Bloomberg: U.S. Dot-Com Bubble Was Nothing Compared to Today’s China Prices

[HitandRun]

The Chinese just need to fine tune their measures with a bit more finesse....

Ever heard of the Plunge Protection Team?

Govts all over the world are the same. It's just that the Americans had a bit more practice.

[BlueKelah]

OMFG, Wow win liao loh. 2 day bull run @ 6%+ yesterday and today likely 4%+. Really is no longer stock market, more like "here's all my money dear gov, make me rich"

What will happen to all those other counter when they unhalt???

[opmi]

Heard of Greenspan Put? Thats how bubbles are formed. Based on belief in BS.

Now the Index is kind of skewed. With more than half halted, main shareholders more than 5% cannot sell, some cases they are even force to buy back, easing money loan term, provide loans to brokerage to buy. They even sent out police to arrest shortists. I would say the Index is no longer the same index.

But the Market did Crash ... whether it will go back up is anyone guess. But for sure the intervention is so great, it has become a CCP Index rather than ShangHai Index. Index holders may have a strange time realising their value.

[greengiraffe]

China’s economic outlook upbeat despite all the noise
THE AUSTRALIAN JULY 11, 2015 12:00AM

Adam Carr

Business Spectator columnist
Sydney

Jack Ma, chief executive of the Alibaba Group. Source: Getty Images

Jack Ma’s Chinese e-commerce giant, Alibaba, stands as a perfect symbol of all that is right — and perhaps wrong — with China’s foray into market capitalism.

Alibaba’s New York stock market debut a little over nine months ago, was an electrifying affair. The $US22 billion initial public offering was rushed by investors to be three times oversubscribed while the issue itself remains the largest in US history.

The momentum carried through to the first day of trading, in that Alibaba shares shot up 38 per cent — adding yet another 30 per cent or so over following months.

Even today it might be a surprise to many of the investors who managed to secure a stake that they don’t directly hold an interest in the company. Rather they hold a share in a Cayman Island-based holding company, which in turn has exposure to the technology giant. Despite the success of its IPO, Alibaba can’t be regarded as a publicly listed company in the true sense of the word.

GRAPHIC: China’s wild ride

That all seems like months ago though — when the euphoria that subsequently engulfed the Chinese market was still in its infancy. The excitement surrounding Alibaba’s listing is a sign of things to come perhaps. Certainly the subsequent price slump was.

So after reporting “disappointing” revenue growth of “only” 40 per cent in late January — the stock dived a breathtaking 20 per cent in a few days. This was a time when the Shanghai Composite still had another 60 per cent upside to it. Fast forward five months and the selling mania that engulfed Alibaba has clearly caught up with China’s domestic markets.

Yet what has really changed?

For Alibaba, all the factors that attracted investors still exist. So according to observers Alibaba has 80 per cent of China’s online shopping market sewn up — that market in turn is growing at mind-blowing rates. Total transactions of $US248bn last year are already more than eBay and Amazon combined. Otherwise profit margins are high, net income growth is strong and revenues are still forecast to grow at strong double digit rates. With an 80 per cent revenue growth rate tipped for the next two years, this is why most analysts have a buy on the company. Indeed figures tracked by Bloomberg show just one analyst out of 44 has a sell rating.

Yet how do investors reconcile a glaring paradox — the apparent optimism on Alibaba’s prospects with the entrenched pessimism on the broader Chinese economy — with the current market meltdown?

The sense of urgency — panic even — surrounding China’s market meltdown this week is palpable. As the crisis intensified, the Chinese government reacted with a series of seemingly desperate measures — such as increased liquidity to margin lenders, a freeze on IPOs and trading halts across more than half of the listed shares across the key Shanghai and Shenzhen market.

In the short-term this seems to be working. Shanghai, dominated by large state-owned enterprises, was up 5.2 per cent yesterday. While Shenzhen, which is made up mostly of smaller private companies, was up 4 per cent. Alarmingly, what started off as a fairly minor correction — in the context of an extremely aggressive equity rally — appears to have been made worse by the very actions Chinese authorities have taken to stymie it.

“One should not underestimate Beijing’s will to bring the market to stability — if the current measures are not enough to ­prevent the market crash, more measures will likely be launched,” says Dong Tao, Credit Suisse’s China analyst.

When the nation’s central bank, the Peoples Bank of China, first took emergency measures to arrest the decline, stocks were only down 20 per cent. Now that’s a big move and viewed in isolation, concerning. In the context of a 150 per cent spike, however, such price ­action shouldn’t have appeared too unusual, as Commonwealth Bank’s China economist, Wei Li, highlighted. Indeed, when the PBOC moved, stocks were still up some 120 per cent over the year. Hardly a disaster.

Yet, and at a time when market is were already concerned about the health of the Chinese economy, the PBOC’s response to cut both interest rates and the reserve requirement together was viewed with alarm.

Policy makers haven’t done this since the global financial crisis, so many took it as just one more signal of impending doom. Not surprisingly the equity rout continued.

The unanswered question is what exactly is it the Chinese authorities appear to fear. Then again, it could be that markets are simply overreacting to what the Chinese have done. Compared to actions taken elsewhere, China’s moves appear positively tame.

In particular, the use of “market stabilisation funds” are widespread. The European Central Bank for its part has a number programs in place all of which are directed at buying government bonds and providing banks with unlimited amounts of cash — if they need it. Similarly, the US has run a bond- and asset-buying ­program and still has funds in place to buy foreign exchange, gold and other commodities. The so-called Greenspan (and later Bernanke) put, whereby the Federal Reserve cuts interest rates if the stock market falls too much — is the stuff of legend.

Over in Asia, measures to stabilise markets have also been widespread from Thailand, South Korea and Hong Kong. The Japanese for their part have taken things to a whole new level — ­effectively printing money to buy foreign assets.

Perversely then, the Chinese may simply be playing catch-up.

“Judging by Beijing’s aggressive responses to support the stock market, there is clearly heightened urgency among policymakers to stabilise economic and social conditions in China,” says CBA’s Li.

Not that the economy is weak. On the contrary, the economy still retains considerable momentum. So while a further slowing in GDP growth (to 6 per cent or so) is expected over the next couple years — half of what we saw just before the GFC — the economy has quadrupled in size since then. Consequently, the dollar value of this growth is so much larger than in the days of double-digit growth rates.

Consumer spending, meanwhile, is still moving ahead as is fixed-asset investment. In any case, what impact did the 150 per cent gain on the Shanghai Composite have on growth? There were no positive spill-overs on the upside, so little should be expected on the downside. Consequently, this fear that the market collapse could somehow feed back into sentiment — via some sort of wealth effect — is low. According to CBA’s Li, the risks to the financial system itself are limited as well.

One reason for that is because the proportion of Chinese who are active investors is low — about 107 million or so on Commonwealth Bank estimates, which equates to about 8 per cent of the population. Similarly margin loans represent only about 1 per cent of total bank assets.

That’s not to forget that the Chinese equity market can’t be seen as a market in the traditional sense.

Like Alibaba, most listed companies are not publicly owned, they are state-owned. That ownership structure has important implications when it comes to the real economic implications of an equity rout. Gone are the incentives to slash costs, or restructure. State ownership effectively breaks the nexus between market moves and the real economy.

In any case, and like Alibaba, earnings growth for the broader market is expected to be strong — up 30 per cent over the next two years. China is still a growth story — and at the very least the process of urbanisation that has been key to China’s rapid development, still has decades to run.

That’s why real money — some of the world’s largest financial ­institutions — are so bullish on ­Alibaba, and why they recommend buying into the Chinese market more broadly. Because ­despite all the noise, China’s long-term growth prospects remain positive, although investor confidence will take some time to return.

In that sense nothing really has changed.

With that in mind, the biggest threat to Australia comes through fear. The short-term hit to ­confidence that the sell — off induces. Note the asymmetry though — there was nothing on the way up — a clear sign that any negative influence should be short-lived.

A more enduring effect may be on central bank policy, especially that of the US Federal Reserve and its habit of repeatedly delaying the tightening cycle.

[greengiraffe]

China stocks' wild ride not a 1929 moment, say top economists
Date
July 10, 2015 - 2:41PM

Vanessa Desloires
Reporter

China's share market fall could feed into the economy through consumption. Photo: Bloomberg

Unlike Wall Street's 1929 crash, China's sharemarket plunge is of little risk to its economy, top Asian economists say.

The threat from its plummeting equity markets to China's economy is small, as the benefits were hardly registered on the way up, the economists say.

We are inclined to believe that Beijing will escalate policy responses until they start working.

Dong Tao, Credit Suisse Hong Kong
The Shanghai Composite Index rallied on Thursday, surging 5.8 per cent, but it is still down a hefty 28 per cent since the market began sliding in mid-June, fuelling fears the plunge could put the economy on track for a hard landing.

Economists don't think China will repeat Wall Street's 1929 crash
Economists don't think China will repeat Wall Street's 1929 crash Photo: Bloomberg
But although doomsayers have drawn parallels between Wall Street's 1929 crash and the bursting of China's 2015 equity bubble, as well as the margin lending and policy measures thrown at them by their respective governments, China's economy is largely quarantined from sharemarket fluctuations.

"The rapid market rally that began last year is widely held to lack grounding in economic fundamentals," the Nomura Asia economics team, led by Yang Zhao, wrote in a note.

"Thus we believe the sharp correction now should in turn have little impact on the real economy," he said.

A threat to consumption?
Credit Suisse Hong Kong research, led by chief regional economist Dong Tao, said the biggest threat to the economy from a sharp market correction was to consumption and finance.

Mr Tao noted a major shift in household savings from banks into brokerage accounts, and exposure to equity markets had surged from 10 per cent of liquid assets to at least 30 per cent. Further market dives could result in retail sales figures returning flat or declining.

"[A decline] would take away the final growth engine, when investment and exports are all facing structural issues and have already decelerated," Mr Tao said.

But Nomura's Mr Zhao said while there used to be a correlation between equity market performance and consumption or production, "this has weakened since 2011 and almost faded last year".

China's household savings rates were higher than in other economies, he said, lowering the wealth effect – the link between capital gains and economic activity – on consumption.

Additionally, equity market swings have resulted in a transference of wealth rather than the creation and destruction of it.

Credit Suisse's head of China research Vincent Chan agreed the effect of the market falls on production and investment activities would be limited, as equity financing accounted for just 4 per cent of total social financing from January to May, when the market rose its sharpest.

"Consumption sentiment probably would get hurt … but given consumption had not been boosted at all during the market rally … equity still only accounted for a small portion of net household wealth; and the labour market is still healthy with strong wage growth, impact on consumption should not last for too long," he said.

'Whatever it takes'
Mr Tao said the Chinese government had a stronger political will to do "whatever it takes" to keep the market afloat than was seen in previous examples in the US in 2008 and the European Central Bank in 2012.

While Beijing had already instigated a raft of measures including easing policy, boosting liquidity and even banning short-selling, IPOs and suspending stocks, it still had options up its sleeve.

"We are inclined to believe that Beijing will escalate policy responses until they start working," Mr Tao said.

​Franklin Templeton Emerging Markets fund manager Mark Mobius said he still saw "compelling" reasons to invest in China.

"The bottom line regarding the recent correction in China's markets is essentially a story of too much euphoria and a natural correction," Mr Mobius wrote in a note.

"These types of bear markets (and I would deem this a bear market) tend to be short in duration; they don't last too long, and when the recovery comes, it tends to be bigger in percentage terms," he said.

[FA+TA]

Chinese Equity Funds Just Saw Their Biggest Inflows Ever
Some $13 billion poured into Chinese stocks

Goldman Sachs is still bullish on China’s stock markets

Mark Mobius: Story of China Still Intact Despite Market Downturn

[FA+TA]

曾淵滄專欄：忘記股市保持樂觀

前幾天，我一再重申不相信上周末傳出的所謂李克強暴力救市的新聞是真的，中國股市並不是真正的自由市場，若中央政府想要股市升，是易如反掌，絕不會無力救市。A few days ago, I reiterated that I do not believe in last weekend's news that Premier Li Keqiang will violently bailout the stock market. The Chinese stock market is not a true free market, if the central government wants stock market to rise, it is easy and the central government will not be unable to save the stock market.
滬綜指在短短兩個多星期由5000跌至3500點，主要導火線是中央政府查處場外非法配資，故股市大跌是正常的，是中央政府想看到的，讓股市大跌來清除瘋狂股民的高比例借貸炒股行為，不讓這些瘋狂股民輸錢，怎能學到教訓？Shanghai Composite Index fell from 5000 to 3500 in just over two weeks. The main trigger is due to the central government investigating illegal financing, hence, the stock market crash is normal. What's the central government would like to see is to let the stock market's crash to eliminate the madness of investors who using high leverage. If the investors never lose money, how can they learn the lessons?
5000點水平才出手算是遲了些，本來真要教訓瘋狂股民可以等到滬綜指跌至3000點才出手，昨出手算是早了點，
實際上3000點仍比去年低位2000點高了足足50%，早一些入市的人仍有錢賺。In fact, 3000 still a return of 50% based on last year's low of 2000. Those investors who entered the market early still have profit.

中央希望股市升

後市我依然是樂觀的，在過去幾天股市大跌時我也同樣保持樂觀，故我建議大家忘記股市，不要盯着手機裏的股價，做到手中有股心中無股的境界，就能成功避過股災。
我樂觀，因我認為中央政府是希望股市升的，因扶持民企是中央政府的最重要國策之一，要保持民企就必須讓股市升，股市升才有股民願意拿錢出來申請新股，民企才能通過IPO集資壯大。I am optimistic because I believe that the central government would like the stock market to rise. This is because the support of private enterprises is one of the most important policy of the central government. Only when the stock market rose, investors are willing to take their money to apply for new shares, private enterprises can then raise funds through IPO and become bigger enterprises.

中央政府希望股市升，但是不希望全民變成賭徒，把股市變成賭場，槓桿5倍的場外配資的確是驚人的，那是絕對瘋狂的豪賭，我經常說：股市與賭場的最大分別是在賭場裏，買大開小，錢就沒有了，輸了；買股票則不一樣，股價跌了可以守，但是5倍槓桿如何守？5倍槓桿是把股市變賭場。The central government wants the stock market rise , but do not want the people to become gamblers and turn the stock market into a casino. 5 times leverage is really amazing, it is absolutely crazy gamble. I always say the largest difference between stock market and casino is: in casino, buy big but open small, the money is gone. But buy shares is not the same, you can keep the shares if it fall. But how to keep for 5 times leverage? 5 times leverage is simply turning the stock market into a casino .

[bmann025]

The Chinese approach is MUCH better than any of the western interventions in the past few years.

The Chinese regulate big investors and favor small investors, while western governments bailed out the big boys, banks and hedge funds at the expense of tax payers and savers.

Distributing some wealth from the oligarchs to the small investors will eventually not only promote a free market but also more democracy.

The US went the opposite way, saving and enriching the super rich, and peer reviewed science says that the US is now an oligarchy
http://www.bbc.com/news/blogs-echochambers-27074746
and politicians just puppets of some lobby groups.
https://www.youtube.com/watch?v=p-rbw_SLoeA

[BlueKelah]

The chinese approach is called COMMUNISM. If a government can dictate finance sector completely, there is no transparency at all. It basically means to do business in China you would need the support of the Gov completely and anytime they can take that support away.

The article below is very telling about the actual situation happening in China now, sounds like a copy of the subprime "mortgage-backed loans" in USA which caused the GFC. The whole financial system in China now is a big mess man.

Beijing needs a bouyant stock market so their property companies can issue more bonds to shore up their finances and to go play LEGO overseas. No one in US will be touching their companies much after the Kaisa default, so they can only raise money from HK or China side to keep their developers afloat. Failing that, its a one way ticket to recession rather than growth.

China's underground banks spread pain as defaults rise

BEIJING (AP) — Fan Xiaolin, an engineer in Changsha in central China, thought he was safe when he deposited his family's savings of 800,000 yuan ($130,000) in a private finance company he said was recommended by employees of state-owned Bank of China.

The company, part of an informal industry of lenders and investment managers that operates outside China's state-run banking system, collapsed six months later as economic growth slowed and businesses struggled. Today, Fan said he and about 100 other depositors in Hunan Bofeng Asset Management Ltd. protest several times each week outside state banks and government offices, demanding their money back.

"The security people at the bank hit us," said Fan, 50. "The police ask us to go home and wait."

Thousands of Chinese savers like Fan who entrusted money to an informal finance industry that operates with little government oversight are suffering painful losses as borrowers default and real estate and other ventures fail.

Beijing allowed underground finance to flourish over the past decade to support entrepreneurs who generate jobs and wealth but get little credit from state banks. Communist leaders reaped the benefits of a thriving private sector without tackling the political challenge of giving entrepreneurs more access to an official financial system supports government companies.

Now, as losses rise, Beijing faces political tension and pressure to help investors recover their money.

"Many investors don't realize the risk until something goes wrong," said Guo Tianyong, director of the Banking Research Center at Central University of Finance and Economics in Beijing.

The industry's popularity reflects the Chinese public's urgent search for an alternative to low interest paid by banks, which has driven repeated bouts of boom-and-bust speculation in r.......

[greengiraffe]

Don't you know that is a fact with Mainlanders all these while?

Combine it with capitalism, it is extremely powerful... hence they deserve our ulmost respect.

Even Temasek also treat them with high levels of respect.

The chinese approach is called COMMUNISM. If a government can dictate finance sector completely, there is no transparency at all. It basically means to do business in China you would need the support of the Gov completely and anytime they can take that support away.

The article below is very telling about the actual situation happening in China now, sounds like a copy of the subprime "mortgage-backed loans" in USA which caused the GFC. The whole financial system in China now is a big mess man.

Beijing needs a bouyant stock market so their property companies can issue more bonds to shore up their finances and to go play LEGO overseas. No one in US will be touching their companies much after the Kaisa default, so they can only raise money from HK or China side to keep their developers afloat. Failing that, its a one way ticket to recession rather than growth.

China's underground banks spread pain as defaults rise

BEIJING (AP) — Fan Xiaolin, an engineer in Changsha in central China, thought he was safe when he deposited his family's savings of 800,000 yuan ($130,000) in a private finance company he said was recommended by employees of state-owned Bank of China.

The company, part of an informal industry of lenders and investment managers that operates outside China's state-run banking system, collapsed six months later as economic growth slowed and businesses struggled. Today, Fan said he and about 100 other depositors in Hunan Bofeng Asset Management Ltd. protest several times each week outside state banks and government offices, demanding their money back.

"The security people at the bank hit us," said Fan, 50. "The police ask us to go home and wait."

Thousands of Chinese savers like Fan who entrusted money to an informal finance industry that operates with little government oversight are suffering painful losses as borrowers default and real estate and other ventures fail.

Beijing allowed underground finance to flourish over the past decade to support entrepreneurs who generate jobs and wealth but get little credit from state banks. Communist leaders reaped the benefits of a thriving private sector without tackling the political challenge of giving entrepreneurs more access to an official financial system supports government companies.

Now, as losses rise, Beijing faces political tension and pressure to help investors recover their money.

"Many investors don't realize the risk until something goes wrong," said Guo Tianyong, director of the Banking Research Center at Central University of Finance and Economics in Beijing.

The industry's popularity reflects the Chinese public's urgent search for an alternative to low interest paid by banks, which has driven repeated bouts of boom-and-bust speculation in r.......