Chinese Crash Continues After PBOC Cracks Down On Brokerage Liquidity

Just when you thought it was safe to buy the 12% collapse (the biggest since Lehman) in Chinese stocks, they re-plunge another 3-4% with no dip-buyers evident. The drivers are twofold: first, China PMI beat expectations modestly (uh oh no more QDII, QE, PSL, etc.); and second - and much more critically - The PBOC Operations Office has called for stricter regulation of brokerage liquidity (implicitly clamping down on the seemingly infinite expansion of margin lending required to fuel the boom). CHINEXT has entered a bear market (down 21.5%) and the rest of the Chinese complex is down 3-5% today (down 15-20% from the highs).

Following the worst week since Lehman (and a holiday last night), the margin calls are coming...

As Bloomberg reports,

China should better regulate liquidity situation of securities firms, whose debt increases “fast,” Jiang Zaiyong, vice head of PBOC Operations Office, writes in a commentary in Caijing Magazine.

 

China should also strictly restrict entry of wealth-management funds in the capital market, the commentary on  preventing liquidity risks in asset management products says

 

Furthermore, China Brokerages Must Meet Liquidity Ratios by End-June

Some context for this drop...Chinese stocks are now down over the past month and unchanged for 7 weeks...

 

And all of this after China hides the new retail account opening data and halts various members of the 500%-club. So there has been 3 weeks with no data since the open accounts spiked to 4.4 million in one week...

 

And we warned investors that the IPO canary in the coalmine had croaked... The Bloomberg China IPO Index is now down 24.5% from its highs.

 

To be brief - it's over!!

  • China IPO Index -24.5%
  • CHINEXT -21.5%
  • Shanghai -17.6%
  • CSI-300 -17.3%
  • Shenzhen -17.2%

Without assistance (levitation) from the same PBOC that just clamped down on liquidity, the China bubble has burst.