Behind the 8% plunge in China's stock market

[Srinivas_K]

Behind the 8% plunge in China's stock market.

Chinese stocks plunged Monday after the country's securities regulator rapped three major brokerages for continuing to lend money for stock purchases in violation of rules. As punishment for extending so called "margin trading" contracts, the brokerages are forbidden to offer credit to new customers for three months.

How much did shares fall?

At one point Monday, the Shanghai Composite Index was down 8.3 percent. It later trimmed that to a loss of 7.7 percent. Share prices of brokerages were hardest hit, with some falling by the daily loss limit of 10 percent. Despite the sharp fall, the Shanghai Composite Index is still up 55 percent in the past 12 months and up 33 percent for the past three months.

Why did the market fall so much?

Investors and analysts see the penalties against the brokerages as foreshadowing more curbs on credit-financed trading by China's government. Authorities want to stop the stock market's boom over the past year from turning into a bubble that could damage the broader economy. The Shanghai Composite surged 54 percent last year, partly because of easy credit that investors used to finance their trading. Market selloffs can also become self-reinforcing as other investors sell because of fear they will suffer even greater losses if they do nothing.

Read MoreIsthe China share selloff a teapot tempest?

Did other markets around the world fall too?

No. Even though Monday's fall was particularly steep, investors in other markets are brushing it off as a situation peculiar to China. The government allows only limited foreign investment in Chinese stocks and the country's financial system is largely walled off to the rest of the world. The exception was Hong Kong, where many Chinese companies have stock market listings. A bigger catalyst for global markets will come Tuesday when China, the world's No. 2 economy, reports fourth quarter growth figures.

What are market experts saying?

"Margin financing is simply overextended," said Dickie Wong, executive director of research at Kingston Securities in Hong Kong. Regulators want to "simply give pause" to the brokerages, he said. "In the past, mainland investors had no clue on margin financing and short selling, but after China introduced these two ways to trade stocks, people became so happy because they can borrow money and just go all in."

Chinese developers keep chin up even as prices cool

Is the plunge a sign of bigger problems?

It shows problems on several levels. Stock markets should allow investors to discover the fundamental value of companies, and although all markets are prone to under- and overshooting due to herd psychology, China's market is particularly off-course. That's partly because it is dominated by opaque state-owned companies. In their relatively short history, China's stock markets have fluctuated in ways that bear no relation to economic reality. Its latest problem is that debt has fueled the recent rise in stock prices. There are also signs of debt-related stress in other parts of China's economy including property, which is undergoing a painful government-instigated slowdown. One developer, Kaisa Group, recently missed a $23 million interest payment on a bond abroad, alarming investors.

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This is the biggest fall in Chinese stock market after 2008 !

 

[Hari Sud]

Go down China and stay there for an eternity.

Reasons: First, China with dominance in consumer goods market is preventing others little guys get their due share. Second, all that cash, which western Countries are transferring to China in lieu of goods is being used to intimidate the neighbours. Some are simply being bribed, others are threatened.

So go down and stay there, China.

 

[shiphone]

LOL.. why some idiot is enjoying showing his laughable ignorance here and there via relying to China related thread???

 

[sorcerer]

Crashing China Stocks as Easy as Flicking a Switch: Opening Line
The trouble with the Chinese stock market, as one of our colleagues observed amid yesterday's bloodbath, is that it has only two buttons: "ON" and "OFF."

China's government decreed this bull market, cutting trading fees, making it cheaper to open new brokerage accounts and expanding quotas for foreign investors. If you were still slow to get the message, it helped by cramming state-owned media with articles in August and September extolling the virtues of investing in stocks.

Having flicked the switch, the authorities retired to a safe distance and waited for ignition. It took a little while, but the powder caught. The Shanghai Composite Index (SHCOMP) jumped almost 60 percent in the second half of 2014, adding 11 percent in November and then 21 percent in December.

The index has been swinging so wildly of late that we barely registered yesterday's decline at first. Down 5.5 percent at the open: hey, that's quite a lot. Half an hour later: down 3.4 percent. We'll probably be up by lunchtime.

Not this time. The Shanghai index finished 7.7 percent in the red, the biggest one-day decline since June 2008.

Pity the regulator. No doubt, Chinese authorities would like to see a stable market that grows a steady 10 percent a year, putting money in consumers' pockets, keeping people happy and buying time to deflate an unsustainable property market. Ain't gonna happen. This is China. You can have 400 percent in two years or nothing at all. Make up your mind.

This Opening Line was based in Shanghai during the last great Chinese bull run, which ended in 2007. We lost count of the number of times we were assured that gains were guaranteed because "the government will never let the market crash before the Olympics." Such faith. By the time of the opening ceremony in Beijing, the Shanghai Composite had lost more than half its peak value.

Yesterday's retrenchment had to come, with so many indicators flashing red: volatility at a five-year high, the relative strength indicator through the roof and margin trading up more than tenfold -- the trigger that finally prompted authorities to act.

So is this the end, or just an unusually stomach-churning blip on the road to higher ground? We're not foolhardy enough to get into the forecasting business.

One thought, though: with China about to report the slowest economic growth in almost a quarter of a century, the government can't afford to have everything going down. If not property, if not stocks, then what? Maybe keep one finger on that "ON" switch.

 

[sorcerer]

Sit in any of China's investment parlors and you feel like you are sitting in front of a slot machine or electronic poker terminal. It isn't so much that the stock market in a particular region is young. It is more that such a young market is populated by new investors who lack a great deal of trading experience and historical memory.

But the lack of experience and memory doesn't infect just newly established markets; they are also found in more mature markets that have been around for decades and even centuries. America's exchanges suffered two 50% meltdowns in less than one decade from 2000 to early-2009.

Those crashes came when the marketplace had a disproportionately large percentage of new and inexperienced participants who did not remember the previous crashes that came before them. Leading up to the 2000-03 crash, U.S. markets had experienced a bull run of nearly a decade since the early 1990's. The markets were teeming with investors who had never experienced a stock market crash in their entire personal trading histories.

And the same is taking place in young stock markets the world over, including China's. The personal wealth of the vast majority of its population has only just recently been empowered enough to dabble in equity investing. Before the stock market grew in popularity, the majority of Chinese citizens were content with simply buying gold and silver and holding them for decades – just your typical, simple, and boring forms of investing.

But now they have the stock market, with its wall-sized electronic boards full of flashing numbers, and computer terminals that display graphs and charts on your command. Stock investing is exciting! It's fun! It's adventurous! Unfortunately, those are what make it dangerous.

The Chinese government has not only seen charts similar to the one printed below, in which the Shanghai Composite Index has surged nearly 70% in the last 6 months, rising from 2,000 in June to 3,400 by last week, but it is also seeing the droves of investors flocking to the nation's investment parlors and clicking buy and sell buttons with almost the same spirit as hitting buttons on a video poker terminal.

Worse still is that it has been some six years since the last major crash in 2008, just enough time for investors to forget what can happen when they get too excited. So the Chinese government decided it was time to cool things down a little – both the market and its participants alike. By raising margin requirements, investors will now need to hold more cash in their accounts before buying stocks, reducing the amount of leverage available to trade with – or gamble with, as the case may be.

Learning from China's Sell-off

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Plunge is justified vis a vis market regualation but how well the regulators be bold enough to regulate!!

 

[no smoking]

Go down China and stay there for an eternity.

Reasons: First, China with dominance in consumer goods market is preventing others little guys get their due share. Second, all that cash, which western Countries are transferring to China in lieu of goods is being used to intimidate the neighbours. Some are simply being bribed, others are threatened.

So go down and stay there, China.

You words sound like: I can't beat you in the competition, can you please stop beating me?
My friend, you are really shaming India.

 

[Hari Sud]

You words sound like: I can't beat you in the competition, can you please stop beating me?
My friend, you are really shaming India.

On the contrary, I am shaming China with American built dominance and now ready to intimidate neighbours and also its benefactor, the US. There is only one way to stop it, China should go down and stay there.

 

[no smoking]

On the contrary, I am shaming China with American built dominance and now ready to intimidate neighbours and also its benefactor, the US. There is only one way to stop it, China should go down and stay there.

No, you are not. American dominance was already there even before PRC was found. And this China grew from nobody to a country shaking American dominance. There is nothing to shame about.
But you, my friend, instead of advising India's strategy, all you can come up with is "China should go down and stay there". However, my friend, China won't go down there only because of your wish. You need to do something. If you don't make your contribution in the "going down" of China, India will still stay there at the bottom.

 

[Hari Sud]

My decent word - China go down and stay there, holds ground.

Is it irritating you "No Smoking", then tough luck.

 

[asianobserve]

Chinese Debt Is Fueling Swings in World's Wildest Stocks - Bloomberg

The one thing China (SHCOMP)'s bulls and bears can agree on is that swings in the world's most-volatile major stock market are only going to get bigger after equity traders took on record amounts of debt.

 

[J20!]

On the contrary, I am shaming China with American built dominance and now ready to intimidate neighbours and also its benefactor, the US. There is only one way to stop it, China should go down and stay there.

What's funny is that a Chinese economic collapse would plunge the world economy (including India) into a deep recession. Millions would be bankrupt or impoverished, yet people like you pray for it... Pride is just sad to watch sometimes.

For every percentage point of Chinese growth, 7 million people OUTSIDE CHINA are moved above the poverty line. China is the LARGEST TRADING NATION IN THE WORLD, and India's(Asia's) largest trading partner besides.

But if you believe China's rise has no benefits other than "bullying neighbors", good for you.




Sent from my iPod touch using Tapatalk

 

[sorcerer]

What's funny is that a Chinese economic collapse would plunge the world economy (including India) into a deep recession. Millions would be bankrupt or impoverished, yet people like you pray for it... Pride is just sad to watch sometimes.

For every percentage point of Chinese growth, 7 million people OUTSIDE CHINA are moved above the poverty line. China is the LARGEST TRADING NATION IN THE WORLD, and India's(Asia's) largest trading partner besides.

But if you believe China's rise has no benefits other than "bullying neighbors", good for you.




Sent from my iPod touch using Tapatalk

Nope..There will be adjustments..meaning local economy will pickup..local products take over..meaning China will lose its edge yet again.. Sure there will be a bit of chaos..but its manageble.
World has a dynamic order. Your lose will be someones gain..You cant deny that fact.
Seriously, I like what you are smoking!!

 

[J20!]

Nope..There will be adjustments..meaning local economy will pickup..local products take over..meaning China will lose its edge yet again.. Sure there will be a bit of chaos..but its manageble.
World has a dynamic order. Your lose will be someones gain..You cant deny that fact.
Seriously, I like what you are smoking!!

Your post reads like a layman who got his economics education from the "Times of India"

India doesn't have the industrial capacity to produce all of the import products it receives from China; nor can it replace the Chinese market for its goods anytime soon.

China is the world's no. 1 trading nation, and has been the engine of world growth for the past decade and a half. Who is going to replace China as the largest trading partner to most/many countries in Asia, Africa and Europe? Even just a slowdown of Chinese growth has a ripple effect on global growth. What would a "collapse@ do?

Think with your head, not your nationalism.


Sent from my iPod touch using Tapatalk

 

[Sameet Pattnaik]

1997 Asian financial crisis - Wikipedia, the free encyclopedia
when there was asian economic crises the most affected nation where indonesia , south korea and phillipines right ? your country was less affected it so does republic of china , vietnam and malaysia !

In india there was no such affect even ! right may be bilateral trade between our nation where negligible but yet in the globalisation if your business crash there may hope in disguiuse for many business entreprenuers for giving scope to business as there is down fall in china !

 

[sorcerer]

Your post reads like a layman who got his economics education from the "Times of India"

India doesn't have the industrial capacity to produce all of the import products it receives from China; nor can it replace the Chinese market for its goods anytime soon.

China is the world's no. 1 trading nation, and has been the engine of world growth for the past decade and a half. Who is going to replace China as the largest trading partner to most/many countries in Asia, Africa and Europe? Even just a slowdown of Chinese growth has a ripple effect on global growth. What would a "collapse@ do?

Think with your head, not your nationalism.


Sent from my iPod touch using Tapatalk

Chinese dunce. We are talking about eventuality. Wasnt we?

You want to state your nationalistic agenda which is CHINA is the only country that can produce stuffs from tampons to TV. My level of education doesnt matter to discuss things that are very much commonsense. which ofcourse you lack because you are chinese and you rely on what you are fed.

Countries that doesnt have industrial capacity to produce are leveraging on China to fill the common goods void. BUT in case of slow down,,local industries pick up because China is failing means there is a void factor which needed to be filled. YOu think that the whole world will sit and wait for Chinese economy to correct or wont they scramble to find alternate means?

C'mon, world aint that naive like you.

The world will have new coalitions. new markets, cheap labour from else where. There are many smaller asian countries which had a market once but was eclipsed by the Chinese number game. They will defenitely see the opportunity and pitch in.
There are countries with wealth who will help smaller asian countries to feed in their appetite for goods and services.

China is worlds number 1 trading nation... but this exactly is what many countries are trying to avert. What makes you think that a slowdown in China wont be used as an opportunity by emerging markets? Keep repeating that to yourself.

I think with nationalism and with the basic dynamics which is very true.

I advise you to take your head out of your arse and think with the head for a change rather than pitch in pro Chinese propaganda..as if your words dont reak nationalism.

When I read your posts, I chuckled cuz you doesnt seem to know beyond what you percieve and your pereception 'China is the worlds best manufacturing hub ' is very acute. You dont have all the facts or you like Pakis are strating on a denial mode.

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Alternative means to CHINA

Vietnam: An alternative to China for manufacturing?

Amid a tightening labor market and rising wage demands, manufacturing in China isn't as cheap as it used to be.

The new dynamic has some U.S. firms looking for the next frontier in outsourcing, and the search leads, in many cases, to Southeast Asian up-and-comer Vietnam. "Vietnam will be the next China," said Josh Feinkind, president of New York-based RefinedKind Pet Products, which has been producing in Vietnam for eight years. "

Vietnam is attracting both companies with a history in China and those fresh to Asia. It's often part of a "China plus one" strategy in which firms maintain production in China but add operations in another Asian country to spread out such risks as supply chain disruption.

Vietnam, by comparison, can look like a bargain. Factory workers in Vietnam might make a third to half of the $300 a month that is typical in China, according to experts. And there are reasons beyond lower wages to invest in Vietnam, said Robert Brown, a partner with the law firm Bingham Greenebaum Doll in Louisville, Ky. "If I have someone who wants to set up factory, I can meet with ministers," said Brown, author of Doing Business in Vietnam, published by Thomson Reuters/West. "It's easier to get access to the right people. They're eagerly looking forward to getting more Americans in."
https://globalconnections.hsbc.com/us/en/articles/manufacturinginvietnam

Made In India*

Havells has been selling fans for a decade. Havells previously sourced table fans from Chinese company Midea, one of the world's largest fan producers. Midea didn't ask Havells for a price increase for many years until 2010 when it cited rising labour costs and electricity shortages, and jacked up rates 20 per cent over three years. "A time came when we said this was enough and we should look at manufacturing in India," says Sunil Sikka, President at Havells. The company started making table fans at Haridwar, where it was already producing ceiling fans, with an installed capacity of 100,000 a month. It no longer imports table fans, but is making them at a cost 10 per cent lower than what the Chinese had offered.

http://businesstoday.intoday.in/sto...gins-to-lose-manufacturing-edge/1/203040.html

Vietnam offers companies China alternative

ut spiralling wage costs in China have driven a growing number of labour-intensive manufacturers to switch to countries with lower wages, such as Bangladesh, Indonesia and Vietnam.

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email [email protected] to buy additional rights. http://www.ft.com/cms/s/0/46d052b8-6446-11e1-b30e-00144feabdc0.html#ixzz3PcHR2i8r

Vietnam already exports billions of dollars of basic manufactured goods such as shoes, clothes and wooden furniture to Europe and the US each year. It surpassed China in 2010 as the biggest source of footwear for Nike, the international sports brand.

The arrival of more companies like XP Power, which makes industrial power supplies, will test whether Vietnam has the skilled workers and infrastructure needed to tempt more technologically-advanced, higher value-added manufacturers. Pioneers like chipmaker Intel and Samsung, the South Korean electronics group, have already set up factories in Vietnam and are ramping up production. Nokia, the Finnish mobile phone, announced plans last year to build a mobile phone factory in northern Vietnam.

For example, China used to be the obvious choice—or even the only choice—for offshore production. However, businesses looking for low-cost export platforms in Asia are increasingly considering countries such as Indonesia, Vietnam, and Thailand. Others that are focused on reducing transportation costs and supply chain risk are shifting to nearshore locations closer to their customers, or even repatriating production to low-cost regions back home. .

China's competitors are steadily improving. Other countries in Asia have long offered appealing labor rates, and have also attracted inbound manufacturing investment (though to a much lesser degree than China). However, they often lacked the skilled workers and business infrastructure to support complex or large-scale manufacturing investment. That's also changing. Nations such as India, Indonesia, Vietnam, Thailand, and others are becoming increasingly competitive.Yet many of China's competitors have reached the point of viability, and will only get more competitive as they build critical mass and begin to attract more business. In addition, less developed regions, perhaps even Africa, may emerge in the not-too-distant future.

Mattel, World's Largest Toy Maker, Moves Part Production from China to Brazil and India – A New Beginning for All?

Low labour costs and economic growth have allowed China to become the destination of choice for global toy businesses looking to offshore manufacturing while consumers have also benefitted from the resulting competition for production costs. So, Mattel's decision, which was announced on 19th February, to shift some of its production facilities from world's manufacturing hub to Brazil and India came as surprise to many. Euromonitor was not one of them. - These were the very two countries investigated as potential and viable alternatives to China a year ago. Back in March 2012, Euromonitor International had explored the key parameters attached to China's global manufacturing output, analysed the main challenges and likely scenarios while studying the alternative hub destinations in emerging countries for toys production extensively in a series of three articles. -

China – still attractive but no longer the only choice

Relatively low labour costs, a large workforce (some 452,000 employed in toys and games manufacturing in 2011) and strong economies of scale attract major international toy brands to Chinese manufacturers and Mattel is not an exception. Mattel Group manufactures 74% of its products in China and the remainder scattered across Indonesia, Malaysia, Mexico and Thailand.

Consumers worldwide have also benefited from the manufacturing shift to China, as savings made by international companies are reflected in the prices of goods. However, China is losing its competitive advantage as a low cost environment for labour. The country's one-child policy is resulting in shortages of labour, permitting workers the leverage to demand better wages. Rapid population ageing is narrowing the labour pool, while high inflation is increasing export and transportation costs. Average salary of an employee in toys and games manufacturing increased by 47% over 2007-2012. These factors are beginning to erode the country's manufacturing edge, with businesses increasingly looking into cheaper producers.



- See more at: http://blog.euromonitor.com/2013/04...dia-a-new-beginning.html#sthash.Ve1zCBM6.dpuf

As you read it...You can see that countries are adapting to new side effects of global economic cooling down by strategicaly using different methods to their advantage..sometimes it could be a nearer location, sometimes it could be investment in places looking for long term gains ..
well...

survival is an instinct its not Chinese!!

Keep on ranting..I can post many links and pdfs to counter your wet dreams on China and a reality that there are alternate means emerging in dominant and fail safe roles.