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CHINESE STOCKS PLUNGED today after the country’s securities regulator rapped three major brokerages for continuing to lend money for stock purchases in violation of rules.
As punishment for extending so called “margin trading” contracts, the brokerages are forbidden to offer credit to new customers for three months.
At one point, the Shanghai Composite Index was down 8.3%, although those lossed were later trimmed to 7.7%, the biggest single-day fall since the financial crisis of 2008.
Share prices of brokerages were hardest hit, with some falling by the daily loss limit of 10%.
Despite the sharp fall, the Shanghai Composite Index is still up 55% in the past 12 months and up 33% for the past three months.
Why did the market fall so much?
Investors and analysts see the penalties against the brokerages as foreshadowing more curbs on credit-financed trading by China’s government.
Authorities want to stop the stock market’s boom over the past year from turning into a bubble that could damage the broader economy.
The Shanghai Composite surged 54% last year, partly because of easy credit that investors used to finance their trading.
Market selloffs can also become self-reinforcing as other investors sell because of fear they will suffer even greater losses if they do nothing.
Did other markets around the world fall too?
No. Even though Monday’s fall was particularly steep, investors in other markets are brushing it off as a situation peculiar to China.
The government allows only limited foreign investment in Chinese stocks and the country’s financial system is largely walled off to the rest of the world.
The exception was Hong Kong, where many Chinese companies have stock market listings. A bigger catalyst for global markets will come Tuesday when China, the world’s No. 2 economy, reports fourth quarter growth figures.
What are market experts saying?
“Margin financing is simply overextended,” said Dickie Wong, executive director of research at Kingston Securities in Hong Kong.
Regulators want to “simply give pause” to the brokerages, he said.
“In the past, mainland investors had no clue on margin financing and short selling, but after China introduced these two ways to trade stocks, people became so happy because they can borrow money and just go all in.”
Is the plunge a sign of bigger problems?
It shows problems on several levels. Stock markets should allow investors to discover the fundamental value of companies, and although all markets are prone to under- and overshooting due to herd psychology, China’s market is particularly off-course.
That’s partly because it is dominated by opaque state-owned companies. In their relatively short history, China’s stock markets have fluctuated in ways that bear no relation to economic reality.
Its latest problem is that debt has fueled the recent rise in stock prices. There are also signs of debt-related stress in other parts of China’s economy including property, which is undergoing a painful government-instigated slowdown.
One developer, Kaisa Group, recently missed a $23 million interest payment on a bond abroad, alarming investors.
Additional reporting Peter Bodkin
Originally posted at 11.13am
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The “charity begins at home” brigade are out in force. Charity doesn’t begin at home, it begins with whoever is the worst off.
Well said Neal Ireland. These people are so much worse off than those needing help here in Ireland. In the grand scheme of things €1.9 million isn’t huge money here but will make a huge difference in places like Sudan.
The original meaning of “Charity begins at home” has unfortunately been lost…
Spending the money in Ireland. Stop taking medical cards from the needy, reduce the closure of the Rape Crisis Centres, fund the necessary community organisations and get the homeless off the Street. There you go well spent and went a long way to providing the necessary. It’s good to be seen given Foreign Aid while our little country perishes at the hands of idiot Governments.
Do you honestly think that if we didn’t send this money to Sudan that even one penny of it would go towards any of the things you listed? How anybody can begrudge this vital support is beyond me.
Perishes? Overdramatic.
What about spending the money on our homeless people instead of giving it to other countries
What about spending money on teaching punctuation to sinn féinners ?
A psychologist friend of mine suggested that Patrick has a small manhood, hence his behaviour. The Popeye sailor man would also suggest his attraction to sailors and his fear to come out of the closet.
That’s correct. I read an article before that forum trolls either have tiny johnsons or can’t get them up for very long. The frustration leads them to lash out online in anger at the world. Great to study however.
While we’re being pedantic about punctuation, there’s no space between a word and a question mark. Practice what you preach.
Debbie, there should not, there was not but there is. Why? I do not know.
corrupt government will prob take 3.9 million of that
Mathematics and mé féiners do not seem to mix.
Apologies Patrick, I meant 1.9 million.
Its not direct government aid so hopefully the government of South Sudan won’t be able to get their hands on it because NGO’s such as the red cross do lifesaving work in these places. For those that say charity starts at home it doesn’t, charity is for those who need it most. It shouldn’t just be Ireland looking after the Irish it should be everyone helping the less fortunate/needy. Take for example the article during the week about the Irish funded heart surgery team sent to the Ukraine providing vital lifesaving operations for children. That article was well received without anyone suggesting the money should be used at home so what’s the difference here? The aid here is needed more urgently also. (I’m aware that the surgical team were funded through a charitable organization but one which, no doubt, receives a grant from the government)
We should all give we will never have to look out our window and see that devastation were talking roughly the population of Ireland on the brink of starvation here get a grip and donate.
We had our own famines and we still love to cry about it. We are different to other peoples, sure everybody loves the Irish Olé Olé Olé. Let other starving people bugger off. Do they not realise the price of a pint in Ireland?
The NGOs who get this money will spend the bulk of it on air conditioned cars, air conditioned rooms and the same food they get at home so that they live like they’re at home. Unfortunately this is a waste of money.
Wonder where all the oil money is going
Throw it in the Liffey be better off them government will get there greedy MIT’s on it and that will be it . money never gets to them . that’s why the problem will never ever get sorted.
I am in no way opposed to Ugandan’s receiving aid and I know the situation is dire over there but why is our government so quick to send money overseas and not think about using that money for our own homeless people. I just don’t get it. In Brazil the poor and needy are getting beaten off the streets so travelling football fans don’t have to see them. Does the media care about that? But luckily they’ve got Bill Gates over there to vaccinate everyone in the middle of another US proxy war.
Media very select in its reporting
The government are signed up to give millions to Africa every year. Something in the region of 236 million I think.
I notice there’s a general trend in being pro-aid and against those who would rather keep that money here but if you look at how aid is administered by Aid organisations in third world countries then you would see that the money is never used effectively, however that 2 million could change a lot if used properly in our black spots within out capital and across Ireland. Hence charity does start at home if the resources are best utilised here
50 cent each …sound :-)
Is there any country in Africa with a stable government…Christ!!!
*facepalm*
5 cent each…. sound :-)
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