China "Arrests" Falling Markets, Literally.

At last the Chinese markets that had gone into a catering freefall since mid-June wiping out over 30% in its market cap have begun levitating again this Thursday.

The Shanghai Composite rose 5.8 per cent, its biggest one-day gain since 2009. The Shenzhen market rose 3.8 per cent, and the small-cap ChiNext board added 3 per cent. In Hong Kong, the Hang Seng index rose 3.7 per cent, while the China Enterprises index climbed 3.1 per cent. A number of Hong Kong-listed exchange traded funds tracking mainland Chinese markets soared, with iShares’ popular FTSE A50 fund up over 13 per cent.

But to make this “miracle” happen the Chinese authorities -Central Bank/Market Regulators/Local bodies- had to throw in everything they had, yes, including the police, to douse the fires engulfing the markets. Finally, the markets have taken a pause from panic, at least for now. What all did the Chinese do to stop markets from taking this “reality check” too seriously?
The Timeline:
  • 9 July: The Public Security Ministry will help the China Securities Regulatory Commission [CSRC]: Chinese police vow to “punch back” against alleged illegal market activities [ft.com] & investigate evidence of “malicious” short selling of stocks and indexes, as the government works to stem a stock plunge that has erased $3.9 trillion in market value.
  • 9 July: China’s securities regulator suspended reviews of initial public offerings and other share sales after terminating issue of IPOs few days earlier.
  • 9 July: China’s Banking regulator to allow lenders to ease Margin Requirements for “some” wealth management clients and to encourage financing of share buybacks by companies.
  • 9 July: CSRC said that China Securities Finance Corporation [CSFC], a government backed fund, to provide “abundant liquidity” to “steady market.
  • 9 July: Dozens of companies requested their shares to be halted from trading to join a list over 1400 companies [almost 50% of trades companies] whose shares have already been suspended for trading. 
  • 8 July: The CSRC said Wednesday that investors with holdings exceeding 5 percent as well as corporate executives and directors are prohibited from selling stakes for six months.
  • 8 July: Chinese regulators try to talk up the market with another series of support statements and measures, most of them in the morning before market open, raise margin requirements for short positions taken against the small-cap CSI500 Index, and make it easier for insurers to buy blue chips.
  • 5 July: China state-owned investment company Central Huijin Investment Ltd says it has recently purchased exchange-traded funds (ETFs) to support the market and will continue to do so. The CSRC announces that People’s Bank of China (PBOC) will inject liquidity directly to the state-backed margin finance company to stabilize the tumbling stock market.
  • 4 July: China’s top 21 securities brokerages pledge to invest at least 120 billion yuan ($19.33 billion) collectively to help stabilize the country’s stock markets. Twenty-eight Chinese companies planning to list on the country’s stock exchanges say they would suspend their initial public offering plans.
  • 3 July: China Financial Futures Exchange (CFFEX) suspends 19 accounts from short-selling for one month, sources with direct knowledge tell Reuters.
  • 2 July: The CSRC announces relaxation of rules on margin trading before market open, lowering threshold for individual investors to trade on margins and expanding brokerages’ funding channels. The CSRC announces setting up a team to look into illegal manipulation and investigate cases if needed.
  • 1 July: After markets close, the Shanghai and Shenzhen stock exchanges announce plans to lower securities transaction fees by 30 percent from August.
  • 29 June: China says it will allow pension funds managed by local governments to invest in the stock market for the first time, potentially channeling more than 1 trillion yuan ($161 billion) into the equity market. The China Securities Regulatory Commission (CSRC) issues a statement, attacking pessimists for “talking down” the Chinese market and economy, urging investors to remain calm.
  • 27 June: China’s central bank cuts guidance lending rates and trims the amount of cash that some banks must hold as reserves to increase liquidity and lower borrowing costs.

    Chinese Authorities have cajoled, lured, Shouted, Bullied, Threatened, Suspended, Barred, and now even unleashed Police to stop the markets plunging to the “elusive” bottom. With half the market suspended and the other half backstopped, the markets have been tranquillised at the moment. But for how long? It looks like that the Central Banks everywhere are looking every bit clueless and hopelessly powerless to guide economies. The days of Omnipotency are over after years of profligate behaviour.
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