BREAKING NEWS: Chinese stock market loses $3.2 trillion. Authorities inject csh

I’m waiting to hear how PM Key is going to smooth talk his way out of this one.

“At the end of the day. China was never that important. We have the Christchurch rebuild and the Auckland housing market”.

Radio NZ is more concerned about Samoa beating the All Blacks at rugby.They forgot to cover it (or they are't keeping an eye on news)

Keep a watching eye out on this one

China stock markets continue nosedive as regulator warns of panic

Main markets open sharply down as nearly 700 companies request their shares be suspended in unprecedented move

the Guardian,

8 July, 2015, 16.17 NZT (04.17 BST)

Chinese stock markets tumbled again on Wednesday as investors shrugged off a series of support measures by Chinese regulators, including the central bank’s first public statement in support of the market since it cut interest rates in late June.

Minutes after opening, the Shanghai Composite Index fell by just over 8%. while the Shenzhen Component was down almost 5%.

Within ten minutes of trading, more than 1,000 shares across China’s two stock markets had dropped by the daily limited of 10% and had their shares automatically suspended. About 1,400 companies, or more than half of those listed – filed for a trading halt in an attempt to prevent further loses.

China’s securities regulator said there was “panic” in the stock market with irrational selling off increasing and “leading the stock market to a situation of intense liquidity”.

The People’s Bank of China said it was assisting China’s Securities Finance Corporation (CSFC), the national margin trading service provider, to acquire liquidity in an effort to steady the stock market.

It said it would do this through measures such as inter-bank lending, mortgage financing and floating financial bonds. It said it would keep a close watch on the market and continue to support the CSFC and guard against systematic and financial risks.

A spokesperson for China Securities Finance Corporation also said it would purchase more shares of small- and medium-size listed companies. It is these companies that have suffered the biggest loses.

Christopher Balding, a professor of economics at Peking University said that while it was not possible to know exactly why so many companies had suspended trading, a large number were doing so because they had used their own stock as collateral for loans and they want to “lock in the value for the collateral”.

Ayako Sera, a senior market economist at Sumitomo Mitsui Trust Bank in Tokyo, said: “Today is all about China, with Greece in the background now that it’s been given a new deadline.” 

"Shanghai’s early losses were like a cliff-dive, which had a huge impact on investor sentiment.”

Previous measures taken over the weekend by the Chinese government in an attempt to stabilise the markets appeared to have been unsuccessful. Analysts said the falls looked set to continue. Balding said: “I don’t see it getting better. There is not going to be a turn around within the next week or two.”

“It probably has a long way to go. Margin loans basically rose much faster and they are not falling nearly as fast, margin debt is not falling nearly as fast as the market is falling. What that is telling us is that there is a lot of stock that needs to be sold that hasn’t been sold yet.”

China’s stock markets had previously been among the top-performing in the world, and had hit a seven-year peak in the middle of June. The Shanghai stock market had surged more than 150% in 12 months, but it has fallen 30% over the past three weeks – including a plunge of 12% last week.

Unlike most other stock markets, where investors are mostly institutional investors, in China, 80% of investors are small retail investors. This is a concern for the Chinese government because it causes a “political risk”, according to Balding. The losses on the stock markets are going to cause a lot of people to lose money causing the government to “worry about people protesting on the streets”, he said.

Chinese chaos worse than Greece

WHILE the world worries about Greece, there’s an even bigger problem closer to home: China.

A stock investor looks up in a brokerage house in Shanghai. Chinese authorities have launched frantic efforts to shore up plunging stock prices following another 5.7 per cent decline in the country's main market index on Friday. Source: AP

News.com.au,

7 July, 2015

A stock market crash there has seen $3.2 trillion wiped from the value of Chinese shares in just three weeks, triggering an emergency response from the government and warnings of “monstrous” public disorder.

• LATEST: CHINESE INVESTORS FLEE FOR SAFETY

And the effects for Australia could be serious, affecting our key commodity exports and sparking the beginning of a period of recession-like conditions.

"State-owned newspapers have used their strongest language yet, telling people ‘not to lose their minds’ and ‘not to bury themselves in horror and anxiety’. [Our] positive measures will take time to produce results,” writes IG Markets.

“If China does not find support today, the disorder could be monstrous.”

In an extraordinary move, the People’s Bank of China has begun lending money to investors to buy shares in the flailing market. The Wall Street Journal reports this “liquidity assistance” will be provided to the regulator-owned China Securities Finance Corp, which will lend the money to brokerages, which will in turn lend to investors.

The dramatic intervention marks the first time funds from the central bank have been directed anywhere other than the banks, signalling serious concern from authorities about the crisis.

At the same time, Chinese authorities are putting a halt to any new stock listings. The market regulator announced on Friday it would limit initial public offerings — which disrupt the rest of the market — in an attempt to curb plunging share prices.

While the exact amount of assistance hasn’t been revealed, the WSJ reports no upper limit has been set.

All short-selling — the practice of betting that stocks will fall — has been banned, and Chinese media has rushed to reassure citizens.

Yesterday, shares in big state companies soared in response to the but many others sank as jittery small investors tried to cut their losses, Associated Press reports. The market benchmark Shanghai Composite closed up 2.4 percent but still was down 27 percent from its June 12 peak.

Experts fear it could turn into a full-blown crash introducing even more uncertainty into global markets as Europe teeters on the edge of a potential eurozone exit by Greece, after Sunday’s controversial referendum.

WHAT DOES IT MEAN FOR AUSTRALIA?

For Australia, the market crash in China is likely to impact earnings on key exports iron ore and coal, further slashing government revenue, while also putting downward pressure on the Australian dollar.

Jordan Eliseo, chief economist with ABC Bullion, said it was important to remember that the amount of wealth Chinese citizens have tied up in the stock market is relatively minor compared with western investors.

Stocks only make up about 8 per cent of household wealth in China, compared with around 20 per cent in developed nations.

"The market crash there is generating headlines, but it’s not going to have the same impact as a comparable crash would in a developed market,” he said.

"What it means for Australia, though, is it’s very clear there are some serious imbalances in the Chinese economy, and the rate of growth they’ve enjoyed in the past is over. There’s no question our export earnings are going to take another hit.”

Mr Eliseo predicts Australia is likely to experience “recession-like” conditions such as negative wage growth for many years to come. “I believe that’s going to be the new norm,” he said.

WHAT ARE THEY DOING ABOUT IT?

On Saturday, China’s 21 largest brokerage firms announced that they would invest more than $25.35 billion in the country’s stock markets to curb the declines.

The brokers will spend at least 120 billion yuan ($25.75 billion) on so-called “blue chip” exchange traded funds, the Securities Association of China said in a statement after an emergency meeting in Beijing.

On Friday the Shanghai Composite Index closed down 5.77 per cent to end at 3,686.92 points. Since peaking on June 12 Shanghai has dropped nearly 29 per cent, which Bloomberg News said was its biggest three-week fall since November 1992.

The Shanghai market had swelled by 150 per cent in the last 12 months and experts had expected a sharp correction, though the rate at which it has occurred is unnerving many.

Middle-class Chinese investors, encouraged by the government, have been pumping money into the stock market. The WSJ quoted 51-year-old Li Ping, who sold her 7 million yuan ($1.5 million) Beijing apartment to plough 4 million yuan into stocks.

Ms Li said she thought the market would stabilise and rise again. “The fund that I have invested in is very mature and professional,” she said.

CRACKDOWN AS PANIC TRIGGERS ‘SUICIDE’ RUMOURS

Underscoring growing jitters amid the three-week sell-off, police in Beijing detained a man on Sunday for allegedly spreading a rumour online that a person jumped to their death in the city’s financial district due to China’s precarious stock markets.

The 29-year-old man detained was identified by the surname Tian, and is a manager at a technology and science company in Beijing, police said in a post on their official microblog.

Police said Tian’s alleged posting of the rumour took place Friday and called on internet users to obey laws and regulations, not to believe and spread rumours, and to cooperate with police.

The state-run Xinhua news agency reported that Tian allegedly posted the rumours with video clips and screenshots Friday afternoon.

The post, which is said to have gone viral, “provoked emotional responses among stock investors who suffered losses over the past weeks”, Xinhua said.

Xinhua added that a police investigation showed that the video in question had been shot on Friday morning in the eastern Chinese province of Jiangsu where a man had jumped to his death. Local police there were investigating that case, Xinhua said.

The original post was unavailable Sunday on China’s tightly controlled social media, where authorities are quick to delete controversial material.

To save its stock markets, China is putting its whole financial system at risk

Quartz,

7 Juloy, 2015

“We must deepen economic system reform by centering on the decisive role of the market in allocating resources….” 

— President Xi Jinping, “The Decision” of the Third Plenum, Nov. 2013

That was the plan, anyway. Not anymore.

In recent days, the Chinese government unfurled a series of measuresto stop its stock markets’ free-fall the scale of which has never before been seen. It is essentially giving investors a “Xi Jinping put,” as Joyce Poon of Gavekal Dragonomics calls it (referring to Mario Draghi’s European Central Bank put) in a note today—meaning, the government is assuring investors it will do what it has to to keep the market aloft.

The measures stanched the bleeding a bit today (July 6); Shanghai Composite closed up 2.4%. However, much more is at stake than hitting numbers. Not only does the Xi Jinping put threaten to scuttle critical financial reforms; it also leaves China—and untold millions of its residents—in a bigger financial mess than ever.

China’s intervention is far bigger than TARP

First some perspective on this weekend’s activities. The most important of the salmagundi of actions is the security regulator’s promise of an initial 120 billion yuan ($19.3 billion) via 21 brokerages to stabilize the market, alongside the People’s Bank of China’s agreement to provide liquidity support for the margin-trading clearinghouse—what David Cui, strategist at Bank of America/Merrill Lynch, says might be its first step toward becoming the ailing market’s buyer of last resort.

The government also vowed to make sure the Shanghai Composite hits 4,500. The scope of this gambit is breathtaking, says Anne Stevenson-Yang, founder of J Capital Research. She notes that analysts comparing China’s current rescue efforts to Troubled Asset Relieve Program, the US government’s 2008 bank bailout package, miss the fact that TARP rescued operating companies, not a stock index. “[TARP] focused on the viability of operating companies, not the optics that a speculative derivative of the economy represented.”

“There is no way to characterize these measures other than as a ‘double or nothing’ wager,” Stevenson-Yang writes in a note today.

The party is gambling away its credibility

The downside of that wager is profound indeed. The government’s creation of the Chinese bull market has disproportionately benefitted state-owned companies—and therefore the Communist Party—by replacing government-guaranteed debt with equity. That equity, of course, has been funded by the little guy—the second, and much bigger, part of the problem. When the state press and government officials began pumping stocks about a year ago, they essentially made a promise to protect the savings of tens of millions of households.

However, the stated strategy might leave them high and dry, says Andrew Collier, head of Orient Capital Research. Given the intensity of Beijing behind the operations, the liquidity the PBoC provides to the market via brokerages is likely to be many times larger than the announced 120 billion yuan.

“[The government] will have to focus on the indices and the big cap [companies] to affect the market, which will completely leave out the small caps that retail investors have been buying,” Collier tells Quartz. “If these stocks fall, there will be a lot of protesting unhappy investors. More problems for the leadership. They can support it short-term but not long-term.”

The more China stokes risk-taking, the more painful it will be to withdraw government support

Then there’s what this means for reform. The quote above is the most celebrated of Xi’s much-vaunted Third Plenum policy metamorphosis: to let markets—and not government policy—determine the value of money and risk.

These reforms were ostensibly important to Xi at one point because, ultimately, China’s miracle is getting risky and expensive to maintain. When the government deems an enormous swath of China’s economy—e.g. the property market, state-owned companies, financial products, now the stock market—Too Big to Fail, it encourages wanton risk-taking. If the investment pans out, big returns; if not, no worries—you’ll be bailed out. That’s become very expensive; China has racked up at least $28 trillion in debt, more than half of which is corporate.

The more wanton risk-taking there is, the more it will cost, both financially and politically, when the government begins removing its support, letting the market do its job.

The government-induced stock rally puts a lot more people at risk

Chinese stocks are a good example of this. Politically, when the government decided to create the stock rally, Xi and the Communist Party put their credibility on the line with more people than ever before. Past policy decisions might outrage a region, or an interest group, but usually not millions of households across China.

Financially, hundreds of billions of borrowed yuan have flowed into equities. If that wealth is lost, those debts can’t be repaid—which is why the government-rigged Chinese stock rally may have left the whole financial system at risk, says Orient Capital’s Collier.

“The real danger in all this may be the banks,” he says. “They have an undetermined exposure in loans to the stock market, directly to consumers or indirectly through intermediaries, such as the shadow banking sector (e.g. trusts). A collapse in share prices could have a strong negative effect on bank balance sheets.”

The government may be too late to change course

There’s still a chance to keep reform on track, argues Gavekal’s Poon. The volatility of the last few weeks will alert China’s leaders to these systemic vulnerabilities, she writes, prompting them to accelerate economic and financial reform.

JCap’s Stevenson-Yang is less optimistic.

“Chinese institutions are too outdated, too inflexible, too lacking in coordination to be of any use when the one thing the government can do—aggregate and direct flows of money—is undermined as a tool,” she says. “The sell-off is similar to a bank run, in which each player’s only real motive is to capture as much of the value of his assets as possible before the whole edifice collapses.”

China’s plunging stock markets have virtually shut down

As China’s steepest market drop in decades continues, over half of all listed companies in China had voluntarily suspended trading of their shares by midday on July 8, and about 800 others had their stocks automatically halted after reaching their daily drop limit. The benchmark Shanghai Composite Index was down 4.2% and the CSI 300 was down 4.9% in morning trading.

That leaves only a handful—just 22%, according to our calculations, of all listed stocks on the Chinese stock market still trading. Dozens of stocks in Hong Kong have also voluntarily suspended trading in the past few hours, as the spill-over from China’s market drags down Hong Kong’s Hang Seng Index:

Companies listed in China and Hong Kong can apply to stop trading ahead of the release of market-moving news—most of the companies that applied for a suspension said they had an “important project in preparation” and would make an announcement over the next five days. Most analysts believe companies are just hoping to ride out the market slump.

Investors wondering when these stocks might start trading again can take a look at Hanergy Thin Film Power, which stopped traded in Hong Kong in May after its stock started falling—and has not yet restarted.

“Greed and fear,” Michael Every, head of financial markets research at Rabobank Group told Bloomberg. “If you hadn’t been greedy you have nothing to fear now. We are heading to 2,500,” he said, referring to the Shanghai Composite Index, which was at 3582.5 at noon on July 8.

Chinese regulators and the central bank, which have already numerous measures to try to prop up the markets, are rolling out more. The China Securities Regulatory Commission (CSRC) said today it would increase purchases of shares in small and medium cap stocks, after criticism that it was only supporting large state-owned companies.

Those measures aren’t likely to stem the bleeding. After reaching a seven-year peak and the longest running bull market since the market opened in 1990, Chinese stocks have been on a nosedive and, thanks to a huge amount of borrowing to buy stocks in the run-up, may still fall further. About $3.4 trillion in value of listed companies has disappeared over the past few weeks.