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Thread: China rolls out emergency measures to prevent stock market crash

  1. #1

    China rolls out emergency measures to prevent stock market crash

    http://www.reuters.com/article/2015/...0PF0DH20150705

    China's stock markets face a make-or-break week after officials rolled out an unprecedented series of steps at the weekend to prevent a full-blown stock market crash that would threaten the world's second-largest economy.

    The government is anxiously awaiting the market opening on Monday to see if the new measures will halt a 30 percent plunge in the last three weeks, or if panicky investors who borrowed heavily to speculate on stocks will continue to sell.

    In an extraordinary weekend of policy moves, brokerages and fund managers vowed to buy massive amounts of stocks, helped by China's state-backed margin finance company which in turn would be aided by a direct line of liquidity from the central bank.

    China has also orchestrated a halt to new share issues, with dozens of firms scrapping their IPO plans in separate but similarly worded statements over the weekend, in a tactic authorities have used before to support markets.

    "After the 28 companies suspended their IPOs, there will be no new IPOs in the near term," the China Securities Regulatory Commission (CSRC) said in a statement on Sunday night.

    An online survey by fund distributor eastmoney.com over the weekend, which polled over 100,000 individuals, said investors believed stock indexes would rise more than 5 percent on Monday. But many of those polled didn't think the bounce will last long.

    "You're going to need the central bank to open the floodgates to take us back to 4,500 points in Shanghai," said an investment manager in Shanghai.

    The Shanghai Composite Index was last at 4,500 on June 25, and is now trading 22 percent lower. [.SS]

    China stocks had more than doubled in just 12 months even as the economy cooled and company earnings weakened, resulting in a market that even China's inherently bullish securities regulators eventually admitted had become too frothy.

    But the slide that began in mid-June, which the CSRC initially tried to downplay as a "healthy" correction after the fast run-up, has quickly shown signs of getting out of hand.
    Related Coverage

    › China stock regulator says it will continue vetting IPOs

    A surprise interest-rate cut by the central bank last week, relaxations in margin trading and other "stability measures" did little to calm investors, who sent shares down another 12 percent in the last week alone.

    China's top leaders, who are already struggling to avert a sharper economic slowdown, seem to be losing patience.

    FLURRY OF STEPS

    Earlier, in a series of initial announcements on Saturday, China's top brokerages pledged to collectively buy at least 120 billion yuan ($19.3 billion) of shares to help steady the market, and would not sell holdings as long as the Shanghai Composite Index remained below 4,500.

    The China Mutual Fund Association said 25 fund companies also pledged on Saturday to buy shares. Another 69 fund firms said on Sunday they would do the same.

    In addition, 28 companies that had been approved to launch IPOs all announced they had suspended their plans.

    The u-turn is consistent with past IPO freezes in China when share markets were falling sharply, though they are usually spun as spontaneous company decisions, not as government directives.

    Respondents to the eastmoney.com survey thought news of an IPO slowdown or freeze would be the most welcomed on Monday.

    On Sunday, China state-owned investment company Central Huijin said it had recently been buying exchange-traded funds and would continue to do so.
    Related Coverage

    › China's central bank will add liquidity to state margin finance firm
    › 69 Chinese mutual funds will support effort to stabilize stock market

    The combined effect of the policies is to signal to China's army of retail investors, who conduct around 85 percent of share transactions, that the government is now standing behind the stock market. But it is unclear whether even this will be enough to put a floor under prices or revive the rally.

    Li Feng, a trader at Fortune Securities, said the amount of money that brokerages and fund managers vowed to put into the stock market was tiny compared with the size of leveraged positions still waiting to be unwound.

    Some analysts suggest total margin lending, both formal and informal, could add up to around 4 trillion yuan.

    Samuel Chien, partner of Shanghai-based hedge fund BoomTrend Investment Management Co, said he was ready to pile into blue-chip stocks, betting the new steps would trigger a rebound.

    "Main indexes will rise. For the Shanghai Composite, the area below 4,500 is relatively safe now," Chien said. "I have ample cash at hand, and surely will buy stocks this week."

    But people like Shao Qinglong, a public service worker who has already lost over a quarter of his capital investing in stocks, told Reuters all he is waiting for is for the market to recover enough for him to break even.

    "I didn't sell at the peak because people all say the market will rise beyond 6,000 points," Shao said. "I'm now waiting for the market to rebound so that I can get out."



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  3. #2
    Article from back in April: http://money.cnn.com/2015/04/15/inve...market-bubble/

    Bubble trouble: China's stock market looks too hot

    Stock market fever is sweeping China.

    Chinese equities are officially on fire. The Shanghai Composite has skyrocketed 78% since just before Halloween. It recently crested the 4,000 level for the first time since the financial crisis.

    Yet stocks in China have achieved red-hot status just as the country's economy is going through a cooling off period. Growth slowed to the weakest pace since 2009.
    In other words, exuberance for Chinese stocks isn't being backed up by fundamentals. Instead, the market is being carried higher by various forms of government stimulus and investor frenzy.

    All of this raises the question: Is China in the midst of a bubble? And if it is, what should American investors do?
    "Certainly a bubble exists," said Ankur Patel, chief investment officer at R-Squared Macro Management.

    Rather than enjoy the ride up or try to profit from its eventual popping, Patel said the prudent move for U.S. retail investors is to stay away from the Chinese market altogether.

    "The problem with any bubble is if you try to bet against it, bubbles can become even more irrational. The herd mentality can essentially run investors over," he said.
    It had basically doubled in just six months. Since the top, some $3 trillion in stock value has disappeared. http://www.theguardian.com/business/...lump-continues

  4. #3
    As an austrian would say: "A great crash is coming"

  5. #4
    Quote Originally Posted by Vanguard101 View Post
    As an austrian would say: "A great crash is coming"
    IDK, but they're using the same old gimmicks that did not prevent the '29 crash.
    Quote Originally Posted by BuddyRey View Post
    Do you think it's a coincidence that the most cherished standard of the Ron Paul campaign was a sign highlighting the word "love" inside the word "revolution"? A revolution not based on love is a revolution doomed to failure. So, at the risk of sounding corny, I just wanted to let you know that, wherever you stand on any of these hot-button issues, and even if we might have exchanged bitter words or harsh sentiments in the past, I love each and every one of you - no exceptions!

    "When goods do not cross borders, soldiers will." Frederic Bastiat

    Peace.

  6. #5

  7. #6
    Quote Originally Posted by Vanguard101 View Post
    As an austrian would say: "A great crash is coming"
    It looks like it to me. Why doesn't China just call in the U.S. debt?

  8. #7
    Quote Originally Posted by Dianne View Post
    It looks like it to me. Why doesn't China just call in the U.S. debt?
    How does debt get called in? Wouldn't whatever bonds they hold be sellable on the open market? Also, I might suspect they consider the US debt holdings a better bet than their stock market. Why would they want to lose dollars only to gain shares in the stocks they've propped up? Especially if they can continue to bully money into their stock market while the smart money seeks private equity options (I'm assuming IPO dreams don't vanish in a crash, they just look for more private finance options, which - in a crash - might be plentiful).

  9. #8
    China can't "call in" US debt but they can choose to sell their Treasury holdings to somebody else. But that would not help the Shanghai Stock Market in any way. What it would do is to cause their currency to soar against the dollar which would mean fewer dollars coming their way- either buying their goods (which would become a lot more expensive to us) or investments.

    China encouraged the market as a private funding mechanism to replace government funding for businesses. While they recognize that it is in a bubble, they also don't want to see the market collapse.
    Last edited by Zippyjuan; 07-07-2015 at 12:41 PM.



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  11. #9
    Where are we at now ? , last I checked , I think they are down more than 30 %for the year and down again today ......

  12. #10
    if this spreads to the USA Obama will get blamed. and there will be GOP landslide.

    true, China can't call in, or probably even sell USA debt. but they can stop buying more. and with no one left to buy the fed will just keep printing
    Last edited by cindy25; 07-08-2015 at 01:13 AM.

  13. #11
    I'm thinking the Chinese markets are undergoing a revaluation, not so much a "crash".

    Semantics? Perhaps.
    "Let it not be said that we did nothing."-Ron Paul

    "We have set them on the hobby-horse of an idea about the absorption of individuality by the symbolic unit of COLLECTIVISM. They have never yet and they never will have the sense to reflect that this hobby-horse is a manifest violation of the most important law of nature, which has established from the very creation of the world one unit unlike another and precisely for the purpose of instituting individuality."- A Quote From Some Old Book

  14. #12
    Quote Originally Posted by cindy25 View Post
    if this spreads to the USA Obama will get blamed. and there will be GOP landslide.

    true, China can't call in, or probably even sell USA debt. but they can stop buying more. and with no one left to buy the fed will just keep printing
    That ship sailed a long time ago.

  15. #13
    China rolls out emergency measures to prevent stock market crash

  16. #14
    Quote Originally Posted by cindy25 View Post
    if this spreads to the USA Obama will get blamed. and there will be GOP landslide.

    true, China can't call in, or probably even sell USA debt. but they can stop buying more. and with no one left to buy the fed will just keep printing
    China hasn't increased their holdings of Treasuries in more than a year now.

  17. #15
    A week late and a few TRILLIONS short.



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