
China Trade Halts Locks Up $2.2 Trillion of Shares, Freezing Market - sharetea
http://www.bloomberg.com/news/articles/2015-07-08/china-trade-halts-hit-2-2-trillion-as-state-intervention-fails
======
MarkMc
For a taste of what Chinese investors are going through I highly recommend
Galbraith's "The Great Crash 1929" [1]. He gives fascinating insights into to
the mania and crash of the market and the futility of the authorities to prop
it up. Here's an excerpt:

 _The worst continued to worsen. What looked one day like the end proved on
the next day to have been only the beginning. Nothing could have been more
ingeniously designed to maximize the suffering, and also to insure that as few
people as possible escape the common misfortune. The fortunate speculator who
had funds to answer the first margin call presently got another and equally
urgent one, and if he met that there would still be another. In the end all
the money he had was extracted from him and lost. The man with the smart
money, who was safely out of the market when the first crash came, naturally
went back in to pick up bargains. The bargains then suffered a ruinous fall.
Even the man who waited for volume of trading to return to normal and saw Wall
Street become as placid as a produce market, and who then bought common stocks
would see their value drop to a third or a fourth of the purchase price in the
next 24 months. The Coolidge bull market was a remarkable phenomenon. The
ruthlessness of its liquidation was, in its own way, equally remarkable._

The rumors in China about malevolent foreign influence on the market also echo
the 1929 crash. Galbraith again:

 _What was perhaps the last word on the policy of reassurance was said by
Simeon D. Fess, the Chairman of the Republican National Committee: "Persons
high in Republican circles are beginning to believe that there is some
concerted effort on foot to utilize the stock market as a method of
discrediting the Administration. Every time an Administration official gives
out an optimistic statement about business conditions, the market immediately
drops." _

[1] [http://www.amazon.com/Great-Crash-1929-Kenneth-
Galbraith/dp/...](http://www.amazon.com/Great-Crash-1929-Kenneth-
Galbraith/dp/0547248164)

~~~
kvcc01
It seems the indices are down 30% or so from their prior highs, which is
unpleasant but nothing like the 1929-32 period. Even Nasdaq had cratered far
worse in the early 2000s. By comparison, Dow Jones went from 381 to 41 in just
about 3 years from its 1929 high, which is an astonishing 90% loss. Actually I
didn't know it was that bad until I looked it up.

~~~
azernik
30% in less than a month, compared to 90% over 3 years.

If you're comparing apples to apples (first few weeks of the American crash of
1929 to the current Chinese crash) the numbers look very similar.

~~~
simonh
The Chinese stock market hassufefred rampant manipulation to ramp it up, and
is now correcting itself. Even with the steep drops so far it's still well up
over the last 12 months, after all. All this means is that those rises were
not justified and are being wound down. The government's panicked response
isn't helping, and the fall may well be more severe than the economic
realities justify, but what's new?

There is no severe immediate risk of a depression in China. Their stock market
is relatively very small compared to their economy as a whole and Chinese
firms as a whole are nowhere near as dependent on it for raising capital as in
western countries. Therefore the ammount of damage any fall in the stock
market can do to the Chinese economy is fairly low.

The Chinese leadership has staked a lot of it's credibility and prestige on
the rises in the stock market, as evidence of it's good economic management.
As a result they, and anyone wantign to curry favour with them, were hyping up
the market and blowing air into the bubble as hard as they could. Bad mistake.
They'll learn.

~~~
redwood
I hope you're right. But reading about firms that are raising loans with their
stock as collateral. .. shall we say while staying true to your point are
perhaps nevertheless even more exposed than your model's worst case. Only time
will tell.

~~~
simonh
Sure, you're right to be concerned, it's no picnic. Some companies will go
bust, and some investors will lose their shirts. It will hurt. It's not yet a
systemic risk though. Of course the more the Chinese government panicks and
tries to manipulate the market back up again, the worse it will get but right
now it doesn't have to be all that bad.

------
JimmyM
Given that Chinese investors have been buying significant amounts of real
estate abroad ([http://uk.reuters.com/article/2014/07/30/uk-china-
property-o...](http://uk.reuters.com/article/2014/07/30/uk-china-property-
overseas-investment-idUKKBN0FZ0HY20140730)), does anyone have any idea what
this will mean for housing in other countries?

Higher house prices? (Chinese bears fleeing to overseas property like American
bears flee to gold)

Lower house prices? (Chinese investors attempting to recoup their losses/keep
enough cash on hand to pay their debts and other obligations)

Neither/something else? (perhaps Chinese real estate investment has a
negligible effect on house prices)

This is a significant question for me because house prices in the UK are far
too high for my partner and I to have much chance of ever buying a property,
at present, even with a very healthy deposit.

~~~
evgen
Chinese buyers have a much bigger impact on the western coasts of the US and
Canada (Vancouver specifically) than they do in the UK. Foreign buyers in the
UK are mostly European or from the Middle East and conditions in both places
are probably making people favor parking capital in the UK.

If you are Chinese and able to get your money out of the country and into
foreign property you would probably hold on to that property for as long as
you possibly can; by being outside of China it is worth far more than anything
you might use to cover domestic debt.

------
gesman
>> “The market has failed,” said Hao Hong, a China strategist at Bocom
International Holdings Co ...

In his view the market would "succeed" if it would always go up? Strategist?
Seriously?

>> ...failed to revive confidence among stock investors...

Depends on which side of trade you are. Investors who are put holders are not
complaining ...

~~~
npalli
>In his view the market would "succeed" if it would always go up? Strategist?
Seriously?

No, I think the Chinese genuinely believed the stock market would channel the
excess savings that households have into private and public companies in a
controlled manner. There is a genuine mismatch, the households save more than
30% with no place to invest while the corporate sector is burdened with debt
thanks to overgenerous lending after the financial crisis.

What was supposed to be a gradual 15-20 year stock rise and conversion of debt
into equity has become a boom and bust in a year or so. It also looks like a
lot of small time investors piled on at the peak and might be looking at large
losses. So kind of sucks for the small time Chinese investor who was looking
for some growth (since they cannot invest anywhere else - property is already
bust)

~~~
prewett
This sounds like a conspiracy theory to me. The only way you could transfer
money from households to corporations via stock would be if the households
bought IPO stock. Once a stock is sold through the IPO, it doesn't matter what
the price is, the company doesn't get any of that money.

~~~
sologoub
Companies issue stock all the time for various needs, such as compensation and
purchases of other entities or even additional market offerings...

------
iofj
The thing you got to wonder about is : they're trying to stop a panic. Is this
going to stop the panic or reinforce it ?

My money's on reinforce. And it's (thankfully) out of China.

~~~
curiousjorge
well this is a clear signal that Chinese government has failed to control the
stock market. I can't believe how naive they were thinking they could control
something that is traditionally found only in non-command economies.

My guess is that they are going to come up with some bullshit like foreigners
are driving down the stock prices, blame the Western devils for being
homeless.

Well, it's not like people are going to go up to arms about it, it is a
communist country after all, and we've seen how well Soviet Union did in
keeping people in check even at the shittiest time.

~~~
VintageCool
Foreigners can't invest in China's stock market.

~~~
seanmcdirmid
Sure we can. As long as we earn RMB and live in China, not that this tempts
me.

~~~
desdiv
Applying the principle of charity[0], I interpreted "foreigner" in this
context as:

>Foreigner may refer to: Alien (law), a person in a country who is not a
citizen or permanent resident of that country.[1]

If someone earns RMB and lives in China, then presumably they're either a
citizen or a permanent resident.

[0]
[https://en.wikipedia.org/wiki/Principle_of_charity](https://en.wikipedia.org/wiki/Principle_of_charity)

[1]
[https://en.wikipedia.org/wiki/Foreigner](https://en.wikipedia.org/wiki/Foreigner)

~~~
seanmcdirmid
Oh, the Chinese definitely don't see it that way. I'm sure my Chinese name is
laowai because that is what I'm called everywhere.

I'm neither a citizen, nor a permanent resident. The Chinese don't hand out
greencards easily (maybe a few hundred a year) and even then often only to
people of Chinese descent.

------
rrggrr
This is a deflationary spiral playing out in a predictable manner. First
commodities declined, hard. Balance sheets and earnings fell. Real estate
falling. Equities now rocked, the effect amplified by fear and increasing
uncertainty. There is about 2 trillion of US dollar reserves on China's
balance sheet, and I am guessing that number will decline by half in the
months, possibly years to come.

~~~
shostack
What would you expect to occur in terms of impact to the US and rest of the
world?

~~~
rrggrr
China probably will liquidate treasury holdings to fund their margin bank and
other stimulus, and they will do it at a loss because global uncertainty is
forcing yields down. Put simply, a lot of USD sequestered on China's balance
sheet will find its way back into global commerce. Thankfully.

------
Magicstatic
Serious question: How difficult is it to short the entire Shanghai Composite
Index? Would it even be possible to place a trade?

~~~
PublicEnemy111
I would buy put options instead of a naked short. I know it looks like an easy
trade right now, but the Chinese govt. can be unpredictable. Even if you're
right over a 6 month period, you can still blow up in the short term

~~~
TorKlingberg
Yes, be careful. Just two months ago HN:ers were asking how to get in on
Chinese stocks as they were going up 10% every day:
[https://news.ycombinator.com/item?id=9471858](https://news.ycombinator.com/item?id=9471858)

------
jpmattia
I always wondered what evidence there is that a trading freeze would stabilize
a market.

Considering the US market has trading halts as well, US regulators should take
note: Sometimes a stock goes down because it should.

~~~
coliveira
I think it is OK to have trading halts for particular situations. For example,
a stock may be going down quickly just because of a wild rumor. Halting trade
for the day may give time to investors, so they can consider what the facts
are before taking a more informed decision. On the other hand, I agree with
you that trade freezes are not enough to fix true underlying issues -- as it
seems to be the case with China.

~~~
hueving
Even a wild rumor is a stupid reason to halt trading. If someone is dumb
enough to believe it and they sell their shares at a massive discount, it's
not the job of regulators to stop that.

~~~
justin66
Of course it's even worse: those halts punish the ones who do not believe, and
who understand what is going on.

------
jldugger
This is the sort of reason why I ignore the advice to put some trifling
portion of my portfolio in emerging markets.

That and the high expense ratios.

~~~
Mikeb85
Had you bought a Chinese index share a year ago, you'd still be up around
100%...

~~~
iofj
Not really. The value of a thing is what someone else is willing (and able) to
pay for it.

Therefore the value of a Chinese share, at the moment, is $0. In practice it's
even negative, as you'll still be paying fees for your brokerage account.

~~~
Mikeb85
Chinese shares aren't trading at 0. Trading automatically halts after a
certain percentage drop on the SSE, it's normal, although not for so many
stocks to drop at once. Tomorrow those shares will resume trading, and it
won't be at 0.

You can see the alternative on the HK market, where some stocks are 15-20%
down for the day.

You can proclaim the world is ending, I'll be buying at the bottom. While the
volatility is a little crazy right now, it's not the end.

~~~
yequalsx
"...I'll be buying at the bottom."

When I went to casinos for fun I never heard anyone admit they lost money
gambling. This statement reminds me of gamblers who never admit they lost. You
can't predict the bottom. It is highly unlikely that you will actually buy at
the bottom. You were speaking hyperbolically I know but the sentiment is a bad
one to have when it comes to investing and gambling.

~~~
AustinG08
The stock market is inherently different than going to the casino. Buying at
the bottom is hardly a bad sentiment to have when it comes to investing,
especially when it comes to making swing trades in thoroughly researched
businesses.

~~~
forgetsusername
> _Buying at the bottom is hardly a bad sentiment to have when it comes to
> investing,_

Buying at the bottom is sheer _genius_. Being able to actually do it in
practice, however, is another story, despite how much you've "researched
businesses".

------
tiatia
The NY Times has a detailed explanation of how the market got into trouble,
and why it's not likely to fix itself overnight: "Put all these pieces
together, and here's what we have: a rise in Chinese share prices in the last
year that seemed to be driven more by investor psychology than by anything
fundamental."

Ouch. Stock prices follow fundamentals, if at all, only in the longest terms.

------
curiousjorge
so what's gonna happen tomorrow?

~~~
Mikeb85
Either another drop, or maybe a rebound? My money's on a drop, the SSE is only
now crossing the 150 day moving average. But it won't last too much longer.
I'd start freeing up some money to buy shares, but be very cautious for the
immediate future.

~~~
curiousjorge
what makes you think it will rebound?

btw, god damn, we need a HN for traders.

~~~
Mikeb85
I don't think it'll rebound tomorrow, but it will eventually (next week?). The
fundamentals are all the same, the valuations just got too high. Right now its
just panic selling. Most of the stocks I'm following are still higher than I
bought them for initially.

~~~
curiousjorge
what makes you believe this is a panic selling? not trying to put you on the
spotlight, genuinely curious to hear all sides

~~~
Mikeb85
Just the fact that nothing has changed fundamentally. The companies are more
or less the same as a month ago.

~~~
rrggrr
Must disagree. The companies asset values are in decline. Raw materials,
machinery, real estate... All down. A bounce in bids cannot change the
underlying reality.

~~~
Mikeb85
A decrease in the cost of inputs is good for businesses. China will be fine.

~~~
TheRubyist
aren't the cost of input the lowest in the world already in china ? Why they
go down if so ?

------
duncan_bayne
[http://www.quickmeme.com/img/3b/3bcf43f1e32c11142f206cc2501f...](http://www.quickmeme.com/img/3b/3bcf43f1e32c11142f206cc2501fb2a809a043f1c67fdb942f4965f077570dbe.jpg)

