Chinese Stocks Slump After "Arrest-Fest", Yuan Strengthens Most In 9 Months, Goldman Cuts Outlook

Update: So much for the "no more intervention" Since the government bailout fund has run dry of money, the brokerages have to step up - CHINA SAID TO ORDER BROKERAGES TO BOOST STOCK MARKET SUPPORT

A busy weekend in Asia was dominated by mayhem in Malaysia, and witch-huntery in China. Chinese authorities began a wide-scale crackdown on rumor-mongerers, arrested journalists, and even detained a regulator for insider trading, as they lifted loan caps on the banking system at the same as withdrawing (verbally) support for the stock market. China strengthen the Yuan fix by 0.15% to 6.3893 - this is the biggest 2-day strengthening of the Yuan fix since Nov 2014. Then just to rub some more salt in the wounds, Goldman cut China growth expectations to 6.4% and 6.1% respectively for the next 2 years. Chinese stocks are opening modestly lower (SHCOMP -3.3%).

  • *CHINA'S CSI 300 INDEX FALLS 2.8% TO 3,247.39 AT BREAK
  • *CHINA'S SHANGHAI COMPOSITE FALLS 2.6% TO 3,148.08 AT BREAK

And Japan

  • *JAPAN'S TOPIX EXTENDS LOSS TO 1.3%; NIKKEI 225 DOWN 1.7%

Yuan fixed stronger for 2nd day in a row...

  • *CHINA SETS YUAN REFERENCE RATE AT 6.3893 AGAINST U.S. DOLLAR
  • *CHINA RAISES YUAN REFERENCE RATE BY 0.15% TO 6.3893/USD

Then Goldman slahes China growth...

  • *CHINA 2016 GDP GROWTH FORECAST CUT TO 6.4% VS 6.7% AT GOLDMAN
  • *CHINA 2017 GDP GROWTH FORECAST CUT TO 6.1% VS 6.5% AT GOLDMAN
  • *CHINA 2018 GDP GROWTH FORECAST CUT TO 5.8% VS 6.2% AT GOLDMAN

A “double-dip” in China’s growth in 2015...

China’s economic growth was very weak in early 2015, reflecting a combination of slowing money/credit growth, reform-driven fiscal tightening, and an appreciating CNY, among other factors. Policy easing starting in March seemed to help revive growth in May and especially June. But growth has slowed anew in July and August, prompting market and policymaker concerns and a further spate of easing measures. We retain our 2015 real GDP growth forecast of 6.8%, but note that alternative indicators of activity suggest a sharper slowdown, and mark down our 2016/17/18 forecasts to 6.4%/6.1%/5.8% respectively from 6.7%/6.5%/6.2% previously. We now expect short-term interest rates to fall further, to 1.5% by end-2016 (from 2.25% previously).

...and increased policy uncertainty...

Policy uncertainty has increased. Measures to contain local governments' off-balance sheet financing have taken a back seat for now to a focus on reviving infrastructure spending. Equity market volatility has been large, diminishing the near-term potential for this channel to reduce reliance on debt financing. The snap 3% depreciation in the CNY is small in a macro context, but represents the sharpest weakening in two decades that were dominated by stability/appreciation vs USD, and has prompted an acceleration in capital outflows, heightening the risk of a larger move down the road.

But before all that, this happened...

First, as The FT reports, China "says" it will abandon buying stocks...

China’s government has decided to abandon attempts to boost the stock market through large-scale share purchases, and will instead intensify efforts to find and punish those suspected of “destabilising the market”, according to senior officials.

 

For two months, a “national team” of state-owned investment funds and institutions has collectively spent about $200bn trying to prop up a market that is still down 37 per cent since its mid-June peak.

 

...

 

Traders and officials said the latest intervention was aimed at providing a “positive market environment” in preparation for a big military parade this week to celebrate the 70th anniversary of the “victory of the Chinese people’s war of resistance against Japanese aggression”.

 

Senior financial regulatory officials insist that this was an anomaly, and that the government will refrain from further large-scale buying of equities.

Which could be a problem as all that stopped total and utter carnage last week was their buying...

 

But then they unleashed full scale fractional reserve banking...

  • *SCRAPPING OF LOAN CAP TO HELP STABILIZING ECO GROWTH: FIN. NEWS

Though we suspect this is as much use as a chocalate fireguard for the already maximally-indebted Chinese public.

Butnothing stops the propaganda from flowing...

  • *CHINA ECO FUNDAMENTALS BETTER THAN OTHER MAJOR ECONOMIES: 21ST

As authorities begin wide-scale crackdowns on rumor-mongers and nay-sayers...

  • *CHINA DETAINS REPORTER ON SUSPECTED SPREADING RUMORS: XINHUA
  • *CHINA DETAINS CSRC OFFICIAL ON SUSPECTED INSIDER TRADING:XINHUA

As The FT goes on to note,

In a worrying signal for global investors with a presence in China, some officials have argued strongly for a crackdown on “foreign forces”, which they say have intentionally unsettled the market.

 

“If our own people have collaborated with foreign forces to attack the soft underbelly of the market and bet against the government’s stabilisation measures then they should be suspected of harming national financial security and we must take resolute measures to subdue them,” said an editorial in the state-controlled Securities Daily newspaper last week.

As SCMP's Goerge Chen details...

 

As China.org further details,

Chinese authorities have held several people, including a journalist, an official of China's securities watchdog and four senior executives of China's major securities dealer for stock market violations.

 

Wang Xiaolu, journalist of Caijing Magazine, has been placed under "criminal compulsory measures" for suspected violations of colluding with others and fabricating and spreading fake information on securities and futures market, Xinhua learned on Sunday.

 

Wang confessed that he wrote fake report on Chinese stock market based on hearsay and his own subjective guesses without conducting due verifications.

 

He admitted that the false information have "caused panics and disorder at stock market, seriously undermined the market confidence, and inflicted huge losses on the country and investors."

 

Also put under "criminal compulsory measures" were Liu Shufan, an official with China Securities Regulatory Commission. He is held over suspicions of insider dealings, taking bribes and forging official seals.

 

According to Liu's confession during the investigation, he has taken advantage of his position to secure an approval from the securities authorities for a public company and help the growth of the company's shares.

 

In return, the head of the company offered bribes worth several million yuan to him.

 

Also, Liu has used insider information from the above-mentioned company and another company and obtained millions of yuan of illegal gains, according to his confession.

 

Liu confessed that he has forged official seals to fake a court ruling on divorce and taxation certificates for his mistress.

 

Xinhua also learned from authorities that Xu Gang, Liu Wei, Fang Qingli and Chen Rongjie, senior executives of the Citic Securities, China's leading securities dealer, have been put under "criminal compulsory measures" for suspected insider trading. They have also confessed to their violations.

 

"Compulsory measures" may include arrest, detention, issuing a warrant to compel a suspect to appear, bail pending trial, or residential surveillance.

*  *  *

Way to go China - "open" those markets up to anyone (as long as they are buying)

 

Charts: Bloomberg