Monday, July 27, 2015

Chinese Equities: Action Baby, Action!

Bright light city gonna set my soul
Gonna set my soul on fire
Got a whole lot of money that's ready to burn,
So get those stakes up higher...
A threefer from FT Alphaville:

Shanghai Comp — tin hats back on please [updated]
We hate to concentrate on the dives alone, but this is getting serious....MORE  

Putting that Shanghai Comp dive into context

And finally:
TANSTAAFL, China equities and the wider economy edition
Chinese equity markets have continued puking. Yes, they’re still up on a longer timeframe, but were off a sudden 8.5 per cent on Monday, the worst fall since 2007. The Shanghai Comp now looks like this:
As the FT said, the Shenzhen Composite sank 7 per cent, and the ChiNext start-up board dropped 7.4 per cent. Significantly, more than 1,700 stocks fell by the maximum daily amount of 10 per cent, while only 78 rose. Large caps like PetroChina, the country’s largest company by index weighting, lost 9.6 per cent. Xinhua has thus declared the “The return of debacle!”.

So a reminder of the constraints that China’s powers-that-be are labouring under seems more than appropriate. The point is that, as quoted below, “what just happened in the A-share market will likely have profound impact on China’s economy and financial system one way or another”.
From BofAML’s David Cui, pubbed this morning to his (serendipitous) credit and with our emphasis:

Leverage, inflated collateral & unclear risk responsibility

We estimate that margin outstanding, only from the seven channels that we can estimate reasonably, easily exceeds Rmb3.7tr. Assuming an average 1x leverage, it means that at least Rmb7.5tr market positions are being carried on margin, equivalent to some 13% of A-share’s market cap and 34% of its free float....MORE
 As to the intro, after reading today's "On This Day In Elvis History":
 July 27, 1975 Back in Memphis Elvis bought 14 Cadillac's.
I couldn't get Viva Las Vegas out of my head.