In the Financial/Economic News

[Randy W]

Go to Last Entry for most recent posts.

 

From the Wall Street Journal

 

Offshore Yuan Demand Up as New Hong Kong Rule, Stock-Trading Link Rolled Out

Demand for the Chinese yuan traded offshore was strong Monday as a landmark stock-trading program between Shanghai and Hong Kong kicked off, and a new regulation allowing Hong Kong residents to buy unlimited amounts of yuan went into effect.

 

 

The stock connection between Hong Kong and Shanghai is referred to as a "stock market train", but I haven't really figured out what's involved there yet.

[Randy W]

Here it is in the Financial Times

 

Shanghai-Hong Kong Stock Connect: train departs station

 

 

The scheme, which gives investors in each centre direct access to the other's stock market, is one of the most significant openings of China's capital account in a decade. Speaking at the opening ceremony, chief executive of Hong Kong Exchanges & Clearing Charles Li said the scheme marked "a new opportunity for investment....a new era."

 

 

. . .

 

Of course, the fevered speculation over when exactly it would be implemented means the move has already been priced in. Before the open Hang Seng futures pointed to gains of 1.2 per cent while those in Shanghai were down 0.7 per cent. The Hang Seng is now up 0.4 per cent.

 

For a technical explanation of why the scheme may have a limited immediate impact, click here. (subscriber article)

 

 

 

. . . and the New York Times

 

Link Opens Between Hong Kong and Shanghai Stock Markets

China took a leap into the international markets on Monday, allowing mainland residents to trade shares in Hong Kong for the first time and foreigners to invest in Chinese companies that had largely been off limits.

 

Investors hope the pilot program that links the Shanghai and Hong Kong stock exchanges will be the first step in an easing of tight restrictions on the flow of money in and out of mainland China, the world’s second-largest economy, behind the United States.

The so-called Stock Connect will strengthen the two cities’ roles as global financial centers and open the door for foreigners to a $4.2 trillion pool of capital.

. . .

Stock Connect, first announced by Premier Li Keqiang of China in April, is significant because foreign investors have been largely locked out of China’s financial markets. Until Monday, they could trade only the stocks of certain companies listed in China through a limited program that allowed just a drip of money into the country.

Now the tap has been opened wider.

But China’s vast markets are still mostly cut off from foreign investors; they will be allowed to trade only a small percentage — the daily $2.1 billion limit — of the Shanghai stock exchange market capitalization.

[Randy W]

and Xinhua:

 

Mixed investor reactions to Shanghai-HK stock link

The two-way flow of investment capital was disproportionate amid mixed reactions.

 

By 2 p.m. Monday, the daily trade quota for Hong Kong-based investors had hit its limit, yet only 16.8 percent of the quota set for mainland investors was used by the end of the whole day's trading.

 

However, analysts were unconcerned by the disparity.

 

"[We expected] north-bound trading to far exceed south-bound trading," said Chen Changhua, head of Credit Suisse China research department.

 

. . .

 

The stock connect initiative, which took more than seven months careful planning, has been seen as a move toward a more open capital market in the Chinese mainland.

 

From Nov. 17, Hong Kong-based investors are able to buy shares in 568 Shanghai-listed companies while buyers from the mainland will have access to 266 Hong Kong-listed stocks.

 

Each trading day, mainland investors are allowed to trade 10.5 billion yuan in Hong Kong, with Hong Kong investors operating on a 13 billion yuan limit in Shanghai.

 

[Randy W]

Caixin:

 

Closer Look: Why Shanghai-Hong Kong Stock Connect Was One-Way Road

The start of Hu-Gang Tong saw Hongkongers much more interested in mainland stocks than the other way around. Here is why

 

The stock connect program, known as Hu-Gang Tong in Chinese, allows investors in Hong Kong and on the mainland to trade a range of stocks on the other side's bourse through securities firms in their own market. It is part of the central government's push to connect the Chinese securities market with those overseas and supplements the Qualified Foreign Institutional Investor (QFII) program, which began in 2003 and allows foreign investors to trade securities including stocks, bonds and index futures in the Chinese market.

 

. . .

 

Northbound investments reached the limit at 1:59 p.m. before the market closed at 3 p.m. Investments from the mainland to Hong Kong totaled only 1.77 billion yuan, or less than 17 percent of the daily quota.

 

 

[Randy W]

China stock indices plummet by up to 7.9pc as investors stampede out of the market

 

China stocks today posted some of their worst losses in seven years, as investors stampeded out of a market amid increasing signs the country’s eight-month-long bull run is running out of fuel.

The key CSI300 index fell 7.9 per cent, to 4,336.19, while the Shanghai Composite Index lost 7.4 per cent, to 4,192.87 points.

 

. . .

 

A more than doubling of China’s stock market over the past year had been underpinned by rapidly expanding margin financing, monetary easing and hopes of economic restructuring, but analysts said two of the three legs are now shaky.

 

Regulators have been cracking down on illegal margin financing and urging brokerages to tighten rules. Many investors have also faced increasingly expensive margin calls in the past week as share prices have retreated.

 

. . .

 

Jiang Chao, strategist at Haitong Securities, said that further monetary easing - long another pillar of investor optimism - is also in question.

 

"Recent bond market performance reflects institutional investors’ view that the rate cut cycle is coming to an end," he said.

 

Morgan Stanley sees Shanghai’s benchmark index falling between 2 and 30 per cent from current levels over the next 12 months, citing heavy equity issuance, weak corporate earnings, demanding valuations and excessive levels of margin financing.

 

The DJ Shenzhen index was off by 11.17%, while the Hang Seng (Hong Kong) Index was down by 1.78%.

[Randy W]

in the New York Times

 

Chinese Share Sell-off Spills Over to Hong Kong

 

A widening gap between the relative strength of large companies’ shares and the seemingly unending slide in the rest of the market threatens to widen social divisions in China. Millions of working- and middle-class families invested their life’s savings and borrowed heavily over the past year to buy shares in smaller companies simply because the shares kept rising, and almost regardless of the companies’ financial fundamentals.

By contrast, Chinese and foreign institutional investors heavily favored the larger companies. Many of the large companies are partially owned by the state, and their executives are senior Communist Party officials who wield considerable political influence. Some large companies also have close ties to some of the country’s leading political families.

With the Chinese government supporting the prices of many companies’ shares on mainland markets on Monday, it was the turn of Hong Kong-listed shares to fall heavily.

The Hong Kong stock market had previously been nearly immune to the sell-off on the mainland. It has tighter restrictions on trading with borrowed money, and stronger corporate governance rules. So it did not rise nearly as fast as mainland indexes over the past year, and until Monday had not fallen very far either.

But the broad Hang Seng index of Hong Kong stocks slipped 3.2 percent, the Hang Seng index of 100 large mainland companies dropped 3.7 percent and the Growth Enterprise Market of mainly small mainland companies plummeted 14.4 percent.

 

[Thomas Promise]

With the Greek debacle the whole Fiat currency system may come crashing down. Scary times.

[Randy W]

It's hard to see any big disaster when you consider this:

 

The Shanghai Composite Index has now fallen 28 per cent since the peak on June 12, compared with a 117 per cent jump over the previous eight months

 

.

 

Still,

 

Beijing’s support measures fail to arrest China’s stock market slide

Mainland and Hong Kong indices fall to new recent lows as central government rescue measures fail to restore investor confidence

 

Shrinking wealth as a result of the stocks rout, it is feared, could dampen consumption while investment losses of companies could hit wages. Some economists, however, feel the damage is still manageable given that mainland households' exposure to equities is still relatively small.

 

"A stock market crash would be undoubtedly painful, shaving 0.5 to 1 percentage point off the real [GDP] growth in the following 12 months," said Societe Generale China economist Wei Yao.

According to HSBC, mainland households had invested around 13 per cent of their assets in the equity markets as of May, compared with 10 per cent in 2014.

 

[Thomas Promise]

The NYSE has suspended trading just now. The Dow is down 200 points today. It maybe related to the flight delays with United Airlines. Possible cyber attack. If you going to invest maybe pencils, chalk, ball point pens and paper maybe a safe bet.

[Allon]

The NYSE has suspended trading just now. The Dow is down 200 points today. It maybe related to the flight delays with United Airlines. Possible cyber attack. If you going to invest maybe pencils, chalk, ball point pens and paper maybe a safe bet.

 

CNN is reporting that all three problems (United, WSJ, and NYSE) are not the result of hacking. WSJ and United are back up. A router was blamed on one of the problems.

[Randy W]

From the Washington Post

 

China’s market crash dents nation’s aura of invincibility

The market’s decline has now wiped out more than $3.5 trillion in market value in a month. By comparison, the bursting of the dot-com bubble in the United States in 2000 caused a loss of $5 trillion.

 

[Hostile foreign forces blamed for bursting stock market bubble]

When regulators posted comments on social media in an attempt to calm the market, they were greeted with thousands of abusive replies.

 

“I am not a 3-year-old. How many more times are you going to lie to me?” said one social media user. “This is how you treat your own people,” said another. “Give me my money back,” a third simply wrote.

 

Andrew Batson, the China research director at Gavekal Dragonomics in Beijing, said the scale of the government’s response was disproportionate to the scale of the problem. But having sold people on the idea that the market’s rise was an endorsement of its economic reforms and Xi’s vision of a “China Dream,” the government felt trapped, he said.

 

“It has made an implicit promise to a lot of people that the stock market will keep going up, so they feel the need to show the government can deliver on its promise,” he said.

 

. . .

 

Fan Shaoxuan, a senior executive at Weibo TV who has more than 12,000 followers on Sina Weibo, posted a photograph showing the slogans: “Hold stocks with confidence. Win glory for the country even if you lose the last penny.”

 

[Randy W]

This article from Kiplinger reads like one of those stock market "analyses" where they explain what's happened in terms of what's happened and don't have a clue as to what's GOING to happen, but may be of interest to anyone concerned about the Chinese stock market. Big areas of concern for me would be the CCP's hyping of the stock market as verification for their policies, and the overall lack of sophistication, and panic-driven forces.

 

Making Sense of the Chinese Stock Market Crash

There’s reason for concern, but U.S. investors should be in the clear for now.

 

 

Is this a buying opportunity?

Despite the recent crash, Chinese stock aren’t cheap. The Shanghai Composite Index is still up 94% from a year ago and trades at 17 times trailing earnings, well above the 10 times earnings of last summer. That current multiple isn’t excessive by global market standards, but it’s a steep price to pay for Chinese stocks against a backdrop of stalling economic growth and earnings that are “rapidly decelerating,” according to Merrill Lynch strategist David Cui. Investors should steer clear until things stabilizes, he advises.

 

Edited July 10, 2015 by Randy W (see edit history)

[Randy W]

China stocks plunge, suffer biggest one-day loss since Feb 2007

 

China stocks plunged more than 8 percent, their biggest one-day drop in more than eight years, as a government-triggered rebound petered out amid profit-taking, concerns over economic health and fears of an end to Beijing's inclination toward looser monetary policies.

 

The CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen fell 8.6 percent, to 3,818.73, while the Shanghai Composite Index .SSEC lost 8.5 percent, to 3,725.56 points.

 

[Thomas Promise]

Shake, rattle and roll. If the Dow slipped like this it would equal a 1500 point drop in a single day! The safest place for broker would be a basement apartment. No one has yet committed suicide by jumping out a basement window. The Dow is down by 100+ points today.

[Greg.D.]

You could drown in the basement!

 

I think a bubble is a bubble and, by definition, means over-valued. Like the beach ball being batted around by the crowd at the game, it can only be sustained for so long. It has to come down. Same for the over-heated market. And, maybe the 8% drop (correction?) is actually within a range of devaluation considered acceptable by the ccp.

 

I mean, somebody there understands that the value of the market should reflect true worth, and not just a number to be made higher and worn as a badge of honor ...

 

As other pundits say, the market is a smaller part of the overall economy than it is in the US, so less reason to panic. The party should have been warning much earlier that amateurs (consumers) should not over-invest in the market. That would have cost nothing.