Markets in China have plunged deeper into the abyss as a market rout which has sent its shares into a bear market last monday are continuing to freefall as its stock market faces its biggest rout since 1992 and as firms suspend trading and freeze up markets as losses wipe out over $3.5 trillion in less than a month.
For a record 12th day in a row, Chinese margin debt balances have fallen, as investors continue to panic and rush to offload bets as the Chinese government continues to try to manage leverage down while encouraging speculation.
Amid the plunge in Chinese stocks, authorities have TRIED to ramp up their efforts to curb further market losses: such as an interest rate cut (the fourth cut in seven months) to a record low, relaxing of margin lending rules, suspending initial public offerings (IPOs) indefinitely, setting up a market-stabilization fund, and having its top 25 mutual fund houses speed up the application and issuance of equity funds.
Unfortunately, Chinese authorities “everything but the kitchen sink” approach has failed **MISERABLY** as losses have deepened in daily whipsaw volatile trade as its markets are in crisis and could plunge further into the abyss.
As its markets continue to crash, firms are opting simply to suspend trading rather than see their stocks plunge further, a move which has seemed to spread like a wildfire.
As we reported on Tuesday, nearly 200 Chinese companies decided to suspend trading of their stocks as of the close of Monday, which brought the total number of suspensions to 745, or 26 percent of listed firms on mainland exchanges. At the time, such suspensions locked up around $1.4 trillion of shares, or around 21 percent of China’s market capitalization, according to Bloomberg.
The news after the market close on Monday obviously brought panic, and rightfully so, but if you thought that was bad … you may want to sit this one out, as this may only be the tip of the iceberg.
On Wednesday, investors that were looking to sell their shares in Chinese stocks have found themselves locked out of around **71 percent of the market** , according to Bloomberg.
According to Bloomberg, at least 1,323 companies have suspended trading on mainland exchanges, thus freezing up around $2.6 trillion of shares, or around 40 percent of the market’s capitalization. In addition, another 710 fell by the 10 percent daily limit by the midday break on Wednesday.
On the Shanghai exchange, 353 companies suspended trading, equivalent to 32 percent of all listings. A further 970 were halted in Shenzhen, or 55 percent of the total, Bloomberg reports.
Prior to the markets opening on Wednesday, there was another flurry of government support attempts pushed forward in attempt to aid the market as China’s Central Bank, the People’s Bank of China (PBOC), promised “ample liquidity” and state-backed China Securities Finance Corp. was looking for at least 500 billion yuan ($81 billion) in liquidity in order to bolster equities.
Chinese authorities also ordered state-owned firms not to cut holdings in their listed companies . Such firms vowed to support companies under its management to raise their holdings to maintain stable share prices.
As the markets opened in China on Wednesday, Shanghai’s Index and the CSI300 Index instantaneously fell 8 percent.
The Shenzhen Composite Index has led the market crash with over a 40 percent plunge since its June 12 peak, as margin traders continue to unwind bullish bets.
Reference this brilliant chart by Zerohedge:
Chart courtesy of Zerohedge.
So far, China’s move that takes a page out of a dusty playbook from Wall Street circa 1929 has failed to stem a crash that’s wiping out its stock market at an unprecedented scale.
As illustrated below, courtesy of this Bloomberg chart, the crash in the Chinese stock market bears a striking resemblance to the market crash in the U.S. back in 1929. The question is, how much more will China’s market crash?
Chart courtesy of Bloomberg
Unfortunately, there appears to be no end in sight as Chinese markets continue their freefall and as their markets are frozen amid trading suspensions.
It is very scary to think about what could happen next. Let’s hope for the best.
The Zerohedge chart may do a disservice by visually tying events to decisions. In time there was a correlation, but in actuality, any one event might have been caused or influenced by a decision made upstream.
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Posted by Janet Baker | July 8, 2015, 11:35 am