5% in an hour is kind of intense.
Holy moses, so I was busy doing other stuff when all my alarms started going off…ICBC just shot thru the roof. Perhaps the clueless people finally realizing the 5% yearly dividend was next Tuesday? Don’t know why, don’t care why, sold my entire massive position @ 5.37 RMB.
Yo, 6.76% return since Friday. In and out biatches! 
Yah, one out of three ain’t half bad over there I guess.
To be fair though, you have made money in a dropping market on those positions which I imagine isn’t easy, so I will give you that.
But those of us that called a bubble in FY15 (and to be clear I put no bubble calls out there for FY14) are on equally correct footing right now with markets down 7% from when that last discussion occured on the 26th (pre rate cut) and off 24% from the high on the 12th.
So what it comes down to is a few of us that are right so far on our broad stance and you being right so far on your position specific stance. Keep posting holdings (sincerely), it’s interesting to watch to see if these things keep playing out for you as an outsider. I’m more of a macro guy myself so this isn’t a market I’d touch personally, not yet anyway.
“In a rare move late Wednesday, Chinese regulators set in motion draft proposals to ease restrictions on margin lending earlier than scheduled. The announcement came amid a series of measures to encourage stock buying after nearly three weeks of volatile trading wiped out some gains from a yearlong rally”
Well I guess they’re not worried about margin levels. Allowing pensions to buy equities seems like a step in the right direction and reasonable. Taking measures to allow individuals to take on more risk than they can afford seems desperate.
Not to nitpick, but I was right on all three actually (we got +6-8% bounces on all). People who shorted the index were also correct, that is true. I’ve got no skin in the game at this point, back to watching and waiting. It will be interesting to see how this correction develops. The govt “calming” was expected, but what wasn’t expected is that it isn’t totally working. Mega-caps were mostly green over the last few days, but the vast majority of stocks were red. Shanghai is all about extremes. But once the carnage is over, what will they do? I just keep thinking they have no other move available --> buy back what they sold! And then there’s Greece. I guess markets don’t really care, no “sky is falling” except the isolated and unrealated thing happing in SH. Perhaps that undermines the Geek’s bargaining power, they can’t hold world markets hostage. We just got back from celebrating, I’m tipsy off crap Korean beer!
Well, China is doing stuff to open up the market; allowing foreign investment, leverage, shorting, derivatives, etc. China knows how to plan, so they have a schedule, and they do these things slowly over time. But they can tweak the schedule to move opposite the market.
See the FOMC.
“The regulator also opened up margin trading to more investors, allowing those with less than 500,000 yuan ($80,600) in their investment accounts to engage in the practice. In yet another step, brokerages will be able to securitize their margin loans, which would boost the amount they can lend without pressuring balance sheets”
Sign me up for the most junior tranche of that securitized loan pool. Also can I buy that on margin as well?
Interesting developments in China. Regulators are now going after market manipuation efforts. Generally the manipulation goes on in micro/small cap, it’s just too hard to move the mega-caps. The rumor was Goldman was shorting the heck out of things, but regulators say they did not find anything unusual.
Also they are not requiring people to realize the loss (margin calls), in fact they are allowing people to put up their homes as collateral?? LOL. This is the same as last time we had a pull back, they don’t want people to get knocked out by volatility. But this homes as collateral thing is kinda crazy! If one must get their information from “the news”, I like Bloomberg TV’s Hong Kong team. These guys are smart, calm, informed, unbiased, normal people. They really do deliver “just the facts” without any weird nationalistic spin. Not much detail, but you get the high level… http://www.bloomberg.com/news/videos/2015-07-03/china-s-csrc-to-crack-down-on-market-manipulation http://www.bloomberg.com/news/videos/2015-07-03/boring-china-banks-provide-haven-from-wild-swings
either way, Shanghai is getting killed. the index is down 26% from when i started talking this thing down. the index should be at the 2000-2500 level, not 3700, and definitely not 5000 when i, and many posters, started chiming in on this discussion. most overvalued stock market in modern history. without real estate, and without the stock market, where will chinese send their money next? my guess is Canadian real estate. haha. or most won’t have any money left. that’s how a recession starts. you can’t fight basic economics. more to come…
I haven’t read all this thread, but has the removal of the loan to deposit restriction been discussed? I’m pretty familiar with the banking space, but not as familiar with China. But overall from the limited stuff I’ve read, I’d be very hesitant to invest in a Chinese stocks, but most certainly I’d be scared to invest in a Chinese bank. The ‘shadow’ lending market is huge there.
Also, I don’t know if it’s been discussed but a huge percentage of the stocks in China are being bought on margin. I have heard the Chinese in general do have a love for gambling and it may be playing out in their markets.
The margin isn’t unique to China though. Non-purpose lending is skyrocketing in USA as well
This correction is coming off a massive rally, so this is different than the US correction in 2008, but I still find this interesting…
The 26% drop that MLA mentioned has happened over 13 trading days which is greater than any 13 day period in the 2008/2009 crisis here in the US.
The correction is 29% if you go back a few days before we started discussing, which would make it a 16 day period. This matches the largest loss on the S&P in a 16 day period in 2008.
I don’t think China is experiencing the economic crisis that the US was, but its fascinating to see the intensity of these loses and compare them to what we experienced not so long ago. I don’t imagine the panic that existed on Wall Street is occuring in Shanghai at the moment. Hopefully investors calm down though and this simply becomes a market correction, I’d hate to see this cause a global recession. The S&P is down only marginally during this period which I also find fascinating. Either investors believe this isn’t going to spill over into the economy or they’re just ignoring it.
2008 was a correction? Only to the extent that Lake Baikal is a pond.
A correction is 10-15%. 2008 was more like 50%.
Comments like this keep me coming back. Insightful, thoughtful and additive to the conversation. Great work.
The banks are actually the smart place to be, relative to other sectors. Big name financials like ICBC were about the only area that closed UP this week. A number of reason for that, discussed earlier.
But it’s a bit different, it comes after going up like 105% in a year, then down 25%. Bigger up, bigger down.
If you go back to the beginning of time and do the math, Shanghai has better returns than the S&P500, something like 15% vs 11% (I can’t remember exactly, I calc’d it once). It’s just that the volatility is mind blowing. So this is how it goes, which is why you want to get in for the multi-year ups, and be out when the multi-year downs happen.
The locals know this of course (many lived thru the 2008 pop), which is why they panic sell. It would be great if the government could calm them down and teach them some discipline, this volatility of indicies going 40X, to 8X, then 18X, is not particularly healthy for them (just healthy for people who exploit it). I do think it will happen eventually, but changing human behavior takes a long time.
Goldman’s aggressive - I see their names on a lot of blcok trades. Obviously I can’t say much but if they’re shorting something on macro basis, I’ve seen them short the index, single stocks, FI, divs, all together in a coordinated (I think) action. It cannot not be coordinated at the level I’ve seen. I secretly crave to talk to the guy who runs their market risk division - how on earth does he get clearance to hold such a huge overnght delta position is beyond me. But this week was nice, erh? Vols are back baby - Friday wasn’t that eventful though. I didn’t pay much attention to Asia but China closed ~3684 - wow!
+1
Bloomberg generally does things wayyyy better than any other news channel - but you’re right about HK. My ranking of bloomberg’s team = HK>EU>US
During the few months I was working from mumbai, I was watching Bloomberg’s HK team and I have to say, it was all the news I needed without the fluff. That said, they should probably talk more about smaller markets like Indonesia, Malaysia, etc
The US segment used to be my go to resource for trade ideas but the quality sure has dipped recently.
More wild China news this weekend, a “market stabilization fund” [facepalm] launches Monday morning.
“The Securities Association of China said Saturday in a statement on its website that a group of 21 brokerage firms led by Citic Securities Co. will invest the equivalent of 15 percent of their net assets as of the end of June, or no less than 120 billion yuan ($19.3 billion) in total, to set up a stock-market fund. The fund will invest in exchange-traded funds of highly capitalized stocks, it said. The funds should be available by 11 a.m. on Monday, Caijing said in a separate report.”
Clearly part of the continued effort to push the wild Chinese retail investors out of the overvalued small caps, into the undervalued large caps. They’ve been attempting this all year by pushing the A50 ETFs (allowing futures, derivatives, and institutional buyers). It’s not so much that the overall market is overvalued (subjective), it’s just skewed so strangely; a small count of mega-caps at 6-10X, and a large count of small-caps at 60X+.
The institutions could actually come out of this with nice gains, while the retail dummies get crushed (retail leveraging down, realizing losses and running to safety in either cash or large-caps, where the institutions already reside and are increasing bets). I bought China State Construction on Friday when it dipped -9.5%, just too cheap to pass up. I might get slaughtered this week, but I like that all the brokers are behind me trying to prop up that side of the market! Doubt any fund can hold things together alone though, the mob needs to get behind it.
This is really something - I haven’t been in the business that long but I can’t remember the last time a group of brokerage firms or FI’s chipped in to save the system like this. I can only recollect the case of 1929 crash when a few investors like JP Morgan pooled some cash together to instil confidence in the system.
I concur with the opinion expressed in the article you shared that none of these measures are going to help the market - in fact, to me, these measures confirm that the government and PBOC are nervous. Also, there is no way that these brokerage firms independently decided to chip in for the stability fund
Finally, curbing IPO’s was probably the worst thing they could’ve done - isn’t it obvious that market conditions aren’t right for listing a firm? It doesn’t help anyone when the govt says you can’t list - one of those moments when inaction is a better alternative.
LOL, I just sold the China State Construction and Saic Motor stocks that I bought in the last 10 minutes of trading on Friday, for 9.1% gains each in Monday opening auction. TVM that biatches, 9% in around 12 minutes of market time!
WTF