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Forced Buy-Ins Spark “Liquidity Crisis” In China’s ‘Nasdaq’

October 17, 2018

Forced Buy-Ins Spark “Liquidity Crisis” In China’s ‘Nasdaq’

Marking the worst year since 2008, China’s tech-heavy (Nasdaq-equivalent) Shenzhen Composite index is down a shocking 35% year-to-date, and it’s starting to become a self-feeding vicious circle…

As Bloomberg reports, the most recent slump in the teach-heavy index comes despite regulators’ efforts to rein in risks of share-backed loans following reports over the weekend that insurers are being ‘encouraged’ to invest in listed companies to reduce liquidity risks connected to such loans.

Share pledges, where company founders and other major investors put up stock as collateral, have emerged as a pressure point in China’s debt-laden economy, especially as the stock market tumbles.

“There’s a liquidity crisis in the stock market, and pledged shares are again starting to sound the alarm,” said Yang Hai, analyst at Kaiyuan Securities Co.

“Stocks in Shenzhen typically bear the brunt of loss of confidence in the stock market because of their higher valuations.”

Bloomberg additionally notes that this attempt to slow the impact of this crisis has been ongoing all summer…

China in June told brokerages to seek approval before selling large chunks of stock that have been pledged as collateral for loans, according to people familiar with the matter…

while the top financial regulator in August warned the industry that it’s closely watching corporate stock pledges.

And quite clearly, has failed… with two-thirds of Shenzhen Composite stocks now at 52-week lows or worse…

And it appears investors are screaming for The National Team to step in and rescue them (just like in the housing market)…

“If there are no real policies to cure the array of problems and ailments in our market, no one will be willing to take the risk,” said Hai.

“Authorities keep saying that there is room for more polices, but where are they?”

Shock, horror! What are we to do in a ‘free-market’?

How to Manipulate Stocks: Chinese Authorities Step in to Stop the Rout

February 12, 2018

How to Manipulate Stocks: Chinese Authorities Step in to Stop the Rout

For proper effect, the directives were purposefully leaked to the media.

The Shanghai Composite Index plunged 10.2% last week, the largest weekly drop in two years, and was down 11.4% since January 26. But it wasn’t just last week that things became unglued. The Shenzhen Composite Index had plunged 14% since January 24, only about half of it last week.

The Spring Festival holiday is coming up this week, and there were fears that traders want to unload additional positions ahead of it. There are other factors lined up against the stock market, including China’s off-and-on-again crackdown on leverage. So it was time for authorities to step in and set things right.

Over the weekend the China Securities Regulatory Commission (CSRC) and other regulators have sent directives to:

  • Major stockholders, telling them to acquire more shares of companies listed in mainland China in which they already own large stakes.
  • Mutual fund firms, telling them to curtail share sales to avoid becoming net sellers.
  • Brokerages, telling them to provide to the CSRC trading summaries from last week along with trading plans and previews for the current week.

For proper effect, so that all players in the market would know that the Chinese authorities are going to stop the selloff and turn it around, and thus to encourage more buying by other players, these directives were purposefully leaked to the media, including Bloomberg, which reported it this morning. This served as confirmation what everyone had been hoping for: That the authorities would not let the market fall prey to market forces.

The directives went out this weekend, but late last week there was already some heavy lifting going on behind the scenes that wasn’t properly leaked. Bloomberg counted over 110 companies listed in Shanghai and Shenzhen that had announced that their major shareholders had increased their stakes in them starting on Friday.

…click on the above link to read the rest of the article…

A “Death Spiral” for the Chinese Yuan?

January 29, 2016

A “Death Spiral” for the Chinese Yuan?

The “impossible trinity.”

The authorities in China are in a desperate juggling act, trying to keep a growing number of rotting oranges, porcelain plates, burning torches, and explosives in the air all at the same time. But it’s not working very well anymore.

Thursday morning, the People’s Bank of China injected 340 billion yuan ($51.9 billion) into commercial banks via reverse repurchase agreements, after having already injected 440 billion yuan on Tuesday. As 190 million yuan of prior reverse repurchase agreements – a type of short-term loan – have matured, the net injection of cash this week amounted to 590 billion yuan, or $89.7 billion, the most, according to the Wall Street Journal, since February 2013.

If the purpose was to prop up confidence in stocks, it worked only for about an hour then failed miserably. The Shanghai Composite Index plunged 2.9% on Thursday, to 2656, the lowest since November 2014. The Shenzhen Composite plunged 4.2%, the ChiNext 4.6%. The Shanghai Composite is now down 13% since Monday morning and 49% since last June.

Part of this ongoing massive cash injection is in preparation for the Chinese New Year holiday starting February 7. And part of it is to keep everything afloat in a sea of liquidity, even as this liquidity is draining out the back in unprecedented quantities.

To fight the effects of capital flight, China has been selling down its vaunted foreign exchange reserves, which plunged by $108 billion in December, the largest decline ever. For the year, they fell $510 billion, or 13%, to $3.3 trillion, the lowest since November 2012. Money is fleeing China [read…. What Will China Dump Next, After Treasuries, to Keep Control?]

Much of this money is landing in the US. For example, plans have now emerged for a Chinese company, using Chinese money, to build a development in San Francisco that consists of two towers – including the second-highest in the city, behind the under-construction Salesforce Tower – and some other buildings, which are all part of a dizzying building boom here.

…click on the above link to read the rest of the article…

What Will China Dump Next, After Treasuries, to Keep Control?

January 12, 2016

What Will China Dump Next, After Treasuries, to Keep Control?

“Practically boundless” future capital outflows.

“Beneath all of the financial turbulence there lurks, in my view, a credit crisis; I fear the worst now,” UBS economic adviser George Magnus told Bloomberg TV today. The reform agenda “has stalled,” he said, and “things are looking much bleaker for China going forward.”

And so on Monday, we got another flavor of it.

The Shanghai Composite index plunged 5.3%, to 3016, down 15% so far this year. The Shenzhen Composite fell 6.6%. Hong Kong’s Hang Seng fell 2.8% to 19888, below 20000 for the first time since June 2013, and down 30% from its April high.

Everyone had hoped that China’s “National Team” would jump into the fray and bail everyone else out, but it didn’t. And the People’s Bank of China didn’t offer any big new remedies either. But it did stabilize the yuan after it had dropped 1.5% against the dollar last week, and about 6% since mid-August.

In Hong Kong, interbank yuan lending rates broke all records since the Treasury Markets Association started compiling the data in June 2013, with the overnight Hong Kong Interbank Offered Rate spiking 939 basis points to 13.4%.

And copper did it again, ratting on China’s real economy. Copper goes into anything from skyscrapers to smartphones. China is the world’s largest copper consumer, accounting for over 40% of global demand. And on Monday, copper dropped 2.6% to $1.97 per pound, the lowest level since May 2009.

Buffeted by, among other things, fears about slowing demand from the industrial sector in China, oil plunged – with WTI down 6.1% to $31.13 a barrel

To prop up the yuan and counter the impact of capital flight, China had dumped $510 billion of foreign exchange reserves last year, drawing them down to a three-year low of $3.33 trillion. And that was just the beginning.

…click on the above link to read the rest of the article…

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