PRC Stock Plunge as Western Conspiracy + Bet Yer House

♠ Posted by Emmanuel in , at 7/04/2015 01:30:00 AM
Easy come, easy go: Welcome to the Shanghai bourse, world's biggest casino.
The death spiral in Chinese stocks continues, with the Shanghai Composite whose chart is above dropping another 5.77% on Friday. Since peaking in mid-June, an astronomical $3.7 trillion has been wiped out in stock market capitalization, with the index falling 30% in the space of a few days. Continuing from the theme in the post below, PRC authorities have, in sheer desperation, tried everything to no effect:
Beijing seems to be doing everything it can to support the bull market. The People’s Bank of China cut interest rates last weekend. The Ministry of Finance said China’s massive $500 billion pension fund would march into the stock markets. The securities regulator CSRC repeatedly came out – during market hours – to assure us that margin financing was still healthy and there were few margin calls. Even the sovereign fund Huijin was buying everything from blue-chip A-share ETFs to big banks and oil to prop up the market. Oh, and the government said it would start criminal investigations into market manipulation – Short sellers, how about going to jail instead?! None of the measures have worked. Where is the Beijing put? And what’s next?
Well, I'll tell you what's next: The Communists can't seem to put Humpty Dumpty back together again, they blame the @#$^ing Westerners. I just love conspiracies with dark, evil and shady white people involved:
And now, some segments of Chinese society are now raising the possibility that “evil” market forces going short to ruin the economy, and even suspecting investment “predators” of lurking behind the turmoil, with Morgan Stanley among the names mentioned...At the same time, China’s stock regulators said Friday they would look into possible “market manipulation” helping fuel the move lower.

Against this backdrop, the Financial News, a newspaper run by the People’s Bank of China, said in an editorial Friday that predatory forces were playing up the risks for the Chinese markets, specifically mentioning Morgan Stanley for having withdrawn a previously bullish forecast for the Shanghai Composite Index after a sharp drop for the benchmark on June 26.

The newspaper cited Morgan Stanley as suggesting that the Shanghai Composite may have topped out at the beginning of June, and it accused the U.S. investment bank or either making “a malicious remark carelessly” or harboring “ulterior motives.” The editorial also said other banks which had similarly soured on Chinese equities were seeking to “go short on China on purpose and disturb China’s economic reforms.”
With Morgan Stanley having joint venture operations on the mainland, it is certainly possible for the company's employees to be thrown in jail by the authorities on some trumped-up pretense like "market manipulation." In China, the rule of law is a relative concept. Shoot the messenger and all that about China's artificially juiced stock market.

But wait, there's more: In the absolute zaniest move by PRC officials yet, you can now use your home as collateral for margin trading on Chinese equities:
In China, you can now literally bet the house on the nation’s tumultuous stock market. Under new rules announced Wednesday by the country’s securities regulator, real estate has become an acceptable form of collateral for Chinese margin traders, who borrow money from securities firms to amplify their wagers on equities. That means if share prices fall enough, individual investors who pledge their homes could be at risk of losing them to a broker.

While the rule change was intended to help revive confidence in China’s $7.3 trillion stock market, down almost 30 percent in less than three weeks, analysts say securities firms may be reluctant to follow through. Accepting real estate as collateral would tether brokerages to another troubled sector of the economy, adding to risk-management challenges as they try to navigate the world’s most-volatile stock market.
Common sense suggests the following:
  • It seems to the rest of the world--not just Morgan Stanley--that China's stock market is massively overheated. 
  • Hocking the house to invest in a stock market falling 5% day in and day out nowadays is utter folly. 
Who the hell needs casinos when you have Chinese stock markets?

UPDATE: Now the government is forcing securities firms to buy $25.7B worth of blue chip stocks. Aside from the amount of the forced investment being far below daily exchange turnover, this smacks of further desperation. Once more, what kind of rational investor would use "government intervention" as the main basis for making an investment decision? If you lose your shirt on Chinese stocks, I don't think you have anyone but yourself to blame.