Chinese Stocks Plunge Again, "VIX" Hits Record, "Nasdaq" Down 40% From Highs

Despite all the hopes and prayers of illiterate farmers everywhere, Chinese stocks refuse to hold a bid and down 3-4% at the open amid suspension of around 160 individual securities. In the pre-open to open, Shanghai Composite is down 3.2%, Shenzhen is off 3.5%, and China's Nasdaq - ChiNext is down 3.8%. This leaves ChiNext down over 40% from its highs as the cost of insuring downside in Chinese stocks explodes to record highs. As China goes through the 1929 playbook to save its 'market', it appears "momentum" has shifted.

  • *SHANGHAI MARGIN DEBT BALANCE DECLINES FOR RECORD ELEVENTH DAY
  • *HKEX DROPS AS MUCH AS 4.2%, FALLING FOR 8TH STRAIGHT SESSION

Not a good start to the day...

 

And the morning session ends NOT OFF THE LOWS...

 

Some context for the moves...

 

As we noted prerviously - psychology has shifted... every government-driven ramp is sold into by as many retail locals and foreign professionals as possible... and remember the local professionals are now stuck with losses as they are not allowed to sell.

Which explains why downside vol costs explode... (if you're not allowed to sell stocks... what's your next move?)

 

As Blomberg reports,

The cost of options protecting against a 10 percent drop in the ETF was 11.5 points more than calls betting on a 10 percent increase on Monday, according to three-month data compiled by Bloomberg. The price relationship known as skew climbed to 11.8 points last week, the highest since the ETF started in November 2013.

 

For Aberdeen Asset Management’s Nicholas Yeo, China needs to let fundamentals govern its stock market, not state directives.

 

“International investors are skeptical that all the government measures are short-term, cosmetic,” said Yeo, the Hong Kong-based head of Chinese equities at Aberdeen Asset, which oversees about $491 billion worldwide. “If you want it to be a proper market, there should be less interference.”

1929 Deja vu all over again...

 

“The more resources authorities commit to propping up the stock market, the more they ratchet up the potential fall-out risks should the market continue to collapse,” said Andrew Wood, an analyst at BMI Research. “This could give rise to a crisis of confidence in the authorities’ ability to support both the stock market and the real economy.”

And with 888 stocks down and only 29 up - PBOC is gonna need a bigger boat fund

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On the bright side - though we are not sure of that - it seems the twice burned Chinese are greatly rotating their newly lost equity wealth back into real estate...Via ForexLive:

Preliminary results from the China Household Finance Survey

  • 31.5% of respondents plan to reduce their stock holdings
  • 12.3% said they plan to increase their stock holdings
  • Remaining saying they do not plan to change their holdings
  • For Q2 4.8% of stock investors bought homes, compared with 2.3% recorded in Q1
  • Of those who bought property, 70% came from households that have made money in the stock market.

The China Household Finance Survey is a quarterly survey carried out by researchers at Southwestern University of Finance and Economics in Chengdu.

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Will they never learn?