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Tuesday, July 7, 2015
Nearly 25% of Chinese stocks have stopped trading
According to Bespoke Investment Group, China's stock markets have now lost $3.25 trillion...
Is this the Wholenchilada ready to be served up as the World Economy takeseveral BIG HITS,
The turmoil in China's stock market is so bad that some companies are calling it quits.
Over 700 Chinese companies have halted trading to "self preserve," according to the state media. That means about a quarter of the companies listed on China's two big exchanges -- the Shanghai and Shenzhen -- are no longer trading. China's stock markets are in trouble. The Shanghai Composite Index has fallen over 25% since mid-June. The Shenzhen, which has more tech companies and is often compared to America's Nasdaq Index, is down even more. Related: Forget Greece. China is the real problem The government has taken extraordinary steps to try to prevent further damage. The Chinese central bank made a surprise rate cut at the end of June. Then China's securities regulator stopped initial public offerings on the exchanges. Over the weekend, over 20 of China's top brokerage firms publicly pledged to buy back stocks and funds in an effort to slow the downfall. The firms expect to spend at least 120 billion yuan (about $19.3 billion). "The government is taking good care of the stock market," China's vice commerce minister said this week. But investors clearly aren't convinced. China's stock market has been undergoing wild swings where it will open up as much as 5% and then end the day down that much or vice versa. Both the Shanghai Composite and Shenzhen indexes fell again on Tuesday. According to Bespoke Investment Group, China's stock markets have now lost $3.25 trillion. To put that in perspective, that's more than the size of France's entire stock market and about 60% of Japan's market. While it's a top issue for China, few foreign investors have much exposure to these stock markets. The real concern for those outside China is an economic slowdown, not so much the stock market fluctuations. "We reiterate that selling global risk assets on fears of Chinese 'contagion' driven purely by stock declines is a fool's errand," Bespoke wrote in a morning note. Related: Foreign investors can't ignore China's crazy stock market Related: China spends billions to prevent stock market crash
China stocks plunged in early trading on Wednesday, even as regulators worked to contain a crisis that has wiped trillions of dollars off the country's stock markets.
The Shanghai Composite plunged 8% at the market open on Wednesday, before recovering to trade 4% lower by mid-day. The vast majority of stocks listed on the benchmark index were down by 10%, the maximum limit stocks are allowed to fall before being halted. The smaller Shenzhen Composite was off by 3%.
"At the moment there is a mood of panic in the market and a large increase in irrational dumping of shares, causing a strain of liquidity in the stock market," China Securities Regulatory Commission said in statement.
Since June 12, the Shanghai Composite has lost an unnerving 32%. The Shenzhen market, which has more tech companies and is often compared to America's Nasdaq index, is down 41% over the same period. The government is now doing everything it can to rescue the markets. The People's Bank of China has cut interest rates to a record low, brokerages have committed to buy billions worth of stocks, and regulators have announced a de-facto suspension of new IPOs. The CSRC said Wednesday that it was actively working to relieve a liquidity crunch in the market. But investors clearly aren't convinced by government efforts. China's stock market has been undergoing wild swings, sometimes opening with a spike of as much as 7%, before ending the day down by that much. At least 1,430 of the 2,776 companies traded in China have elected to pull their shares as markets continue their crazy roller-coaster ride, according to state media. The number keeps ticking upward -- on Wednesday morning alone, hundreds of firms announced a halt in trading. Related: Bargain hunting in the Chinese stock rubble The most compelling theory why the stock bubble burst: Chinese economic growth is the weakest it's been since 2009. Share prices got way ahead of growth and company profits, which are actually lower than a year ago. "China's stock market had become detached from the reality of China's own economy, and appallingly overvalued," Patrick Chovanec, managing director at Silvercrest Asset Management, said on Twitter. "This is gravity taking effect." Related: China fears crash into gold, copper markets According to Bespoke Investment Group, China's stock markets have now lost $3.25 trillion. To put that in perspective, that's more than the size of France's entire stock market and about 60% of Japan's market. While the volatility is a major issue in China, few foreign investors have much exposure to these stock markets. The real concern for those outside China is an economic slowdown and wider impact from a fluctuating stock market, rather than the market swings themselves.
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