#$hsi

[welcometokindergarten]

Chinese Order Torture

Good luck getting trade orders done on the A Shares market in China these days. Last night, they froze half the stocks in an attempt to halt what’s become a rolling 1987-style crash across the country’s stock markets.

WSJ:

The Shanghai Composite fell 5.9% at 3507.19, after losses of as much as 8.2% earlier Wednesday. The index has lost 32.1% since its peak in mid-June. The smaller Shenzhen Composite fell 2.5% at 1884.45, down 40% from its high last month…

Hundreds of Chinese stocks were frozen from trading Wednesday, with1,287 companies halted. That represents 45.6% of the constituent stocks of the Shanghai Composite and Shenzhen Composite and $2.5 trillion of market capitalization, according to data from FactSet…

China has put an arsenal of measures to work in recent days to stem the selloff that has wiped out roughly $4.1 trillion in value from China’s equities.

What do you mean “arsenal of measures”?

Financial officials from Beijing to Shanghai are running every play in the Greenspan/Bernanke/Yellen book right now. They’ve corralled all the big brokerage firms and organized a fund to buy the dip, like the Wall Street-led bailout of LTCM organized by the Federal Reserve. They’ve enacted a QE of sorts or are strongly hinting at it, a la the Bernanke Fed in 2012. They’re halting stocks like our circuit-breakers do on the NYSE. They’re jawboning in the state-owned media and encouraging investors to remain calm – something Yellen’s been doing at her press conferences since her first FOMC meeting.

There are quota limits of how much stock foreign investors are allowed to buy in markets like Shanghai and Shenzhen, so don’t look to the international asset managers to be able to ride to the rescue. They can buy Hong Kong in size, but that’s about it. Bottom line – the panic has to work itself out on the Chinese mainland amongst the emotional, inexperienced Chinese investment community itself.

Buckle up.

Source:

China Markets Fall Sharply Despite Fresh Help From Beijing (WSJ)

Image by Christian Junker

[jeffmacke1]

Hong Kong? Phooey!

It’s steaming hot in NYC but it’s already December in Shanghai! The Hang Seng Index ($HSI) and Shanghai Composite both dropped another 6% today. With that the $SSEC chart is all the way “down to the presents” under the Christmas Tree of Death at about 3,500.

I’ve updated the chart from last weekend: 

As discussed the Chinese are rather adorably throwing money and credibility away in a futile attempt to get investors to stop selling. In addition to $19b in purchases the government has slapped restrictions on shares that can’t be sold. Between those lock-ups and 10% down daily limits more than 2/3rds of the Shanghai Stock Exchange was closed for trading today.

Governments remain winless against panic in roughly 400 years of stock trading. You can’t buy that kind of certainty. 

The chart is complete but all bets are off for the next leg of China’s experiment with free markets. 

Full column below.

Reprinted from July 4:

The Great Fall of China (and other awesome puns)

China forming a Christmas Tree of Death. The Shanghai Composite is down about 30% in 3 weeks. In response the gov’t is outlawing short-selling, actively manipulating prices into the close and forcing brokerages to buy up to $19b in stocks (the equivalent of a moderate sized mid-cap mutual fund… roughly a brick in the Chinese Wall).

The irony of gov’t manipulation is that it only works if it’s a really convincing rumor. Traders have to fear a squeeze higher more than they fear a crash. The absolute worse case scenario is the government openly failing to support prices. There’s nothing scarier than realizing the grown-ups are just as clueless as everyone else. When a government explicitly states that it’s going to manipulate a marketplace participants invariably panic. In fact, there may not be a better predictor of an imminent price collapse on earth than overt government intervention.

In 2008 the SEC tried to stop traders from shorting shares of financial stocks. Because how could anyone have an legitimate reason to be shorting pigs like Citigroup in 2008 (sic)? What the SEC didn’t or couldn’t do was stop investors from selling long positions. Since would-be buyers were being flat-out told there was no demand for the stocks they waited for lower prices. Desperate sellers fled and the XLF fell 45% in 30 days (chart via ZeroHedge):