there are many reactor loads of spent fuel, plus maybe some fresh fuel, in the storage pool which also requires cooling. If diesel deliveries for the generators is interrupted, the plant will go Fukushima. To top that off, there are 104 nuclear power plants operating in the land currently known as USA, with the vast majority in the eastern half of it.

https://survivalblog.com/400-chernobyls-solar-flares-emp-and-nuclear-arm...

Hope you enjoy this thanksgiving day, created by the mass murdering Lincoln to appease some of the masses devastated by his unnecessary war. It could easily be your last.

frank further's picture

How will government deal with TIPS and I-Bonds, supposed protection against such a scenario?

anonymike's picture

First stop selling them. Then, if needed, default on the fools that actually expected inflation protection from the criminals who help cause it. 

Seeing Red's picture

Good EMP overview in that link -- thanks.

backwaterdogs's picture

if truly the world is de-'dollarizing'...why would it show up in the stock market and not inflation of real assets like another poster mentioned....seems pointless doesn't it?  to de-dollar into u.s. stocks?

anonymike's picture

Are you sure its not showing up in foreign purchases driving price inflation of real assets in, and exports from, the land currently known as USA?

YUNOSELL's picture

The average person (say from the bottom 80%) is likely already maxxed out on debt so could not take advantage of the low interest rate credit offered due to QE. They are the most populous and would do the majority of spending in the real economy thus creating inflation on Main Street. Instead you have a lot of the top 20% taking advantage of virtually free money from QE and investing in foreign emerging markets in their hunt for higher yields.

This in essence exported inflation to these emerging markets over the last few years (see Brazil) since these countries had all this excess US dollars coming into their countries for 'investment' and these developing countries had to match printing with their own currencies to soak up the US dollars.

Now with dedollarization and especially if China will offer a less restrictive alternative to settle oil contracts as well as other major balance of trade settlements, then there will be not as much need to keep these US dollar reserves and they will begin flooding back to the USA first into the stock market, but later into buying land and other major resources, at least until USA starts placing capital controls to halt this.

ArmaG3don's picture

If you take NAAIM index as a Sentiment there is major divergence.

Ivan de beers's picture

What goes down must come back up stronger than before - Jewish banking mafia law

SybilDefense's picture

I got dedollarized last fall when the hypothetical Trump Bump damaged my PM miner portfolio.  I always wondered... What happened to the $100k "I" lost?  Did it just vanish into thinking air when I sold some of my holding?  Perhaps the Fed will soon want to vanish a lot of the money other poeples money back up into the helicoptor to decrease the M1 supply at the middle class's expense?

anonymike's picture

The fed vanishes money by selling its debt holdings. It may be able to soak up some of the dedollarization flood back to where it was created. But only the international dumb money will want to buy us dollar denominated debt. More on that in my post below.

junction's picture

One of these days, in the near future, the markets will fall and not get up.  That may the reason why bitcoin has spiked in value, as a portable store of wealth that is beyond the immediate reach of the financial crime cartels that run the markets. 

Herdee's picture

Reason why condos prices in big U.S, Cities are coming down. The tap run dry:

https://www.rt.com/business/410752-china-busts-underground-bank/

Let it Go's picture

We get to sit this one out. A happy Thanksgiving To All!

As for events in China, it is difficult to ignore that China's central bank has warned extreme credit creation and trouble in the shadow banking system could lead to a full-blown financial crisis. In response, they continue pumping out liquidity. If they don't the whole system might seize up and cease to function.

So much for the assumption that many people hold that this particular kind of crisis cannot develop in a state-run financial system like China's where the banks are under Communist Party control. The following article explores some of the problems that China faces going forward.

 http://China,China, China, Its All About China And Japan.html