Chinese Stocks Suffer Second Biggest Crash In History, 1,500 Companies Halted Limit Down

Zero Hedge ^ | July 27, 2015

[Zakeet]

This was not supposed to happen.

After pledging, investing and otherwise guaranteeing the Chinese stock market to the tune of 10% of GDP, and intervening on at least 40 different occasions in the past month ever since China's stock bubble burst in late June, with the subsequent crash nearly taking the Shanghai Composite red for the year, overnight China officially lost control for the second time, when after a weak start to the Monday trading session, things turned very ugly in the last hour, when the Shanghai Composite plunged by 8.48%, closing nearly at the lows, and tumbling some 345 points for its biggest one-day drop since February 2007 and its second biggest crash in history!

[Snip]

The last thing the communist party and the PBOC wanted was another massive sell off after having not only fired the "bazooka" but come up with a different bazooka to halt "malicious sellers" virtually every day, including threats of arrest.

Nobody was spared in the selloff and of the 1,114 stocks in the Shanghai Composite, 13 closed higher on Monday.

Here, courtesy of the WSJ, are some of the more amazing numbers of today's selloff:

• The Shanghai Composite Index ended down 8.5% at 3725.56, its second-straight day of losses and worst daily percentage fall since February 27, 2007. The smaller Shenzhen Composite fell 7% to 2160.09 and the ChiNext, composed of small-cap stocks and sometimes known as China’s Nasdaq, closed 7.4% lower at 2683.45.
• More than two-thirds of the stocks in the Shanghai Composite, or about 765 companies, hit their down limit on Monday. Those limits prevented hundreds of stocks from logging sharper declines, though they can also make it harder for investors to exit positions.
• Since the Shanghai Composite peaked in June, it has lost 28% of its value. Massive intervention by authorities in Beijing engineered a rebound for the country’s stock markets earlier this month, but Monday’s selloff eroded much of that recovery.
• Although hundreds of stocks have resumed trading since the market bottomed earlier this month, 126 stocks on the Shanghai Composite are still halted.

[Snip]

The only question we have is when will people in other "developed" markets wake up to their own just as manipulated markets, and decide they too have had enough with the rigged casino.

Actually, there is another question: the last time Chinese stocks had a near-record crash, the PBOC somehow "discovered" 600 tons of gold hiding under the couch to prop up confidence. We wonder how much it will "discover" this time.

[woodbutcher1963]

http://finance.yahoo.com/echarts?s=000001.SS+Interactive#{”allowChartStacking”:true}

Fact #1
Year to date the Shanghai composite is still UP!
12/31/14 $3234
7/27/145 $3725

Fact #2
The high for the year was 5166. This was a 60% INCREASE year to date.

Fact #3
The composite was UP over 100% since last October.

Fact #4
This is not the first time the Shanghai composite has had such a huge increase followed by a huge correction. Extend above chart out to 5 years or more.

[woodbutcher1963]

http://finance.yahoo.com/echarts?s=000001.SS+Interactive#{”range”:”10y”,”allowChartStacking”:true}

Sorry, Fact #4 I meant the TEN year chart. The increase and correction from 2006 to 2008 makes the current market look like a small blip on the chart in comparison.

[Fitzy_888]

Currently, they are only threatening “malicious sellers” arrest.

We won’t know they have hit bottom until sometime after the communist party has executed sellers.

That’s how communists improve “market sentiment”.

[Mom MD]

If the world wide markets crash nothing is safe Our only safety is in Jesus He will see us through

[Sequoyah101]

My Dad was down on stocks all through the 60s and 70s... it imprinted on me. I didn’t understand why he was that way though then, I was only a child. I thought it was just his well entrenched Depression Era childhood but I see now that it was his appraisal of the situation.

In actuality, on an inflation adjusted basis the worst of the era was that an investor in 1950 had the same amount in 1982!!! That is well and truly sickening.

http://www.macrotrends.net/1319/dow-jones-100-year-historical-chart

[Mr. Jeeves]

Maoists are chomping at the bit to regain power in China, and start a new Cultural Revolution.

They'd get laughed out of town - or end up like Bo Xilai. China's new middle class is too rich and powerful for any band of old guard Communists to regain power over and the massive younger generation has zero interest in Marxist asceticism. 1949 is long gone.

Confucian authoritarianism, however, is quite freaked out by the changes in China, and that cultural clash shows no sign of ending in the next few generations. China's biggest challenge is now the same as our our own - to diminish the political power of financial frauds and operate honest markets.

[grania]

Why the attitude?

The numbers of people who sell the stock early and get a lot of cash are quite small and more often than not well connected. It's sitting somewhere or buying out companies or being used for bonuses etc. With individual investors it might be used for long-term repairs and purchases. There's no reason to put it in banks with near 0% interest. Unless you have illegal insider information, putting it in the stock market is risky.

I hypothesize from discussion threads on FR and some other stuff I've read that a whole lot of people have an increased stash hidden somewhere. The can't meet the demand sale of Silver Eagles is one indicator that might be the case.

[Starstruck]

Wouldn’t do it now or in this world market but in 1987 the guy who sat next to me at work and myself were heavily invested in a high risk mutual fund (Magellan I think) We were both about 40. In October when the market plunged 25% he went into the panic mode. I said I didn’t want to take the loss and decided to average down. Two years later I was well ahead of where I was and he was cowering with his losses in a money market fund. 40 was just too young to not ride out the market at that time.

[ken5050]

It’s a start..a good start...and it’s gonna get a whole lot worse.

[MeganC]

Time to buy.

I hear you can get some great discounts on tickets for Atlantic cruises on the Andrea Doria, Titanic, and Lusitania! You really should buy some of these since you're so bargain minded!

[Zathras]

I told my broker a year ago that things were starting to feel very similar to ‘98 and he disagreed.
Two months ago he changed his mind and agreed with me.
We have moved from investing to gambling...again.

You can make $$$ gambling, just not long term.

[MeganC]

China's biggest challenge is now the same as our our own - to diminish the political power of financial frauds and operate honest markets.

You can't regulate away corruption when the regulators are just as corrupt as the people they regulate.

[SunkenCiv]

http://www.freerepublic.com/focus/news/3317127/posts

[Carry_Okie]

Why the attitude?

Because you are being thick headed and condescending.

The numbers of people who sell the stock early and get a lot of cash are quite small and more often than not well connected.

That is not what I said. If I buy a stock for $100 a share and it loses $60 in value when I sell it, I still have $40. I still have cash to invest that will increase demand for something else. Got it now?

[grania]

My contention for that money they get that seems to disappear is that it is going into things like money and silver that's socked away. Some of it is going to that dream vacation or that necessary home repair. But not all of it is going back into the stock market or into a banking account....that wouldn't make any sense for that person who just lost so much of what they thought they were getting.

Another thing that's taking a lot of the money seniors still have left is that they're handing it over to set up annuities to at least have guaranteed monthly income while they're alive. That money is gone to the insurance company that issues the annuity, upon their death.

[2001convSVT]

LOL!

[montag813]

The equivalent of 1,487 Dow points down

[PotatoHeadMick]

“If I buy a stock for $100 a share and it loses $60 in value when I sell it, I still have $40. I still have cash to invest that will increase demand for something else.”

Wow, there are so many holes in that argument it is difficult to know where to start.

First of all, that only works if the guy bought his $100 of shares with cash that he didn’t need for anything else. However, if, as is the case with a huge number of Chinese investors, he actually borrowed $80 to buy the shares not only does he not have $40 he is actually negative $40 to some money lender. That is not a pleasant position to be in.

Second, you imply that the investor will simply shrug his shoulders, thank his lucky stars he still has $40 and look around for some place else to invest his cash, maybe Argentinian railway bonds, Nigerian oil minister’s widows or pork belly futures. But he won’t will he? His fingers will be so badly burned he will be stuffing his cash under the mattress and telling his wife to cancel the foreign holiday, sell the new Honda and take the kid out of that fancy private school. All that has a knock on effect on the economy.

Third just like the nervous investor the companies themselves that see their stock price drop by 60% will suddenly start cancelling all those plans for expansion and laying off workers by the thousand. Furthermore the banks that lent them money for previous expansion will be making phone calls asking about how they plan to repay that money.

If even in a country where the government threatens you with the midnight knock on the door if you sell stocks, half the shares on the board have delisted themselves and the directors of the remaining companies have been ordered to buy their own stock the bourse slumps 8.5% in one day then I think you can safely say you have a major problem whether you want to quibble over whether or not it is technically a crash.

[Carry_Okie]

However, if, as is the case with a huge number of Chinese investors, he actually borrowed $80 to buy the shares not only does he not have $40 he is actually negative $40 to some money lender. That is not a pleasant position to be in.

Although the Chinese are notorious gamblers, they are also savers. So, you'll have to pony up citations for that "huge number."

Second, you imply that the investor will simply shrug his shoulders, thank his lucky stars he still has $40 and look around for some place else to invest his cash, maybe Argentinian railway bonds, Nigerian oil minister’s widows or pork belly futures. But he won’t will he?

You have to put it somewhere and that has a beneficial effect for somebody. I seriously doubt many Chinese investors are enamored with mattresses. Most of the money isn't small investors.

Third just like the nervous investor the companies themselves that see their stock price drop by 60% will suddenly start cancelling all those plans for expansion and laying off workers by the thousand. Furthermore the banks that lent them money for previous expansion will be making phone calls asking about how they plan to repay that money.

So? When a crash happens, the serious money doesn't evaporate; it moves and fast.

If even in a country where the government threatens you with the midnight knock on the door if you sell stocks, half the shares on the board have delisted themselves and the directors of the remaining companies have been ordered to buy their own stock the bourse slumps 8.5% in one day then I think you can safely say you have a major problem whether you want to quibble over whether or not it is technically a crash.

From the article:

After pledging, investing and otherwise guaranteeing the Chinese stock market to the tune of 10% of GDP, and intervening on at least 40 different occasions in the past month ever since China's stock bubble burst in late June, with the subsequent crash nearly taking the Shanghai Composite red for the year,... By comparison to what happened to the US in 2008, this is a lark. Considering how far the Chinese market has risen in the last few years, I wouldn't bet that heavily on its immediate demise. They have big problems all right, but I don't see India taking their productive share so fast that it portends disaster for China.

[PotatoHeadMick]

"Although the Chinese are notorious gamblers, they are also savers. So, you'll have to pony up citations for that "huge number." " This link: https://uk.finance.yahoo.com/news/china-losing-control-stocks-crash-201139528.html " Many investors are effectively trapped with margin debt used to buy the stocks. These liabilities cannot be covered without selling the stocks. The longer the market remains partially frozen, the more likely it will lead to extreme stress. David Cui, from Bank of America (Swiss: BAC.SW - news) , said $1.2 trillion of stock holdings are being carried on margin debt. This is 34pc of the free float of the Shanghai and Shenzhen stock markets. “When the market ultimately settles at a level that can be sustained on fundamental reasons, we expect that the financial system may wobble, due to high contagion risk,” he said. “Most leveraged positions may suffer from losses ultimately, likely in trillions (of yuan). The risk is that the unwinding of the leverage will be disorderly: due to implicit guarantees behind most shadow banking products, investors could easily panic,” he said. Mr Cui said the brokers and trusts have barely 1.6 trillion yuan ($260bn) to absorb losses and may be overrun. “Given the particularly thin front line of the financial institutions, we suspect that it’s a matter of time before banks may have to face the music,” he said. " 34% of the market is a sizable chunk in my book. But let's just wait and see, come back in twelve months and see if this was just a minor blip on China's inexorable rise, the first nation ever to abolish financial bubbles, or something rather closer to the crash that I believe it to be.