Behind the 8% plunge in China's stock market

Discussion in 'China' started by Srinivas_K, Jan 19, 2015.

  1. Srinivas_K

    Srinivas_K Senior Member Senior Member

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    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 !
     
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  3. Hari Sud

    Hari Sud Senior Member Senior Member

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    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.
     
  4. shiphone

    shiphone Senior Member Senior Member

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

    sorcerer Senior Member Senior Member

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    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.
     
  6. sorcerer

    sorcerer Senior Member Senior Member

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    Learning from China's Sell-off

    ===
    Plunge is justified vis a vis market regualation but how well the regulators be bold enough to regulate!!
     
  7. no smoking

    no smoking Senior Member Senior Member

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    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.
     
  8. Hari Sud

    Hari Sud Senior Member Senior Member

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    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.
     
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  9. no smoking

    no smoking Senior Member Senior Member

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    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.
     
  10. Hari Sud

    Hari Sud Senior Member Senior Member

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

    Is it irritating you "No Smoking", then tough luck.
     
    Sameet Pattnaik likes this.
  11. asianobserve

    asianobserve Elite Member Elite Member

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  12. J20!

    J20! Senior Member Senior Member

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    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
     
    Last edited: Jan 22, 2015
  13. sorcerer

    sorcerer Senior Member Senior Member

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    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!!
     
  14. J20!

    J20! Senior Member Senior Member

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    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.


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  15. Sameet Pattnaik

    Sameet Pattnaik Regular Member

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    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 !
     
  16. sorcerer

    sorcerer Senior Member Senior Member

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    :D
    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.

    ====
    Alternative means to CHINA

    Vietnam: An alternative to China for manufacturing?


    Made In India*
    Vietnam offers companies China alternative
    Mattel, World’s Largest Toy Maker, Moves Part Production from China to Brazil and India – A New Beginning for All?



    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.
     
    Last edited: Jan 23, 2015

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