
Chinese Markets Halted, Equities Plunge Another 7% - jayess
http://globaleconomicanalysis.blogspot.com/2016/01/china-markets-halted-in-14-minutes-17.html
======
chollida1
China unfortunately created stock market but doesn't have the requisite pieces
to allow one to operate properly.

For a fully functioning stock market you need:

\- capital, which they have

\- speculators, to make trades happen, they have these

\- transparency in how your market works, or atlest the appearance that the
market is fair to all

\- and you need stoggy old buy/hold/long only investors. China is missing
these.

In most markets the latter is done by ETF retirement investment and pension
plans who have to invest 100's of billions of dollars each year.

The scariest thing about this for the global equity markets is that in 10-20
years the top 3 markets could be China, India and the US.

Whether or not you like the US stock market, it is fairly transparent and not
run by the whims of the government. The other two countries are about as
opaque as you can be. Speaking as a person who actively invests money, that's
a very troubling thought.

As one economic nobel prize winner put it... "China and India haven't put out
a credible macroeconomic number in the past 10 years".

China is also loosing alot of money each month trying to support the yuan. I
saw a credible estimate of about 100 billion a month since October.

~~~
danbruc
So why are people then trading stocks in China or India or wherever if they
don't trust the system? They wouldn't be able to become the largest stock
markets if nobody would trade there and there would be nothing to be scared
by.

~~~
braythwayt

      > So why are people then trading stocks in China or India or
      > wherever if they don't trust the system?
    

If you're speculating, i.e. purchasing for the sole purpose of selling it to
someone else, who is also speculating, it doesn't matter whether the system is
trustworthy, it only matters whether there is a "greater fool" standing ready
to trade with you.

If the perception is there that people are trading in these markets, people
will trade in these markets. But without fundamentals, the whole thing can
quickly suffer from a collapse in confidence, followed by a "run."

It's no different than buying Bitcoins. Why speculate in bitcoins? Because
other people are speculating in bitcoins.

~~~
solotronics
I have been playing a fun game where I see if a financial article on YC has
bitcoin mentioned in the comments. It is in basically every comment section of
anything related to finances. Personally I speculate in Bitcoins as a hedge
against variations in cash and stocks. I like to think of it as e-gold that
has some advantages and disadvantages versus a solid asset like gold. Due to
the increasingly global and digital nature of our existence I think BTC has a
very high potential upside.

------
c-slice
Median P/E for Chinese stocks is ~58. This is ~3x higher than every other
major exchange. This is just part of a much larger correction.

[http://assets.bwbx.io/images/iIS_j8I_fYlI/v2/-1x-1.jpg](http://assets.bwbx.io/images/iIS_j8I_fYlI/v2/-1x-1.jpg)
Source: Bloomberg

~~~
nikcub
Those PE's made sense (to some/most) when the economy was growing 8-9% and
revenue was following that growth, but now that it is down to ~3% with revenue
following (or shrinking for a lot of the larger companies) those prices really
need to come down and might even be discounted to reflect regulatory risk.

The hedge funds who saw this coming are doing very well at the moment [0] [1]

[0] [http://www.barrons.com/articles/hedge-fund-posts-strong-
gain...](http://www.barrons.com/articles/hedge-fund-posts-strong-gains-by-
shorting-china-1440825847)

[1] [http://www.bloomberg.com/news/articles/2015-11-17/hedge-
fund...](http://www.bloomberg.com/news/articles/2015-11-17/hedge-fund-
gaining-138-says-china-short-targets-easier-to-spot)

~~~
dmix
Doesn't this projection depend on the assumption these companies operate
entirely within China and not global markets?

~~~
nikcub
Chinese growth was becoming less dependent on exports as global demand
flattened out:

[http://www.usfunds.com/media/images/frank-talk-
images/2012-f...](http://www.usfunds.com/media/images/frank-talk-
images/2012-frank-talk-images/2012-ft-jan-jun/ChinaGDPgrowth-041212.gif)

The current growth slowdown is largely due to decreased domestic consumption
growth:

[http://www.brookings.edu/~/media/Research/Files/Blogs/2014/0...](http://www.brookings.edu/~/media/Research/Files/Blogs/2014/04/22-china-
growth-data/china-contributions-gdp-growth-dollar-2.jpg?la=en)

Of the top listed companies in Shanghai, most are banks, petro, insurance,
energy, etc. that are domestic driven (the SSE website is down at the moment
but the list is here:
[http://english.sse.com.cn/listed/list/](http://english.sse.com.cn/listed/list/))

I don't think there were many expecting that a public company investment in
China would be supported by exports.

------
evanpw
They've already given up on the circuit breakers:
[http://www.cnbc.com/2016/01/07/chinese-securities-
regulator-...](http://www.cnbc.com/2016/01/07/chinese-securities-regulator-
suspends-market-circuit-breakers.html).

~~~
jcyw
Interesting. Considering they stop people selling stock last time. Ha. Lets
keep an eye.

~~~
tyre
They don't stop people from selling. Circuit breakers are useful for one-time
flukes (e.g. Flash Crash) but for sustained downturns they can actually make
things worse.

If you think you _may_ want to sell at all tomorrow but also think a circuit
breaker could trigger, you're going to sell first thing in the morning. So
will everyone else.

The circuit breaker can actually trigger a worse panic as investors all try to
squeeze in sell orders at once. This triggers the circuit breaker, confirming
everyone's fears, and starts again the next day.

~~~
fleitz
It makes it worse when they say they are propping up the market, if the market
is at a relative peak and daddy warbucks shows up saying he'll buy anything no
matter the cost, of course everyone is going to get out while the getting is
good.

------
chvid
A thing to remember in this are the sizes of the various markets.

NYSE, the largest in USA, has a combined market value of 20 trillion dollars,
whereas the largest in China (Shanghai Stock Exchange) has a combined market
value of 4 trillion. This is for two economies of about the same size.

This means that when the Chinese market drops (or raises) the overall impact
for the wealth of the country is much smaller than a similar change would
cause in the American markets.

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

~~~
doyoulikeworms
While GDP (PPP) of China and USA are similar, this isn't the same as saying
that their _wealth_ is similar.

The USA's net national wealth is about $85 trillion, while China's is about
$22 trillion. I have a feeling that a much larger proportion of the USA's
stock market is held by foreigners compared to China.

It is possible that drops (or raises) in the Chinese market actually affect
Chinese wealth _more_ than in American markets...

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

~~~
dmix
I'd be more interested in what percentage of the US stock market vs China is
held by a tiny percentage of the population vs a broader public. Reductions in
wealthy by a tiny minority has a smaller impact than the latter when looking
beyond statistics.

------
myth_buster

      So... in about 15 minutes of trade in China, a whopping 
      $637 billion in market cap was wiped out.
    

From yesterday [0]... that's more than the GDP of some countries.

[0]
[https://twitter.com/DavidInglesTV/status/684922104412672001](https://twitter.com/DavidInglesTV/status/684922104412672001)

~~~
eterm
But that's just market cap, which isn't comparable in any way to GDP.

Both are measures of very different things, and both are very different to
actual money.

~~~
arasmussen
> Both are measures of very different things, and both are very different to
> actual money.

I don't really agree with you.

GDP measures the value of goods and services produced by a country over a
specific timeframe.

Market cap (in this context) measures the value of all companies listed in the
stock exchange.

Both are ways to measure an economy, and both are measured in units of money.
What's the difference between money and "actual money"?

~~~
mamon
Here is some enlightening story:

Tourist walks through some distant mountain village and meets the villager
shouting "My dog is for sale". So the tourist asks

"How much for your dog?" "$1 million", villager replies.

Tourist just sighs and continues his walk. Later the same day tourist is
coming back. He meets the same villager, so he asks:

"Did you sell your dog?" "Yes,to my neighbor, for $1 million" "Really? And he
paid in cash?" "No, he gave me two cats, but they are $500.000 each"

The market cap valuation works in exactly the same way.

~~~
robwilliams
Doesn't that just prove that 1 dog = 2 cats and not that anyone was actually
willing to pay $1 million for the dog? People are spending real money, that
they could equally well as spend on other things, on stocks - they're not just
trading stocks, correct? The man in your story couldn't actually sell the dog
to someone for $1 million, but people who own stock can sell for cold cash.

Or am I wrong?

~~~
ncallaway
For small trades on the public market yes, you can trade for cash at
approximately the price listed on the exchange at that moment in time.

If Bill Gates wanted to liquidate his Microsoft stock, though, it's unlikely
that his sale price would match the exchange. Once you get into trades of a
significant portion of the company, there's not enough guaranteed to be enough
liquidity at price listed on the exchanges.

------
Mikeb85
For some perspective look at the Shanghai composite's chart since 2000. The
price is still above its 50 day moving average...

[http://finance.yahoo.com/echarts?s=000001.SS+Interactive#{"s...](http://finance.yahoo.com/echarts?s=000001.SS+Interactive#{"showSma":true,"smaColors":"#cc0000","smaPeriods":"50","smaWidths":"2","smaGhosting":"0","range":"max","allowChartStacking":true})

This is hardly some sort of disaster or the end of China's prosperity. Just a
bump in the road for investors.

------
roymurdock
On August 23rd, 2015 China announced they would be allowing pension funds to
invest in the domestic stock market for the first time ever. [1] Funds were
"allowed" (why would they want to invest in a falling, low-confidence market?)
to invest up to 30% of net assets. Clearly the government wanted to allow
liquidity to flow into the market and calm investors, and it seems to have
worked for ~6 months.

So now the average Chinese consumer will be double-hosed: once over by losses
to their personal retail brokerage account, and again by losses sustained by
their pension funds.

Hopefully enough Chinese consumers made enough money from the crazy ride up on
the market that they cashed out periodically and invested in sensible hard
assets such as homes and cars. Because the correction will probably be very
painful.

[1] [http://www.theguardian.com/world/2015/aug/23/china-to-
allow-...](http://www.theguardian.com/world/2015/aug/23/china-to-allow-
pension-fund-to-invest-in-stock-market-for-first-time)

------
dsugarman
Tomorrow, they will let it fall[1]

[1][http://www.bbc.com/news/business-35253188](http://www.bbc.com/news/business-35253188)

~~~
melvinmt
Well, then it's time to buy ProShares UltraShort FTSE China 50
[http://www.etf.com/FXP](http://www.etf.com/FXP)

~~~
hornbaker
Caveat emptor: [http://www.thestreet.com/story/10457663/1/the-perils-of-
the-...](http://www.thestreet.com/story/10457663/1/the-perils-of-the-
proshares-ultrashorts.html)

------
grandalf
What is a price? It's the amount two people agree to transact for, nothing
more.

Price trends don't necessarily mean anything, and corrections are _good_ as
much as they are bad.

A correction means the previous price was incorrect, yet when prices fall
humans sentimentally believe the old, higher price must have been correct.
It's ridiculous.

Governments take extensive measures to control prices and to alter public
perception of risk. Sometimes this adds stability to prices, but it often sets
things up for a more drastic correction later.

Some investors are over-leveraged and must cash out to avoid ruin. Others are
speculators trying to ride various trends, but in the end we all benefit from
prices being corrected.

~~~
fleitz
> yet when prices fall humans sentimentally believe the old, higher price must
> have been correct. It's ridiculous.

Only sellers believe this, buyers believe that the old lower price was correct
and they are being gouged. (See anyone who tries to buy a generator _after_ a
hurricane)

------
whiddershins
I wonder if the auto-halting behavior makes the problem worse, not better.

Psychologically, if you know the markets will close if they drop too fast, it
might actually encourage traders try harder and rush faster to be the first
one to sell off more stocks that day before time runs out.

------
s_q_b
The Chinese stock market is so far divorced from the real Chinese economy as
to be a joke. The government intervention is direct and strong, far stronger
than anything we saw in 2008.

These companies' listed values might have well have been picked by a roulette
wheel.

~~~
rchaud
What numbers are you comparing though? The headline figure for TARP in the US
was $700 billion, but even the GAO audit cannot perfectly trace how much it
actually cost, as opportunity cost can't be calculated. Financing TARP took
resources away from infrastructure projects or other projects for which
positive economic externalities apply directly to society, not just
bondholders.

China has 4x the population of the US. How "big" would the intervention have
to be to be stronger than anything in 2008?

~~~
adventured
TARP was fully repaid. It didn't take money away from routine infrastructure
spending. TARP was financed through deficit spending, and it never amounted to
$700 billion as it was reduced to a limit of $475 billion. The final tally was
$426b put in, $441b repaid.

At this point China has thrown roughly a trillion dollars just at trying to
prop up their stock market [1]. That doesn't include what they've burned
trying to control their currency, what they've spent trying to keep their real
estate bubble from completely falling apart, and what they've spent dealing
with zombie companies and their vast shadow corporate and muni debt, and so
on.

[1] [http://uk.reuters.com/article/uk-china-markets-rescue-
idUKKC...](http://uk.reuters.com/article/uk-china-markets-rescue-
idUKKCN0PX0AU20150723)

~~~
s_q_b
A nit I'd like to pick is also that China has a vastly smaller PPP adjusted
total GDP. So even four times the number of people, even a guaranteed loan
program the size of TARP would be a larger intervention.

To digress a little bit, I know this may be heresy, but TARP was the single
most courageous and under appreciated accomplishment of the G.W. Bush
administration.

It's an economic miracle that when push came to shove, suddenly we were all
Keynesians again.

------
tim333
Looking at the graph the Chinese market traded around 2000 to 2500 from until
late 2014 so that's probably what its companies are worth. Since then it
doubled with speculators buying because things were going up but now that's
stopped and the companies are still worth what they are worth and so back it
goes. That's how markets are supposed to work - people but and sell stuff for
roughly what it's worth.

The current Chinese government seems to have some other bright ideas though
like trying to boost prices when there is a parade on
([http://www.slate.com/blogs/moneybox/2015/08/31/china_s_stock...](http://www.slate.com/blogs/moneybox/2015/08/31/china_s_stock_market_intervention_the_government_intervened_for_the_sake.html)).
Not sure that works long term.

------
Kinnard
[https://news.ycombinator.com/item?id=10862007](https://news.ycombinator.com/item?id=10862007)

I'm surprised there's no mention of the impact of recently rising Federal
Reserve Rates[1] on the Chinese Currency or the fact that the Yen was recently
added the IMF's Special Drawing Rights currency[2]. Since China's moves in
August I think its fair to characterize this as a currency war. And it's
Dollar Hegemony that's hanging in the balance[3]. Many have characterized it
as a war for much longer. What's different now? The proxy wars between the
United States and Russia are heating up and tensions between China and the
rest of East Asia are heating up. Western sanctions on Russia for Ukraine
pushed it toward China and that may just have been the tipping point[4]. I
find it remarkable how able the performances of equity markets are to
obfuscate the currency and bond markets that are driving them[5]. When
equities move fortunes change, when currencies move, the balance of power on
the planet changes.

[1] [http://qz.com/588049/what-the-fed-was-thinking-when-it-
final...](http://qz.com/588049/what-the-fed-was-thinking-when-it-finally-
raised-interest-rates-last-month/)

[2] [http://www.globalresearch.ca/chinese-yuan-incorporated-
into-...](http://www.globalresearch.ca/chinese-yuan-incorporated-into-imf-
special-drawing-rights-sdr-us-congress-gives-in-and-endorses-the-imf-quotas-
reform/5499619)

[3] [http://www.brookings.edu/blogs/ben-
bernanke/posts/2016/01/07...](http://www.brookings.edu/blogs/ben-
bernanke/posts/2016/01/07-dollar-international-role)

[4] [http://www.economist.com/news/china/21650566-crisis-
ukraine-...](http://www.economist.com/news/china/21650566-crisis-ukraine-
drawing-russia-closer-china-relationship-far-equal)

[5] [http://qz.com/588704/chinas-stock-market-isnt-the-
problem/](http://qz.com/588704/chinas-stock-market-isnt-the-problem/)

------
chatmasta
This sounds pretty crazy, but is it possible for the Chinese government to
manipulate the American stock markets by playing with its own stock market?

China knows that when its markets plunge, the American markets plunge too.

Is there a way for China to create the _illusion_ of its markets plunging,
without losing real value (or at least profiting from the perspective of some
influential power in China)? Perhaps they could accomplish such manipulation
through a combination of 1) collusion between the CCP and the largest
investors in the Chinese market, 2) currency manipulation, and 3) shorting of
US equities?

I know this sounds speculative and vague, because honestly I have no idea what
I'm talking about. But China certainly has the motive to manipulate American
markets. And since the foreign investment is asymmetrical (e.g. the Chinese
can invest in NYSE, but Americans cannot invest in Shanghai), China has an
opportunity to "play both sides" of a Shanghai market crash and any
corresponding American market drop, while American investors cannot do the
same.

So... is it _possible_?

~~~
justinhj
But China wants its people to feel wealthy. The property boom ended, then
there was gold boom. They wanted a stock boom. People that feel wealthy are
happy citizens. They have every reason to keep the stock market high.

~~~
mooreds
The current government doesn't want to lose the Mandate of Heaven:
[https://en.wikipedia.org/wiki/Mandate_of_Heaven](https://en.wikipedia.org/wiki/Mandate_of_Heaven)

They know their history.

~~~
duaneb
I mean, you could say the same thing every year for any ruling party for the
past millenium. I'm not convinced it's at all relevant to the conversation any
more than any government beholden to its people.

~~~
mooreds
I think the Chinese tradition of accepted regular popular revolt makes this
possibility weigh more heavily on the communist party's collective mind than,
say, that of the Indian ruling party.

------
hodder
People often point to the "ghost cities" like Ordos when declaring China to be
in a massively overbuilt real estate bubble. Yet studies such as those done by
Mckinsey below predict 350M more people moving to cities by 2030 [1]. Given
NYC has a population of about 8M, it appears China actually needs to build an
additional 44 NYC sized cities (or expand existing ones) by 2030.

Makes you question weather they really in a bubble? It appears they could fill
Ordos and 43 other new cities in the next 15 yrs! Perhaps they need to be
putting these cities up even more rapidly.

[1][http://www.mckinsey.com/insights/urbanization/preparing_for_...](http://www.mckinsey.com/insights/urbanization/preparing_for_urban_billion_in_china)

~~~
dmoy
The issue may not be that there is too much building, but that they're
building in places people aren't going to be moving to. Ordos is in inner
mongolia, and while there are a lot of people there, a lot more are moving to
the east coast cities.

Right, like if you were predicting 40% city growth in the US, the solution
would not be to build new mega cities in Utah (which has a comparable
percentage of US's population as Inner Mongolia has in China).

~~~
harmegido
Would it be outside the realm of possibility for China to mandate that people
move to those cities to fill them?

~~~
toomuchtodo
No.

------
Tistel
If you go to google finance and plot the S&P 500 for all known time you get a
chart that goes back to 1975. I see three big humps 2000, 2007 and 2015. This
is obviously not the most sophisticated analysis, but, there seems to be a
pattern were the market gets over excited and then blows off steam. Maybe we
are at the start of a correction.

The only thing that concerns me is that those market peaks/humps were due to
humans getting concerned and changing behaviour. Maybe now that most trades
are just computer to computer the Algos don't "know" to be "scared" and cool
it we might keep going up till some epic event corrects it.

I am hoping it's a 1-2 year correction that goes down 50-60 percent. But, who
knows.

------
fleitz
What China did just put out a giant flashing neon sign that they will buy any
(overvalued) asset at the current market price.

Every owner of an equity is lining up to sell their assets to the big idiot
with the giant flashing neon sign saying they will buy anything, knowing that
the more they flood the market, the more the central committee will buy.

China, you just got played, welcome to the market.

------
cenal
The great recession of 2016 has begun.

This is China finally having their 2008 and it impacting the world.

~~~
xyzzy4
I agree, it could very well prompt a recession. Also looking at the
technicals, the 1 year percent change of the S&P 500 is negative, which is a
strong recession indicator historically. The 150-300-39 day MACD also looks
bad. These indicators have both only been negative one other time since 2009,
which was in September 2015.

Lastly the US CAPE ratio is pretty bad too.

~~~
UK-AL
For the past few years, someone has predicting a recession in the next 6
months via technicals.

Technicals = Star Signs in most cases.

~~~
xyzzy4
Well have you actually run a historical trading simulation (like I did)? You
would know these indicators are far superior to a buy and hold strategy.

~~~
UK-AL
I've heard many people say the same, which then never comes true. Just because
stuff happens in the past, doesn't mean it will come true.

The fact that people know this information, changes the outcome which is why
markets are so hard to predict.

~~~
xyzzy4
There's countless different indicators and investors don't follow the same
ones, if any at all. Most people aren't computer programmers who have run
historical simulations. Just because you know something doesn't mean that
other investors do. For example I bought lots of Bitcoin when it was at $16,
because I thought I knew something other people didn't, and I was right.

The fact is if you followed the indicators that I mentioned since 1950, your
net worth growth rate would've increased at least 50% without even using
leverage. Trends in the general stock market change slowly (the price doesn't
look like random noise) and that's why it's predictable enough to beat a buy
and hold strategy.

~~~
jrockway
So are you mostly short on the S&P 500? If I was guaranteed a recession, I
would be.

I'm long on the US stock market because if US companies are good at one thing,
it's their 5% YoY growth.

~~~
xyzzy4
I was long until today. And now I'm short because of thresholds that were hit
by my technical indicators.

------
fratlas
What does this mean in layman terms?

------
jzd
What does this mean for Bitcoin?

~~~
fleitz
Nothing, the block chain fixes all this because hashes.

------
jakozaur
Maybe we should have start numbering those plunges? It's harder to follow
them.

~~~
reddytowns
I think names would be better, like they do with hurricanes.

