19 ms·

Chinese Markets Halted, Equities Plunge Another 7%

394 points by jayess 11y ago

chollida1 11y ago
China unfortunately created stock market but doesn't have the requisite pieces to allow one to operate properly. For a fully functioning stock market you need: - capital, which they have - speculators, to make trades happen, they have these - transparency in how your market works, or atlest the appearance that the market is fair to all - and you need stoggy old buy/hold/long only investors. China is missing these. In most markets the latter is done by ETF retirement investment and pension plans who have to invest 100's of billions of dollars each year. The scariest thing about this for the global equity markets is that in 10-20 years the top 3 markets could be China, India and the US. Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. The other two countries are about as opaque as you can be. Speaking as a person who actively invests money, that's a very troubling thought. As one economic nobel prize winner put it... "China and India haven't put out a credible macroeconomic number in the past 10 years". China is also loosing alot of money each month trying to support the yuan. I saw a credible estimate of about 100 billion a month since October.
- fragsworth 11y ago
  > and you need stoggy old buy/hold/long only investors. China is missing these. I've never heard about this before, and it doesn't even make sense. It sounds to me like you made it up.
  - chollida1 11y ago
    Which part? Because I'm more than willing to stand on those points as being accurate. The assertion that you need someone to actually buy and hold stocks to have a stock market, or the assertion that there aren't pension funds and ETF funds willing and able to put 100's of billions of money into the market? These two types of investors act as dampers. When the markets go south they are the ones who start buying up "bargains" and hold their existing positions because they aren't worries about 6 month returns they are worried about 25 year returns > It sounds to me like you made it up. You can think that if you'd like... Since trading on the equity markets is my day job, I'm pretty comfortable with my knowledge of them.
    - lintiness 11y ago
      pension and etf funds are for the most part full invested. outside investors with dollar signs in their eyes are what you're talking about, and there's absolutely nothing preventing these investors from buying chinese stocks (hong kong proxy or whatever).
      - jonknee 11y ago
        They have new money coming in every month.
    - chatmasta 11y ago
      > or the assertion that there aren't pension funds and ETF funds willing and able to put 100's of billions of money into the market? Based on your HN profile, you are 10000x more qualified than me on this subject, but I would like to see some evidence to back up the claim that the shanghai stock exchange has no pension funds trading large volumes of equities over long time horizons. According to the wikipedia chronology of the Shanghai Stock Exchange [1], an influx of speculators did not enter the market until 2006-2007, following the "unbanning" of IPO's. Presumably the implication is that prior to speculators entering the market, most trades were executed by large institutional investors. If these institutional investors are not trading on long time horizons (like a pension fund would), then who are they, where does their funding come from, and for what purpose do they use the exchange? [1] https://en.wikipedia.org/wiki/Shanghai_Stock_Exchange#Chronology https://en.wikipedia.org/wiki/Shanghai_Stock_Exchange#Chrono...
    - dilemma 11y ago
      The individual investors that joined the stock market in 2006 are all "pension funds" in their own right. That is what they are saving for, amongst other things. And of course there are pension funds in China.
- danbruc 11y ago
  So why are people then trading stocks in China or India or wherever if they don't trust the system? They wouldn't be able to become the largest stock markets if nobody would trade there and there would be nothing to be scared by.
  - khuey 11y ago
    Where else is your average Chinese person going to trade stocks, especially given the government's capital controls?
    - danbruc 11y ago
      Don't trade stocks. If this is no option for whatever reasons it would still be a problem contained in China if all the outside investors stayed away.
      - jfoutz 11y ago
        I think you're underestimating how pervasive the stock market is in doing stuff. Say, foxconn wants to build a new factory. they put up stock as collateral for a loan to pay for it. Stock crashes. They have to sell existing assets to cover the loan. Even if they retain control by selling to a trusted partner, the asset shift is painful. If you can imagine foxconn getting into that trouble, it's very easy to imagine them not being able to manufacture IPhones or Galaxys for a few months while they negotiate contracts with the new asset owners. Any idea what that would do to Apple stock? And, you know, your 401k? This is an extreme example, but captures the spirit. when suppliers go out of business, or even run into trouble, all the companies that depend on them slow down, have to renegotiate new contracts, possibly miss deadlines. It can be ugly.
  - CSMastermind 11y ago
    Because you can still make money in the short term. The lack of transparency means that every dollar you invest there has extra risk attached to it. This discourages long term and large investments while promoting short term thinking and risky behavior.
- at-fates-hands 11y ago
  >> Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. This. This will be China's undoing. The hardest thing to try and control are open market forces - which China is clearly controlling and attempting to manipulate, with disastrous results.
  - vinceguidry 11y ago
    CCP cares way more about maintaining control than in ensuring stability. I'm sure they have plans in place to shut the whole market down if they decide it needs to be done.
    - fnordfnordfnord 11y ago
      Stability is arguably the preferable method to retain control.
      - Rmilb 11y ago
        ie, Mandate of Heaven. https://en.wikipedia.org/wiki/Mandate_of_Heaven https://en.wikipedia.org/wiki/Mandate_of_Heaven
    - AnimalMuppet 11y ago
      > CCP cares way more about maintaining control than in ensuring stability. That may be true. But I think they also see lack of stability as threatening their ability to remain in control. So in practice, they care a great deal about stability.
      - vinceguidry 11y ago
        They have other ways of maintaining stability. Ways they have been relying on for decades before there ever were viable financial markets. They can simply fall back on those.
        11y ago
- ocean3 11y ago
  Why do think Indian stock market is not transparent?
  - tintri 11y ago
    "india" is being lumped together just for namesake. I don't think indian market is any less transparent than US/Japan or others.
    - berberous 11y ago
      Nevsky Capital, a successful hedge fund, just shut down and released an interesting letter to its investors that's worth reading in full. I'm not sure about the transparency of India's stock market, but it did not have nice things to say about the quality of their economic data: "Data releases have become much less transparent and truthful at both a macro and a micro level. At a macro level the key issue is the ever increasing importance of China and India. China is the world’s second largest economy, but already much larger than the US in a broad swathe of sectors. India will be the world’s third largest economy within a decade. Unfortunately their rise is increasing the global cost of capital because an ever growing share of the most important data they produce is simply not credible. Currently stated Chinese real GDP growth is 7.1% and India’s is 7.4%. Both are substantially over stated. This obfuscation and distortion of data, whether deliberate or inadvertent, makes it increasingly difficult to forecast macro and hence micro as well, for an ever growing share of our investment universe." http://www.businessinsider.com/nevsky-capital-closing-letter-2016-1 http://www.businessinsider.com/nevsky-capital-closing-letter...
      - chimeracoder 11y ago
        It's really frustrating to see China and India constantly discussed as if they were a single unit, particularly when it comes to economics. Aside from the fact that they are (a) both very large, and (b) both rapidly developing countries/economies, China and India share very little in common. There are challenges to investing in either China or India, but the reasons behind those challenges are about as different as you can get. The underlying issues in the two countries are dramatically different.
- cubano 11y ago
  > Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. I wish I could believe this, but after years of federal debt fueled Quantitative Easing and implicit guarantees of "too big to fail", I've stopped believing this is true.
  - marcusgarvey 11y ago
    Says former Fed governor Fisher: "We frontloaded a tremendous market rally to create a wealth effect ... The Federal Reserve is a giant weapon that has no ammunition left." http://globaleconomicanalysis.blogspot.com/2016/01/former-dallas-fed-governor-richard.html?m=1 http://globaleconomicanalysis.blogspot.com/2016/01/former-da...
  - andrewvc 11y ago
    This is true to SOME extent, but the amount of interference in china is on a whole other order of magnitude. For instance, read this July piece from the Guardian: http://www.theguardian.com/world/2015/jul/16/why-chinas-stock-market-bubble-was-always-bound-burst http://www.theguardian.com/world/2015/jul/16/why-chinas-stoc...
  - jfoutz 11y ago
    I think, 'transparency' in this sense might be more akin to 'predictability'. If you can count on the big players to act a certain way, even if that's the most evil thing possible, you can make a decision with confidence. if they're out there doing random stuff all the time, it's really tough to say, 'this is the right choice'. I just finished Too Big to Fail by Sorkin. From that point of view, everyone was facing something that had never happened before, so it's hard to be predictable in that case. One day, they push J.P. Morgan to buy Bear Sterns. One day they let Lehman Brothers die. One day they nationalize the banks. It was just all over the map. On the other hand, they were facing something new, never really thought about before. It's hard to have policy for rare events, so they just kind of tried stuff and iterated on what worked. It's kind of a testament to the quality of the US market that you can say for sure, 'i don't want any of that', because of a specific reason. That's very different, and far more valuable than 'i don't want any of that because it's incomprehensible'.
- youonlyliveonce 11y ago
  I thought the Indian stock market was relatively transparent
- deleted 11y ago
  [deleted]
- fnordfnordfnord 11y ago
  > in 10-20 years the top 3 markets could be China, India and the US. What about Brazil? (not that they are transparent/credible, but that they ought to have huge economic growth over the next ~20yr)
  - macspoofing 11y ago
    Brazil has a fundamental mistrust of the free-market that holds it back. It's tough doing business in Brazil.
    - fnordfnordfnord 11y ago
      I've had a little experience with this and I agree. If they can improve here (and what's to say they won't in the next decade), what's left to hold them back?
    - rchaud 11y ago
      What specifically about the free market is hold Brazil back? What changes would increase economic output? I understand that import taxes on things like consumer electronics are punitively high, but that's a cross-section of the consumption aspect of GDP. GDP can still be increased through capital investment, fiscal policy and net export growth.
    - mastazi 11y ago
      > It's tough doing business in Brazil. Yes, dysfunctional bureaucracy both in the public and in the private sector (government, banks etc.) makes it really hard to create and manage any business. I tried really hard for a while, but it didn't work out.
  - leogiertz 11y ago
    It's probably going to be a while before Brazil resumes its trajectory: http://www.economist.com/news/briefing/21684778-former-star-emerging-world-faces-lost-decade-irredeemable http://www.economist.com/news/briefing/21684778-former-star-...
    - 11y ago
- sharetea 11y ago
  Doubtful about the top market; China has a 20 year deflationary depression ahead of them. 1-2% gdp growth http://www.barrons.com/articles/anne-stevenson-yang-why-xi-jinpings-troubles-and-chinas-could-get-worse-1417846773 http://www.barrons.com/articles/anne-stevenson-yang-why-xi-j... 280% gdp/debt ratio http://www.forbes.com/sites/kenrapoza/2015/05/09/chinas-total-debt-load-now-over-280-of-gdp/ http://www.forbes.com/sites/kenrapoza/2015/05/09/chinas-tota... bankrupt shadow banks http://www.ft.com/cms/s/0/06cc9b9c-44c4-11e5-b3b2-1672f710807b.html http://www.ft.com/cms/s/0/06cc9b9c-44c4-11e5-b3b2-1672f71080... bankrupt state commodity firms http://www.bloomberg.com/news/articles/2015-10-14/the-next-china-default-could-be-days-away-as-steel-firms-suffer http://www.bloomberg.com/news/articles/2015-10-14/the-next-c... only a trillion reserve left http://www.businessinsider.com/china-burned-through-108b-in-december-2016-1 http://www.businessinsider.com/china-burned-through-108b-in-... $850 Billion Left China So Far This Year http://www.theepochtimes.com/n3/1882874-as-much-as-850b-left-china-so-far-this-year/ http://www.theepochtimes.com/n3/1882874-as-much-as-850b-left... Manufacturing moving out of China http://www.forbes.com/sites/kenrapoza/2015/10/11/is-the-made-in-china-clothing-label-a-thing-of-the-past/ http://www.forbes.com/sites/kenrapoza/2015/10/11/is-the-made... Coupled with China's lack of global consumer brands, corruption, pollution, demographics issues, global slowdown, carry trade unwind, rising US interest rates...you get the idea
  - exelius 11y ago
    > Coupled with lack of global consumer brands, corruption, pollution, demographics issues, global slowdown, carry trade unwind, rising us interest rates... You don't need global consumer brands when your country is the size of China. They have 15% of the world's population and speak a language that few outside the country can speak and even fewer can read: nobody else is going to come in and take those customers except Chinese companies. Corruption is being cleaned up; but it's still a real problem at the local level. Again, pollution is a huge problem but China is betting the farm on "clean" energy tech and will be the energy leaders of the world in 20 years. If (or when) they figure it out, they're the only ones with the manufacturing skill and capacity to mass-produce. The truth is, we've never seen what happens when a large country "awakens" in the age of globalization. Macroeconomic theory is largely based on the import/export balance, which is increasingly less important as borders become less meaningful (and import/export controls become increasingly difficult to enforce). I have a feeling that China will surprise us - despite the fact that they will have negative population growth over the next few decades and an aging population, the fact that they are actively moving subsistence farmers to the cities may stall the effect of a shrinking population with the added consumption / demand from turning poor farmers into urban consumers. Their aging population is also accustomed to a lower standard of living than the up-and-coming generation. Population deflation has been especially damaging to Japan because it hit them after they had become a heavily industrialized country. Despite the huge progress China has made, hundreds of millions of people still live in poor farming villages. That's a source of potential growth that I expect the Chinese government to tap strategically.
- grandalf 11y ago
  I'm skeptical that the presence of buy and hold investors is the missing ingredient. Even if 15% of investors are speculators, the price can still swing drastically, since price is a function of supply and demand, and the charts we're seeing are not volume-weighted. Market price stability is a function of the uniformity of supply and demand over time. Buy and hold investors already own the stock so their preferences are not reflected in short term supply/demand uniformity (price stability). What we're seeing in China is a lack of uniformity of views on the future price, and thus rapid fluctuations in supply/demand uniformity over time. Government instability plays into that tremendously.
  - TheOtherHobbes 11y ago
    Price is a function of faith in the future. What we're seeing is a lack of faith that many are finding disturbing.
    - grandalf 11y ago
      > Price is a function of faith in the future. That is a fairly unfalsifiable statement, and it is trivially true for nearly anything, b/c we all make all decisions today based on the faith/expectation that we will be alive tomorrow. The notion that tomorrow will be substantially different from today makes nearly all planning useless, so it's trivial that all planning hinges on some notion of faith in the future. But price itself is only a function of supply and demand. If I am selling bread and it's nearly time for me to go home and the bread will be stale tomorrow, I might offer the remaining loaves to the last few customers at a discount if I expect it not to sell otherwise, etc. Supply vs demand. Charted on a graph the price would take a nose dive at the end of the day. If a short term investor feels that his position will not improve, it makes sense to liquidate. The more symmetrical market participants' views are, the more the price will change as a result of trading (why would someone sell when they expected the price to go up?. This illustrates the adage that one person's junk is another person's treasure) To be logical we must consider would-be buyers and would-be sellers of the shares. Only in the rather peculiar case of significantly asymmetrical views of the future price will the price remain stable with lots of shares changing hands.
- kelvin0 11y ago
  I wonder how this relates to the 'ghost' towns being built over there? Could this be a consequence of the slowing rate of construction of these huge cities/housing projects (no one lives in practically)? That artificial growth is/was not sustainable and the bubble is bound to collapse, or is this simply oversimplified view of the problem?
  - mikeg8 11y ago
    I've always wondered about this as well. Heavy investments in new cities, when there was no demand for them, just for the sake of "increased growth" was always a red flag to me. Interested in any correlation.
    - ycombobreaker 11y ago
      I don't have any direct sources for this, but the word that I heard from a friend who spent some time in China recently was the following: - Chinese investors have limited places to park their cash. Stock market and real estate are two major options, and real estate is seen as a superior investment (stock market has... problems, you could say) - Chinese law prevents purchasing property without developing it. - Real estate investments therefore require barebones property development--regardless of tenancy--in order to remain legitimate. Therefore, "ghost towns" are a natural outcome of Chinese investment in Chinese growth. They can remain vacant for a long time and still satisfy the investment goals of the developer. (edit: list formatting)
  - hodder 11y ago
    People often point to the "ghost cities" like Ordos when declaring China to be in a massively overbuilt or "artificial" real estate bubble, yet studies such as those done by Mckinsey below predict 350M more people moving to cities by 2030 [1]. Given NYC has a population of about 8M, it appears China actually needs to build an additional 44 NYC sized cities (or expand existing ones) by 2030. Makes you question weather they really in a bubble? It appears they could fill Ordos and 43 other new cities in the next 15 yrs! Perhaps they need to be putting these cities up even more rapidly. [1]http://www.mckinsey.com/insights/urbanization/preparing_for_urban_billion_in_china http://www.mckinsey.com/insights/urbanization/preparing_for_...
- JumpCrisscross 11y ago
  > For a fully functioning stock market you need...stoggy [sic] old buy/hold/long only investors I'd qualify this with value orientation. To have a successful stock market you need the factors you mentioned plus long-term holding value investors. To illustrate the difference, consider what would happen if the Warren Buffetts and David Teppers of the American capital markets put all their money into ETFs. You'd have no price discovery. Someone needs to be wiling to do their own research, reach conclusions with conviction, and trust in those conclusions through short- and medium-term wobbles. Long-term value investors require capital. They also need transparent, liquid markets. China has capital and liquidity. It lacks (along with India, Russia, and a number of other "emerging" equity markets) reliable data and/or trustworthy institutions. This deters long-term value investors [1]. [1] https://www.scribd.com/embeds/294654490/content?start_page=1&view_mode=scroll&access_key=key-xfqKH8QC2LsXN87EW4uk&show_recommendations=false https://www.scribd.com/embeds/294654490/content?start_page=1...
  - bgun 11y ago
    Yes. Or, very simply put, you need more long-term optimists than long-term pessimists. China is wealthy in many ways, but a wealth of optimism is not prevailing.
    - deleted 11y ago
      [deleted]
    - rrggrr 11y ago
      Optimism in society requires faith in leadership. Trust. Transparency. Perhaps even a higher purpose. Maybe even a sense of global humanity. I do wonder how things may have been different for China had its tooling been fitted for slow, highly transparent and deliberate growth.
  - anonu 11y ago
    > ... put all their money into ETFs: you'd have no price discovery ... I disagree. ETFs just track an index. If you buy the ETF, someone else is buying the index (individual components of that ETF) for you...
- pjc50 11y ago
  They have plenty of people who want to make long term investments, but no long term trust. Due to the lack of transparancy and impartial rule of law.
- hkmurakami 11y ago
  > The scariest thing about this for the global equity markets is that in 10-20 years the top 3 markets could be China, India and the US. > Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. The other two countries are about as opaque as you can be. Speaking as a person who actively invests money, that's a very troubling thought. > As one economic nobel prize winner put it... "China and India haven't put out a credible macroeconomic number in the past 10 years". This was one of the reasons cited for renowned hedge fund Nevsky Capital closing its doors. They are up 1212% since 2000. [1] "Data releases have become much less transparent and truthful at both a macro and a micro level. At a macro level the key issue is the ever increasing importance of China and India. China is the world’s second largest economy, but already much larger than the US in a broad swathe of sectors. India will be the world’s third largest economy within a decade. Unfortunately their rise is increasing the global cost of capital because an ever growing share of the most important data they produce is simply not credible. Currently stated Chinese real GDP growth is 7.1% and India’s is 7.4%. Both are substantially over stated. This obfuscation and distortion of data, whether deliberate or inadvertent, makes it increasingly difficult to forecast macro and hence micro as well, for an ever growing share of our investment universe." [1] http://www.zerohedge.com/news/2016-01-05/why-15-billion-nevsky-capital-shutting-down-full-letter http://www.zerohedge.com/news/2016-01-05/why-15-billion-nevs...
- tajen 11y ago
  What is "operate properly" for a stock market? For us Westerners, it means be fair and equal to everyone. But maybe for a less efficient country, it means moving from peer-to-peer trades to centralized, which at least defines a unique trading value and is already better than multiple, independent, bilateral sales contracts.
- AJ007 11y ago
  The most important thing is you need companies that have the ability to return capital to investors. If you do not, what you have is like free-to-play mobile game. Real money goes in, and is then redistributed to the insiders who take it and walk away. This comes in two pieces, first transparency and accuracy of the company: Who is enforcing accounting standards? Who is doing the auditing to ensure the said assets are really there? The second, is the economy based on real demand or something temporary: Are profits dependent on the activity of government officials & central bank finance? It would be very unfair to single China out in this regards, just look at what happened to Brazil.
- sopooneo 11y ago
  I am very ignorant about all this stuff. But am I correct that until recently, the Chinese government was actively devaluating the yaun to support their export industries? But now they've had to do an about-face and start trying to push it up?
- oneJob 11y ago
  So, you know that the NYSE was started by a bunch of guys on the edge of town under a tree? The key was they were located at the heart of the business district, where the transactions were occurring. This has been true and crucial since the early days of "finance", since back in medieval and Renaissance times when merchant houses (as in 'establishments', not actual buildings) exchanged debt and eventually stock. As to the US stock market being "fairly transparent and not run by the whims of the government", check your history man. The US stock market has seen some crazy wild, stock manipulation, insider trading, government manipulating, bucket shop, boiler room, "oops, we have too much paper to process so shut the whole thing down" days. And, I should add, those days aren't over. The mess is still all there, it's just much more sophisticated and comes with a better staffed and better funded marketing department.
evanpw 11y ago
They've already given up on the circuit breakers: http://www.cnbc.com/2016/01/07/chinese-securities-regulator-suspends-market-circuit-breakers.html http://www.cnbc.com/2016/01/07/chinese-securities-regulator-....
- overcast 11y ago
  Well this should get interesting.
- jcyw 11y ago
  Interesting. Considering they stop people selling stock last time. Ha. Lets keep an eye.
  - tyre 11y ago
    They don't stop people from selling. Circuit breakers are useful for one-time flukes (e.g. Flash Crash) but for sustained downturns they can actually make things worse. If you think you _may_ want to sell at all tomorrow but also think a circuit breaker could trigger, you're going to sell first thing in the morning. So will everyone else. The circuit breaker can actually trigger a worse panic as investors all try to squeeze in sell orders at once. This triggers the circuit breaker, confirming everyone's fears, and starts again the next day.
    - fleitz 11y ago
      It makes it worse when they say they are propping up the market, if the market is at a relative peak and daddy warbucks shows up saying he'll buy anything no matter the cost, of course everyone is going to get out while the getting is good.
jakozaur 11y ago
Maybe we should have start numbering those plunges? It's harder to follow them.
- reddytowns 11y ago
  I think names would be better, like they do with hurricanes.
myth_buster 11y ago
So... in about 15 minutes of trade in China, a whopping $637 billion in market cap was wiped out. From yesterday [0]... that's more than the GDP of some countries. [0] https://twitter.com/DavidInglesTV/status/684922104412672001 https://twitter.com/DavidInglesTV/status/684922104412672001
- eterm 11y ago
  But that's just market cap, which isn't comparable in any way to GDP. Both are measures of very different things, and both are very different to actual money.
  - arasmussen 11y ago
    > Both are measures of very different things, and both are very different to actual money. I don't really agree with you. GDP measures the value of goods and services produced by a country over a specific timeframe. Market cap (in this context) measures the value of all companies listed in the stock exchange. Both are ways to measure an economy, and both are measured in units of money. What's the difference between money and "actual money"?
    - oli5679 11y ago
      GDP is a flow (depends on our arbitrary convention of splitting time into years). Market cap is a stock. Comparing one to the other is like comparing a bathtub that holds 100 litres to a hosepipe that discharges 1 litre per minute (or is that 60 litres / hour?).
      - deleted 11y ago
        [deleted]
    - ars 11y ago
      > What's the difference between money and "actual money"? If I buy something from you for $10, and sell it to someone for $10 the GDP goes up by $20. If on the other hand you sell it to someone for $10 the GDP goes up by $10 instead. The value of money + value of tangible goods is the same in both cases, but the GDP is not. They measure different things.
cenal 11y ago
The great recession of 2016 has begun. This is China finally having their 2008 and it impacting the world.
- c-slice 11y ago
  I doubt it will have a long term impact on other markets. Other markets aren't anywhere near as overvalued. Markets have been expecting this since mid 2015. There isn't going to be a liquidity crisis, if anything it will make Chinese goods cheaper as the RMB is devalued. This couldn't be more different than 2008.
  - jamesblonde 11y ago
    China Will export deflation to the rest of the world. That will create lots of problems....
    - jamesblonde 11y ago
      Russell Napiers Anatomy of the bear shows that the unifying feature of all the great bear markets was deflation. With rates aready at zero, central banks will need even more non conventional mechanisms. QE4, then govt spending. That's Napier's thesis...
- xyzzy4 11y ago
  I agree, it could very well prompt a recession. Also looking at the technicals, the 1 year percent change of the S&P 500 is negative, which is a strong recession indicator historically. The 150-300-39 day MACD also looks bad. These indicators have both only been negative one other time since 2009, which was in September 2015. Lastly the US CAPE ratio is pretty bad too.
  - deleted 11y ago
    [deleted]
  - UK-AL 11y ago
    For the past few years, someone has predicting a recession in the next 6 months via technicals. Technicals = Star Signs in most cases.
c-slice 11y ago
Median P/E for Chinese stocks is ~58. This is ~3x higher than every other major exchange. This is just part of a much larger correction. http://assets.bwbx.io/images/iIS_j8I_fYlI/v2/-1x-1.jpg http://assets.bwbx.io/images/iIS_j8I_fYlI/v2/-1x-1.jpg Source: Bloomberg
- largote 11y ago
  Wow, an honest, zero-based Y-axis for once!
  - toomuchtodo 11y ago
    I've found Bloomberg reporting to be pretty top notch, comparatively speaking.
- bostonpete 11y ago
  Do you know where this graph appeared on Bloomberg? According to the Shanghai Stock Exchange website (http://english.sse.com.cn/ http://english.sse.com.cn/), they're Average P/E Ratio is currently 15.62... Edit: Found it myself: http://www.bloomberg.com/news/articles/2015-06-16/real-cost-of-china-stocks-dwarfs-2007-bubble-as-valuations-jump http://www.bloomberg.com/news/articles/2015-06-16/real-cost-...
  - cryptoz 11y ago
    The Bloomberg graphs are Median P/E, you are reading on the SSE website about Average P/E. Perhaps that explains the discrepancy.
    - fallingfrog 11y ago
      Wait, the median P/E is three times higher than the average? That does not sound right. Because the P/E cannot go below zero, the ability of a small number of stocks to throw the average off is limited.. In fact I can't think of any way for the average to be more than twice the median, even if half the stocks (minus one) had a P/E of zero. How would that work, mathematically?
roymurdock 11y ago
On August 23rd, 2015 China announced they would be allowing pension funds to invest in the domestic stock market for the first time ever. [1] Funds were "allowed" (why would they want to invest in a falling, low-confidence market?) to invest up to 30% of net assets. Clearly the government wanted to allow liquidity to flow into the market and calm investors, and it seems to have worked for ~6 months. So now the average Chinese consumer will be double-hosed: once over by losses to their personal retail brokerage account, and again by losses sustained by their pension funds. Hopefully enough Chinese consumers made enough money from the crazy ride up on the market that they cashed out periodically and invested in sensible hard assets such as homes and cars. Because the correction will probably be very painful. [1] http://www.theguardian.com/world/2015/aug/23/china-to-allow-pension-fund-to-invest-in-stock-market-for-first-time http://www.theguardian.com/world/2015/aug/23/china-to-allow-...
dsugarman 11y ago
Tomorrow, they will let it fall[1] [1]http://www.bbc.com/news/business-35253188 http://www.bbc.com/news/business-35253188
- melvinmt 11y ago
  Well, then it's time to buy ProShares UltraShort FTSE China 50 http://www.etf.com/FXP http://www.etf.com/FXP
  - hornbaker 11y ago
    Caveat emptor: http://www.thestreet.com/story/10457663/1/the-perils-of-the-proshares-ultrashorts.html http://www.thestreet.com/story/10457663/1/the-perils-of-the-...
chatmasta 11y ago
This sounds pretty crazy, but is it possible for the Chinese government to manipulate the American stock markets by playing with its own stock market? China knows that when its markets plunge, the American markets plunge too. Is there a way for China to create the illusion of its markets plunging, without losing real value (or at least profiting from the perspective of some influential power in China)? Perhaps they could accomplish such manipulation through a combination of 1) collusion between the CCP and the largest investors in the Chinese market, 2) currency manipulation, and 3) shorting of US equities? I know this sounds speculative and vague, because honestly I have no idea what I'm talking about. But China certainly has the motive to manipulate American markets. And since the foreign investment is asymmetrical (e.g. the Chinese can invest in NYSE, but Americans cannot invest in Shanghai), China has an opportunity to "play both sides" of a Shanghai market crash and any corresponding American market drop, while American investors cannot do the same. So... is it possible?
- justinhj 11y ago
  But China wants its people to feel wealthy. The property boom ended, then there was gold boom. They wanted a stock boom. People that feel wealthy are happy citizens. They have every reason to keep the stock market high.
  - mooreds 11y ago
    The current government doesn't want to lose the Mandate of Heaven: https://en.wikipedia.org/wiki/Mandate_of_Heaven https://en.wikipedia.org/wiki/Mandate_of_Heaven They know their history.
    - duaneb 11y ago
      I mean, you could say the same thing every year for any ruling party for the past millenium. I'm not convinced it's at all relevant to the conversation any more than any government beholden to its people.
      - 11y ago
Tistel 11y ago
If you go to google finance and plot the S&P 500 for all known time you get a chart that goes back to 1975. I see three big humps 2000, 2007 and 2015. This is obviously not the most sophisticated analysis, but, there seems to be a pattern were the market gets over excited and then blows off steam. Maybe we are at the start of a correction. The only thing that concerns me is that those market peaks/humps were due to humans getting concerned and changing behaviour. Maybe now that most trades are just computer to computer the Algos don't "know" to be "scared" and cool it we might keep going up till some epic event corrects it. I am hoping it's a 1-2 year correction that goes down 50-60 percent. But, who knows.
Mikeb85 11y ago
For some perspective look at the Shanghai composite's chart since 2000. The price is still above its 50 day moving average... http://finance.yahoo.com/echarts?s=000001.SS+Interactive#{"showSma":true,"smaColors":"#cc0000","smaPeriods":"50","smaWidths":"2","smaGhosting":"0","range":"max","allowChartStacking":true} http://finance.yahoo.com/echarts?s=000001.SS+Interactive#{"s... This is hardly some sort of disaster or the end of China's prosperity. Just a bump in the road for investors.
grandalf 11y ago
What is a price? It's the amount two people agree to transact for, nothing more. Price trends don't necessarily mean anything, and corrections are good as much as they are bad. A correction means the previous price was incorrect, yet when prices fall humans sentimentally believe the old, higher price must have been correct. It's ridiculous. Governments take extensive measures to control prices and to alter public perception of risk. Sometimes this adds stability to prices, but it often sets things up for a more drastic correction later. Some investors are over-leveraged and must cash out to avoid ruin. Others are speculators trying to ride various trends, but in the end we all benefit from prices being corrected.
- fleitz 11y ago
  > yet when prices fall humans sentimentally believe the old, higher price must have been correct. It's ridiculous. Only sellers believe this, buyers believe that the old lower price was correct and they are being gouged. (See anyone who tries to buy a generator after a hurricane)
deleted 11y ago
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hodder 11y ago
People often point to the "ghost cities" like Ordos when declaring China to be in a massively overbuilt real estate bubble. Yet studies such as those done by Mckinsey below predict 350M more people moving to cities by 2030 [1]. Given NYC has a population of about 8M, it appears China actually needs to build an additional 44 NYC sized cities (or expand existing ones) by 2030. Makes you question weather they really in a bubble? It appears they could fill Ordos and 43 other new cities in the next 15 yrs! Perhaps they need to be putting these cities up even more rapidly. [1]http://www.mckinsey.com/insights/urbanization/preparing_for_urban_billion_in_china http://www.mckinsey.com/insights/urbanization/preparing_for_...
- dmoy 11y ago
  The issue may not be that there is too much building, but that they're building in places people aren't going to be moving to. Ordos is in inner mongolia, and while there are a lot of people there, a lot more are moving to the east coast cities. Right, like if you were predicting 40% city growth in the US, the solution would not be to build new mega cities in Utah (which has a comparable percentage of US's population as Inner Mongolia has in China).
  - hodder 11y ago
    Agree completely, just pointing out the scale of urbanization and trying to make people question what the media "knows" about China.
  - harmegido 11y ago
    Would it be outside the realm of possibility for China to mandate that people move to those cities to fill them?
    - toomuchtodo 11y ago
      No.
- turar 11y ago
  Outside of Ordos, I don't think there are much of any other ghost cities really, unless someone can prove me wrong. All ghost cities from 3-5 years ago that were prominently featured in media are now populated. It just takes that much time for them to get to or near their planned capacity. China's political system allows it a luxury of very long-term planning, unlike the US, unfortunately.
racl101 11y ago
At the risk of sounding stupid, why would Paypal freeze their account and why would the author of this story describe this as "understandably"? Is there something dubious about having that much money in any one account?
s_q_b 11y ago
The Chinese stock market is so far divorced from the real Chinese economy as to be a joke. The government intervention is direct and strong, far stronger than anything we saw in 2008. These companies' listed values might have well have been picked by a roulette wheel.
- rchaud 11y ago
  What numbers are you comparing though? The headline figure for TARP in the US was $700 billion, but even the GAO audit cannot perfectly trace how much it actually cost, as opportunity cost can't be calculated. Financing TARP took resources away from infrastructure projects or other projects for which positive economic externalities apply directly to society, not just bondholders. China has 4x the population of the US. How "big" would the intervention have to be to be stronger than anything in 2008?
  - adventured 11y ago
    TARP was fully repaid. It didn't take money away from routine infrastructure spending. TARP was financed through deficit spending, and it never amounted to $700 billion as it was reduced to a limit of $475 billion. The final tally was $426b put in, $441b repaid. At this point China has thrown roughly a trillion dollars just at trying to prop up their stock market [1]. That doesn't include what they've burned trying to control their currency, what they've spent trying to keep their real estate bubble from completely falling apart, and what they've spent dealing with zombie companies and their vast shadow corporate and muni debt, and so on. [1] http://uk.reuters.com/article/uk-china-markets-rescue-idUKKCN0PX0AU20150723 http://uk.reuters.com/article/uk-china-markets-rescue-idUKKC...
    - s_q_b 11y ago
      A nit I'd like to pick is also that China has a vastly smaller PPP adjusted total GDP. So even four times the number of people, even a guaranteed loan program the size of TARP would be a larger intervention. To digress a little bit, I know this may be heresy, but TARP was the single most courageous and under appreciated accomplishment of the G.W. Bush administration. It's an economic miracle that when push came to shove, suddenly we were all Keynesians again.
whiddershins 11y ago
I wonder if the auto-halting behavior makes the problem worse, not better. Psychologically, if you know the markets will close if they drop too fast, it might actually encourage traders try harder and rush faster to be the first one to sell off more stocks that day before time runs out.
chvid 11y ago
A thing to remember in this are the sizes of the various markets. NYSE, the largest in USA, has a combined market value of 20 trillion dollars, whereas the largest in China (Shanghai Stock Exchange) has a combined market value of 4 trillion. This is for two economies of about the same size. This means that when the Chinese market drops (or raises) the overall impact for the wealth of the country is much smaller than a similar change would cause in the American markets. https://en.wikipedia.org/wiki/Stock_exchange https://en.wikipedia.org/wiki/Stock_exchange
- doyoulikeworms 11y ago
  While GDP (PPP) of China and USA are similar, this isn't the same as saying that their wealth is similar. The USA's net national wealth is about $85 trillion, while China's is about $22 trillion. I have a feeling that a much larger proportion of the USA's stock market is held by foreigners compared to China. It is possible that drops (or raises) in the Chinese market actually affect Chinese wealth more than in American markets... https://en.wikipedia.org/wiki/National_wealth https://en.wikipedia.org/wiki/National_wealth
  - dmix 11y ago
    I'd be more interested in what percentage of the US stock market vs China is held by a tiny percentage of the population vs a broader public. Reductions in wealthy by a tiny minority has a smaller impact than the latter when looking beyond statistics.
jzd 11y ago
What does this mean for Bitcoin?
- fleitz 11y ago
  Nothing, the block chain fixes all this because hashes.
fleitz 11y ago
What China did just put out a giant flashing neon sign that they will buy any (overvalued) asset at the current market price. Every owner of an equity is lining up to sell their assets to the big idiot with the giant flashing neon sign saying they will buy anything, knowing that the more they flood the market, the more the central committee will buy. China, you just got played, welcome to the market.
Kinnard 11y ago
https://news.ycombinator.com/item?id=10862007 https://news.ycombinator.com/item?id=10862007 I'm surprised there's no mention of the impact of recently rising Federal Reserve Rates[1] on the Chinese Currency or the fact that the Yen was recently added the IMF's Special Drawing Rights currency[2]. Since China's moves in August I think its fair to characterize this as a currency war. And it's Dollar Hegemony that's hanging in the balance[3]. Many have characterized it as a war for much longer. What's different now? The proxy wars between the United States and Russia are heating up and tensions between China and the rest of East Asia are heating up. Western sanctions on Russia for Ukraine pushed it toward China and that may just have been the tipping point[4]. I find it remarkable how able the performances of equity markets are to obfuscate the currency and bond markets that are driving them[5]. When equities move fortunes change, when currencies move, the balance of power on the planet changes. [1] http://qz.com/588049/what-the-fed-was-thinking-when-it-finally-raised-interest-rates-last-month/ http://qz.com/588049/what-the-fed-was-thinking-when-it-final... [2] http://www.globalresearch.ca/chinese-yuan-incorporated-into-imf-special-drawing-rights-sdr-us-congress-gives-in-and-endorses-the-imf-quotas-reform/5499619 http://www.globalresearch.ca/chinese-yuan-incorporated-into-... [3] http://www.brookings.edu/blogs/ben-bernanke/posts/2016/01/07-dollar-international-role http://www.brookings.edu/blogs/ben-bernanke/posts/2016/01/07... [4] http://www.economist.com/news/china/21650566-crisis-ukraine-drawing-russia-closer-china-relationship-far-equal http://www.economist.com/news/china/21650566-crisis-ukraine-... [5] http://qz.com/588704/chinas-stock-market-isnt-the-problem/ http://qz.com/588704/chinas-stock-market-isnt-the-problem/
tim333 11y ago
Looking at the graph the Chinese market traded around 2000 to 2500 from until late 2014 so that's probably what its companies are worth. Since then it doubled with speculators buying because things were going up but now that's stopped and the companies are still worth what they are worth and so back it goes. That's how markets are supposed to work - people but and sell stuff for roughly what it's worth. The current Chinese government seems to have some other bright ideas though like trying to boost prices when there is a parade on (http://www.slate.com/blogs/moneybox/2015/08/31/china_s_stock_market_intervention_the_government_intervened_for_the_sake.html http://www.slate.com/blogs/moneybox/2015/08/31/china_s_stock...). Not sure that works long term.
fratlas 11y ago
What does this mean in layman terms?

394 points by jayess 11y ago

China unfortunately created stock market but doesn't have the requisite pieces to allow one to operate properly. For a fully functioning stock market you need: - capital, which they have - speculators, to make trades happen, they have these - transparency in how your market works, or atlest the appearance that the market is fair to all - and you need stoggy old buy/hold/long only investors. China is missing these. In most markets the latter is done by ETF retirement investment and pension plans who have to invest 100's of billions of dollars each year. The scariest thing about this for the global equity markets is that in 10-20 years the top 3 markets could be China, India and the US. Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. The other two countries are about as opaque as you can be. Speaking as a person who actively invests money, that's a very troubling thought. As one economic nobel prize winner put it... "China and India haven't put out a credible macroeconomic number in the past 10 years". China is also loosing alot of money each month trying to support the yuan. I saw a credible estimate of about 100 billion a month since October.

fragsworth 11y ago
> and you need stoggy old buy/hold/long only investors. China is missing these. I've never heard about this before, and it doesn't even make sense. It sounds to me like you made it up.
- chollida1 11y ago
  Which part? Because I'm more than willing to stand on those points as being accurate. The assertion that you need someone to actually buy and hold stocks to have a stock market, or the assertion that there aren't pension funds and ETF funds willing and able to put 100's of billions of money into the market? These two types of investors act as dampers. When the markets go south they are the ones who start buying up "bargains" and hold their existing positions because they aren't worries about 6 month returns they are worried about 25 year returns > It sounds to me like you made it up. You can think that if you'd like... Since trading on the equity markets is my day job, I'm pretty comfortable with my knowledge of them.
  - lintiness 11y ago
    pension and etf funds are for the most part full invested. outside investors with dollar signs in their eyes are what you're talking about, and there's absolutely nothing preventing these investors from buying chinese stocks (hong kong proxy or whatever).
    - jonknee 11y ago
      They have new money coming in every month.
  - chatmasta 11y ago
    > or the assertion that there aren't pension funds and ETF funds willing and able to put 100's of billions of money into the market? Based on your HN profile, you are 10000x more qualified than me on this subject, but I would like to see some evidence to back up the claim that the shanghai stock exchange has no pension funds trading large volumes of equities over long time horizons. According to the wikipedia chronology of the Shanghai Stock Exchange [1], an influx of speculators did not enter the market until 2006-2007, following the "unbanning" of IPO's. Presumably the implication is that prior to speculators entering the market, most trades were executed by large institutional investors. If these institutional investors are not trading on long time horizons (like a pension fund would), then who are they, where does their funding come from, and for what purpose do they use the exchange? [1] https://en.wikipedia.org/wiki/Shanghai_Stock_Exchange#Chronology https://en.wikipedia.org/wiki/Shanghai_Stock_Exchange#Chrono...
  - dilemma 11y ago
    The individual investors that joined the stock market in 2006 are all "pension funds" in their own right. That is what they are saving for, amongst other things. And of course there are pension funds in China.
danbruc 11y ago
So why are people then trading stocks in China or India or wherever if they don't trust the system? They wouldn't be able to become the largest stock markets if nobody would trade there and there would be nothing to be scared by.
- khuey 11y ago
  Where else is your average Chinese person going to trade stocks, especially given the government's capital controls?
  - danbruc 11y ago
    Don't trade stocks. If this is no option for whatever reasons it would still be a problem contained in China if all the outside investors stayed away.
    - jfoutz 11y ago
      I think you're underestimating how pervasive the stock market is in doing stuff. Say, foxconn wants to build a new factory. they put up stock as collateral for a loan to pay for it. Stock crashes. They have to sell existing assets to cover the loan. Even if they retain control by selling to a trusted partner, the asset shift is painful. If you can imagine foxconn getting into that trouble, it's very easy to imagine them not being able to manufacture IPhones or Galaxys for a few months while they negotiate contracts with the new asset owners. Any idea what that would do to Apple stock? And, you know, your 401k? This is an extreme example, but captures the spirit. when suppliers go out of business, or even run into trouble, all the companies that depend on them slow down, have to renegotiate new contracts, possibly miss deadlines. It can be ugly.
- CSMastermind 11y ago
  Because you can still make money in the short term. The lack of transparency means that every dollar you invest there has extra risk attached to it. This discourages long term and large investments while promoting short term thinking and risky behavior.
at-fates-hands 11y ago
>> Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. This. This will be China's undoing. The hardest thing to try and control are open market forces - which China is clearly controlling and attempting to manipulate, with disastrous results.
- vinceguidry 11y ago
  CCP cares way more about maintaining control than in ensuring stability. I'm sure they have plans in place to shut the whole market down if they decide it needs to be done.
  - fnordfnordfnord 11y ago
    Stability is arguably the preferable method to retain control.
    - Rmilb 11y ago
      ie, Mandate of Heaven. https://en.wikipedia.org/wiki/Mandate_of_Heaven https://en.wikipedia.org/wiki/Mandate_of_Heaven
  - AnimalMuppet 11y ago
    > CCP cares way more about maintaining control than in ensuring stability. That may be true. But I think they also see lack of stability as threatening their ability to remain in control. So in practice, they care a great deal about stability.
    - vinceguidry 11y ago
      They have other ways of maintaining stability. Ways they have been relying on for decades before there ever were viable financial markets. They can simply fall back on those.
      - 11y ago
ocean3 11y ago
Why do think Indian stock market is not transparent?
- tintri 11y ago
  "india" is being lumped together just for namesake. I don't think indian market is any less transparent than US/Japan or others.
  - berberous 11y ago
    Nevsky Capital, a successful hedge fund, just shut down and released an interesting letter to its investors that's worth reading in full. I'm not sure about the transparency of India's stock market, but it did not have nice things to say about the quality of their economic data: "Data releases have become much less transparent and truthful at both a macro and a micro level. At a macro level the key issue is the ever increasing importance of China and India. China is the world’s second largest economy, but already much larger than the US in a broad swathe of sectors. India will be the world’s third largest economy within a decade. Unfortunately their rise is increasing the global cost of capital because an ever growing share of the most important data they produce is simply not credible. Currently stated Chinese real GDP growth is 7.1% and India’s is 7.4%. Both are substantially over stated. This obfuscation and distortion of data, whether deliberate or inadvertent, makes it increasingly difficult to forecast macro and hence micro as well, for an ever growing share of our investment universe." http://www.businessinsider.com/nevsky-capital-closing-letter-2016-1 http://www.businessinsider.com/nevsky-capital-closing-letter...
    - chimeracoder 11y ago
      It's really frustrating to see China and India constantly discussed as if they were a single unit, particularly when it comes to economics. Aside from the fact that they are (a) both very large, and (b) both rapidly developing countries/economies, China and India share very little in common. There are challenges to investing in either China or India, but the reasons behind those challenges are about as different as you can get. The underlying issues in the two countries are dramatically different.
cubano 11y ago
> Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. I wish I could believe this, but after years of federal debt fueled Quantitative Easing and implicit guarantees of "too big to fail", I've stopped believing this is true.
- marcusgarvey 11y ago
  Says former Fed governor Fisher: "We frontloaded a tremendous market rally to create a wealth effect ... The Federal Reserve is a giant weapon that has no ammunition left." http://globaleconomicanalysis.blogspot.com/2016/01/former-dallas-fed-governor-richard.html?m=1 http://globaleconomicanalysis.blogspot.com/2016/01/former-da...
- andrewvc 11y ago
  This is true to SOME extent, but the amount of interference in china is on a whole other order of magnitude. For instance, read this July piece from the Guardian: http://www.theguardian.com/world/2015/jul/16/why-chinas-stock-market-bubble-was-always-bound-burst http://www.theguardian.com/world/2015/jul/16/why-chinas-stoc...
- jfoutz 11y ago
  I think, 'transparency' in this sense might be more akin to 'predictability'. If you can count on the big players to act a certain way, even if that's the most evil thing possible, you can make a decision with confidence. if they're out there doing random stuff all the time, it's really tough to say, 'this is the right choice'. I just finished Too Big to Fail by Sorkin. From that point of view, everyone was facing something that had never happened before, so it's hard to be predictable in that case. One day, they push J.P. Morgan to buy Bear Sterns. One day they let Lehman Brothers die. One day they nationalize the banks. It was just all over the map. On the other hand, they were facing something new, never really thought about before. It's hard to have policy for rare events, so they just kind of tried stuff and iterated on what worked. It's kind of a testament to the quality of the US market that you can say for sure, 'i don't want any of that', because of a specific reason. That's very different, and far more valuable than 'i don't want any of that because it's incomprehensible'.
youonlyliveonce 11y ago
I thought the Indian stock market was relatively transparent
deleted 11y ago
[deleted]
fnordfnordfnord 11y ago
> in 10-20 years the top 3 markets could be China, India and the US. What about Brazil? (not that they are transparent/credible, but that they ought to have huge economic growth over the next ~20yr)
- macspoofing 11y ago
  Brazil has a fundamental mistrust of the free-market that holds it back. It's tough doing business in Brazil.
  - fnordfnordfnord 11y ago
    I've had a little experience with this and I agree. If they can improve here (and what's to say they won't in the next decade), what's left to hold them back?
  - rchaud 11y ago
    What specifically about the free market is hold Brazil back? What changes would increase economic output? I understand that import taxes on things like consumer electronics are punitively high, but that's a cross-section of the consumption aspect of GDP. GDP can still be increased through capital investment, fiscal policy and net export growth.
  - mastazi 11y ago
    > It's tough doing business in Brazil. Yes, dysfunctional bureaucracy both in the public and in the private sector (government, banks etc.) makes it really hard to create and manage any business. I tried really hard for a while, but it didn't work out.
- leogiertz 11y ago
  It's probably going to be a while before Brazil resumes its trajectory: http://www.economist.com/news/briefing/21684778-former-star-emerging-world-faces-lost-decade-irredeemable http://www.economist.com/news/briefing/21684778-former-star-...
  - 11y ago
sharetea 11y ago
Doubtful about the top market; China has a 20 year deflationary depression ahead of them. 1-2% gdp growth http://www.barrons.com/articles/anne-stevenson-yang-why-xi-jinpings-troubles-and-chinas-could-get-worse-1417846773 http://www.barrons.com/articles/anne-stevenson-yang-why-xi-j... 280% gdp/debt ratio http://www.forbes.com/sites/kenrapoza/2015/05/09/chinas-total-debt-load-now-over-280-of-gdp/ http://www.forbes.com/sites/kenrapoza/2015/05/09/chinas-tota... bankrupt shadow banks http://www.ft.com/cms/s/0/06cc9b9c-44c4-11e5-b3b2-1672f710807b.html http://www.ft.com/cms/s/0/06cc9b9c-44c4-11e5-b3b2-1672f71080... bankrupt state commodity firms http://www.bloomberg.com/news/articles/2015-10-14/the-next-china-default-could-be-days-away-as-steel-firms-suffer http://www.bloomberg.com/news/articles/2015-10-14/the-next-c... only a trillion reserve left http://www.businessinsider.com/china-burned-through-108b-in-december-2016-1 http://www.businessinsider.com/china-burned-through-108b-in-... $850 Billion Left China So Far This Year http://www.theepochtimes.com/n3/1882874-as-much-as-850b-left-china-so-far-this-year/ http://www.theepochtimes.com/n3/1882874-as-much-as-850b-left... Manufacturing moving out of China http://www.forbes.com/sites/kenrapoza/2015/10/11/is-the-made-in-china-clothing-label-a-thing-of-the-past/ http://www.forbes.com/sites/kenrapoza/2015/10/11/is-the-made... Coupled with China's lack of global consumer brands, corruption, pollution, demographics issues, global slowdown, carry trade unwind, rising US interest rates...you get the idea
- exelius 11y ago
  > Coupled with lack of global consumer brands, corruption, pollution, demographics issues, global slowdown, carry trade unwind, rising us interest rates... You don't need global consumer brands when your country is the size of China. They have 15% of the world's population and speak a language that few outside the country can speak and even fewer can read: nobody else is going to come in and take those customers except Chinese companies. Corruption is being cleaned up; but it's still a real problem at the local level. Again, pollution is a huge problem but China is betting the farm on "clean" energy tech and will be the energy leaders of the world in 20 years. If (or when) they figure it out, they're the only ones with the manufacturing skill and capacity to mass-produce. The truth is, we've never seen what happens when a large country "awakens" in the age of globalization. Macroeconomic theory is largely based on the import/export balance, which is increasingly less important as borders become less meaningful (and import/export controls become increasingly difficult to enforce). I have a feeling that China will surprise us - despite the fact that they will have negative population growth over the next few decades and an aging population, the fact that they are actively moving subsistence farmers to the cities may stall the effect of a shrinking population with the added consumption / demand from turning poor farmers into urban consumers. Their aging population is also accustomed to a lower standard of living than the up-and-coming generation. Population deflation has been especially damaging to Japan because it hit them after they had become a heavily industrialized country. Despite the huge progress China has made, hundreds of millions of people still live in poor farming villages. That's a source of potential growth that I expect the Chinese government to tap strategically.
grandalf 11y ago
I'm skeptical that the presence of buy and hold investors is the missing ingredient. Even if 15% of investors are speculators, the price can still swing drastically, since price is a function of supply and demand, and the charts we're seeing are not volume-weighted. Market price stability is a function of the uniformity of supply and demand over time. Buy and hold investors already own the stock so their preferences are not reflected in short term supply/demand uniformity (price stability). What we're seeing in China is a lack of uniformity of views on the future price, and thus rapid fluctuations in supply/demand uniformity over time. Government instability plays into that tremendously.
- TheOtherHobbes 11y ago
  Price is a function of faith in the future. What we're seeing is a lack of faith that many are finding disturbing.
  - grandalf 11y ago
    > Price is a function of faith in the future. That is a fairly unfalsifiable statement, and it is trivially true for nearly anything, b/c we all make all decisions today based on the faith/expectation that we will be alive tomorrow. The notion that tomorrow will be substantially different from today makes nearly all planning useless, so it's trivial that all planning hinges on some notion of faith in the future. But price itself is only a function of supply and demand. If I am selling bread and it's nearly time for me to go home and the bread will be stale tomorrow, I might offer the remaining loaves to the last few customers at a discount if I expect it not to sell otherwise, etc. Supply vs demand. Charted on a graph the price would take a nose dive at the end of the day. If a short term investor feels that his position will not improve, it makes sense to liquidate. The more symmetrical market participants' views are, the more the price will change as a result of trading (why would someone sell when they expected the price to go up?. This illustrates the adage that one person's junk is another person's treasure) To be logical we must consider would-be buyers and would-be sellers of the shares. Only in the rather peculiar case of significantly asymmetrical views of the future price will the price remain stable with lots of shares changing hands.
kelvin0 11y ago
I wonder how this relates to the 'ghost' towns being built over there? Could this be a consequence of the slowing rate of construction of these huge cities/housing projects (no one lives in practically)? That artificial growth is/was not sustainable and the bubble is bound to collapse, or is this simply oversimplified view of the problem?
- mikeg8 11y ago
  I've always wondered about this as well. Heavy investments in new cities, when there was no demand for them, just for the sake of "increased growth" was always a red flag to me. Interested in any correlation.
  - ycombobreaker 11y ago
    I don't have any direct sources for this, but the word that I heard from a friend who spent some time in China recently was the following: - Chinese investors have limited places to park their cash. Stock market and real estate are two major options, and real estate is seen as a superior investment (stock market has... problems, you could say) - Chinese law prevents purchasing property without developing it. - Real estate investments therefore require barebones property development--regardless of tenancy--in order to remain legitimate. Therefore, "ghost towns" are a natural outcome of Chinese investment in Chinese growth. They can remain vacant for a long time and still satisfy the investment goals of the developer. (edit: list formatting)
- hodder 11y ago
  People often point to the "ghost cities" like Ordos when declaring China to be in a massively overbuilt or "artificial" real estate bubble, yet studies such as those done by Mckinsey below predict 350M more people moving to cities by 2030 [1]. Given NYC has a population of about 8M, it appears China actually needs to build an additional 44 NYC sized cities (or expand existing ones) by 2030. Makes you question weather they really in a bubble? It appears they could fill Ordos and 43 other new cities in the next 15 yrs! Perhaps they need to be putting these cities up even more rapidly. [1]http://www.mckinsey.com/insights/urbanization/preparing_for_urban_billion_in_china http://www.mckinsey.com/insights/urbanization/preparing_for_...
JumpCrisscross 11y ago
> For a fully functioning stock market you need...stoggy [sic] old buy/hold/long only investors I'd qualify this with value orientation. To have a successful stock market you need the factors you mentioned plus long-term holding value investors. To illustrate the difference, consider what would happen if the Warren Buffetts and David Teppers of the American capital markets put all their money into ETFs. You'd have no price discovery. Someone needs to be wiling to do their own research, reach conclusions with conviction, and trust in those conclusions through short- and medium-term wobbles. Long-term value investors require capital. They also need transparent, liquid markets. China has capital and liquidity. It lacks (along with India, Russia, and a number of other "emerging" equity markets) reliable data and/or trustworthy institutions. This deters long-term value investors [1]. [1] https://www.scribd.com/embeds/294654490/content?start_page=1&view_mode=scroll&access_key=key-xfqKH8QC2LsXN87EW4uk&show_recommendations=false https://www.scribd.com/embeds/294654490/content?start_page=1...
- bgun 11y ago
  Yes. Or, very simply put, you need more long-term optimists than long-term pessimists. China is wealthy in many ways, but a wealth of optimism is not prevailing.
  - deleted 11y ago
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  - rrggrr 11y ago
    Optimism in society requires faith in leadership. Trust. Transparency. Perhaps even a higher purpose. Maybe even a sense of global humanity. I do wonder how things may have been different for China had its tooling been fitted for slow, highly transparent and deliberate growth.
- anonu 11y ago
  > ... put all their money into ETFs: you'd have no price discovery ... I disagree. ETFs just track an index. If you buy the ETF, someone else is buying the index (individual components of that ETF) for you...
pjc50 11y ago
They have plenty of people who want to make long term investments, but no long term trust. Due to the lack of transparancy and impartial rule of law.
hkmurakami 11y ago
> The scariest thing about this for the global equity markets is that in 10-20 years the top 3 markets could be China, India and the US. > Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. The other two countries are about as opaque as you can be. Speaking as a person who actively invests money, that's a very troubling thought. > As one economic nobel prize winner put it... "China and India haven't put out a credible macroeconomic number in the past 10 years". This was one of the reasons cited for renowned hedge fund Nevsky Capital closing its doors. They are up 1212% since 2000. [1] "Data releases have become much less transparent and truthful at both a macro and a micro level. At a macro level the key issue is the ever increasing importance of China and India. China is the world’s second largest economy, but already much larger than the US in a broad swathe of sectors. India will be the world’s third largest economy within a decade. Unfortunately their rise is increasing the global cost of capital because an ever growing share of the most important data they produce is simply not credible. Currently stated Chinese real GDP growth is 7.1% and India’s is 7.4%. Both are substantially over stated. This obfuscation and distortion of data, whether deliberate or inadvertent, makes it increasingly difficult to forecast macro and hence micro as well, for an ever growing share of our investment universe." [1] http://www.zerohedge.com/news/2016-01-05/why-15-billion-nevsky-capital-shutting-down-full-letter http://www.zerohedge.com/news/2016-01-05/why-15-billion-nevs...
tajen 11y ago
What is "operate properly" for a stock market? For us Westerners, it means be fair and equal to everyone. But maybe for a less efficient country, it means moving from peer-to-peer trades to centralized, which at least defines a unique trading value and is already better than multiple, independent, bilateral sales contracts.
AJ007 11y ago
The most important thing is you need companies that have the ability to return capital to investors. If you do not, what you have is like free-to-play mobile game. Real money goes in, and is then redistributed to the insiders who take it and walk away. This comes in two pieces, first transparency and accuracy of the company: Who is enforcing accounting standards? Who is doing the auditing to ensure the said assets are really there? The second, is the economy based on real demand or something temporary: Are profits dependent on the activity of government officials & central bank finance? It would be very unfair to single China out in this regards, just look at what happened to Brazil.
sopooneo 11y ago
I am very ignorant about all this stuff. But am I correct that until recently, the Chinese government was actively devaluating the yaun to support their export industries? But now they've had to do an about-face and start trying to push it up?
oneJob 11y ago
So, you know that the NYSE was started by a bunch of guys on the edge of town under a tree? The key was they were located at the heart of the business district, where the transactions were occurring. This has been true and crucial since the early days of "finance", since back in medieval and Renaissance times when merchant houses (as in 'establishments', not actual buildings) exchanged debt and eventually stock. As to the US stock market being "fairly transparent and not run by the whims of the government", check your history man. The US stock market has seen some crazy wild, stock manipulation, insider trading, government manipulating, bucket shop, boiler room, "oops, we have too much paper to process so shut the whole thing down" days. And, I should add, those days aren't over. The mess is still all there, it's just much more sophisticated and comes with a better staffed and better funded marketing department.

evanpw 11y ago

They've already given up on the circuit breakers: http://www.cnbc.com/2016/01/07/chinese-securities-regulator-suspends-market-circuit-breakers.html http://www.cnbc.com/2016/01/07/chinese-securities-regulator-....

overcast 11y ago
Well this should get interesting.
jcyw 11y ago
Interesting. Considering they stop people selling stock last time. Ha. Lets keep an eye.
- tyre 11y ago
  They don't stop people from selling. Circuit breakers are useful for one-time flukes (e.g. Flash Crash) but for sustained downturns they can actually make things worse. If you think you _may_ want to sell at all tomorrow but also think a circuit breaker could trigger, you're going to sell first thing in the morning. So will everyone else. The circuit breaker can actually trigger a worse panic as investors all try to squeeze in sell orders at once. This triggers the circuit breaker, confirming everyone's fears, and starts again the next day.
  - fleitz 11y ago
    It makes it worse when they say they are propping up the market, if the market is at a relative peak and daddy warbucks shows up saying he'll buy anything no matter the cost, of course everyone is going to get out while the getting is good.

jakozaur 11y ago

Maybe we should have start numbering those plunges? It's harder to follow them.

reddytowns 11y ago
I think names would be better, like they do with hurricanes.

myth_buster 11y ago

So... in about 15 minutes of trade in China, a whopping $637 billion in market cap was wiped out. From yesterday [0]... that's more than the GDP of some countries. [0] https://twitter.com/DavidInglesTV/status/684922104412672001 https://twitter.com/DavidInglesTV/status/684922104412672001

eterm 11y ago
But that's just market cap, which isn't comparable in any way to GDP. Both are measures of very different things, and both are very different to actual money.
- arasmussen 11y ago
  > Both are measures of very different things, and both are very different to actual money. I don't really agree with you. GDP measures the value of goods and services produced by a country over a specific timeframe. Market cap (in this context) measures the value of all companies listed in the stock exchange. Both are ways to measure an economy, and both are measured in units of money. What's the difference between money and "actual money"?
  - oli5679 11y ago
    GDP is a flow (depends on our arbitrary convention of splitting time into years). Market cap is a stock. Comparing one to the other is like comparing a bathtub that holds 100 litres to a hosepipe that discharges 1 litre per minute (or is that 60 litres / hour?).
    - deleted 11y ago
      [deleted]
  - ars 11y ago
    > What's the difference between money and "actual money"? If I buy something from you for $10, and sell it to someone for $10 the GDP goes up by $20. If on the other hand you sell it to someone for $10 the GDP goes up by $10 instead. The value of money + value of tangible goods is the same in both cases, but the GDP is not. They measure different things.

cenal 11y ago

The great recession of 2016 has begun. This is China finally having their 2008 and it impacting the world.

c-slice 11y ago
I doubt it will have a long term impact on other markets. Other markets aren't anywhere near as overvalued. Markets have been expecting this since mid 2015. There isn't going to be a liquidity crisis, if anything it will make Chinese goods cheaper as the RMB is devalued. This couldn't be more different than 2008.
- jamesblonde 11y ago
  China Will export deflation to the rest of the world. That will create lots of problems....
  - jamesblonde 11y ago
    Russell Napiers Anatomy of the bear shows that the unifying feature of all the great bear markets was deflation. With rates aready at zero, central banks will need even more non conventional mechanisms. QE4, then govt spending. That's Napier's thesis...
xyzzy4 11y ago
I agree, it could very well prompt a recession. Also looking at the technicals, the 1 year percent change of the S&P 500 is negative, which is a strong recession indicator historically. The 150-300-39 day MACD also looks bad. These indicators have both only been negative one other time since 2009, which was in September 2015. Lastly the US CAPE ratio is pretty bad too.
- deleted 11y ago
  [deleted]
- UK-AL 11y ago
  For the past few years, someone has predicting a recession in the next 6 months via technicals. Technicals = Star Signs in most cases.

c-slice 11y ago

Median P/E for Chinese stocks is ~58. This is ~3x higher than every other major exchange. This is just part of a much larger correction. http://assets.bwbx.io/images/iIS_j8I_fYlI/v2/-1x-1.jpg http://assets.bwbx.io/images/iIS_j8I_fYlI/v2/-1x-1.jpg Source: Bloomberg

largote 11y ago
Wow, an honest, zero-based Y-axis for once!
- toomuchtodo 11y ago
  I've found Bloomberg reporting to be pretty top notch, comparatively speaking.
bostonpete 11y ago
Do you know where this graph appeared on Bloomberg? According to the Shanghai Stock Exchange website (http://english.sse.com.cn/ http://english.sse.com.cn/), they're Average P/E Ratio is currently 15.62... Edit: Found it myself: http://www.bloomberg.com/news/articles/2015-06-16/real-cost-of-china-stocks-dwarfs-2007-bubble-as-valuations-jump http://www.bloomberg.com/news/articles/2015-06-16/real-cost-...
- cryptoz 11y ago
  The Bloomberg graphs are Median P/E, you are reading on the SSE website about Average P/E. Perhaps that explains the discrepancy.
  - fallingfrog 11y ago
    Wait, the median P/E is three times higher than the average? That does not sound right. Because the P/E cannot go below zero, the ability of a small number of stocks to throw the average off is limited.. In fact I can't think of any way for the average to be more than twice the median, even if half the stocks (minus one) had a P/E of zero. How would that work, mathematically?

roymurdock 11y ago

On August 23rd, 2015 China announced they would be allowing pension funds to invest in the domestic stock market for the first time ever. [1] Funds were "allowed" (why would they want to invest in a falling, low-confidence market?) to invest up to 30% of net assets. Clearly the government wanted to allow liquidity to flow into the market and calm investors, and it seems to have worked for ~6 months. So now the average Chinese consumer will be double-hosed: once over by losses to their personal retail brokerage account, and again by losses sustained by their pension funds. Hopefully enough Chinese consumers made enough money from the crazy ride up on the market that they cashed out periodically and invested in sensible hard assets such as homes and cars. Because the correction will probably be very painful. [1] http://www.theguardian.com/world/2015/aug/23/china-to-allow-pension-fund-to-invest-in-stock-market-for-first-time http://www.theguardian.com/world/2015/aug/23/china-to-allow-...

dsugarman 11y ago

Tomorrow, they will let it fall[1] [1]http://www.bbc.com/news/business-35253188 http://www.bbc.com/news/business-35253188

melvinmt 11y ago
Well, then it's time to buy ProShares UltraShort FTSE China 50 http://www.etf.com/FXP http://www.etf.com/FXP
- hornbaker 11y ago
  Caveat emptor: http://www.thestreet.com/story/10457663/1/the-perils-of-the-proshares-ultrashorts.html http://www.thestreet.com/story/10457663/1/the-perils-of-the-...

chatmasta 11y ago

This sounds pretty crazy, but is it possible for the Chinese government to manipulate the American stock markets by playing with its own stock market? China knows that when its markets plunge, the American markets plunge too. Is there a way for China to create the illusion of its markets plunging, without losing real value (or at least profiting from the perspective of some influential power in China)? Perhaps they could accomplish such manipulation through a combination of 1) collusion between the CCP and the largest investors in the Chinese market, 2) currency manipulation, and 3) shorting of US equities? I know this sounds speculative and vague, because honestly I have no idea what I'm talking about. But China certainly has the motive to manipulate American markets. And since the foreign investment is asymmetrical (e.g. the Chinese can invest in NYSE, but Americans cannot invest in Shanghai), China has an opportunity to "play both sides" of a Shanghai market crash and any corresponding American market drop, while American investors cannot do the same. So... is it possible?

justinhj 11y ago
But China wants its people to feel wealthy. The property boom ended, then there was gold boom. They wanted a stock boom. People that feel wealthy are happy citizens. They have every reason to keep the stock market high.
- mooreds 11y ago
  The current government doesn't want to lose the Mandate of Heaven: https://en.wikipedia.org/wiki/Mandate_of_Heaven https://en.wikipedia.org/wiki/Mandate_of_Heaven They know their history.
  - duaneb 11y ago
    I mean, you could say the same thing every year for any ruling party for the past millenium. I'm not convinced it's at all relevant to the conversation any more than any government beholden to its people.
    - 11y ago

Tistel 11y ago

If you go to google finance and plot the S&P 500 for all known time you get a chart that goes back to 1975. I see three big humps 2000, 2007 and 2015. This is obviously not the most sophisticated analysis, but, there seems to be a pattern were the market gets over excited and then blows off steam. Maybe we are at the start of a correction. The only thing that concerns me is that those market peaks/humps were due to humans getting concerned and changing behaviour. Maybe now that most trades are just computer to computer the Algos don't "know" to be "scared" and cool it we might keep going up till some epic event corrects it. I am hoping it's a 1-2 year correction that goes down 50-60 percent. But, who knows.

Mikeb85 11y ago

For some perspective look at the Shanghai composite's chart since 2000. The price is still above its 50 day moving average... http://finance.yahoo.com/echarts?s=000001.SS+Interactive#{"showSma":true,"smaColors":"#cc0000","smaPeriods":"50","smaWidths":"2","smaGhosting":"0","range":"max","allowChartStacking":true} http://finance.yahoo.com/echarts?s=000001.SS+Interactive#{"s... This is hardly some sort of disaster or the end of China's prosperity. Just a bump in the road for investors.

grandalf 11y ago

What is a price? It's the amount two people agree to transact for, nothing more. Price trends don't necessarily mean anything, and corrections are good as much as they are bad. A correction means the previous price was incorrect, yet when prices fall humans sentimentally believe the old, higher price must have been correct. It's ridiculous. Governments take extensive measures to control prices and to alter public perception of risk. Sometimes this adds stability to prices, but it often sets things up for a more drastic correction later. Some investors are over-leveraged and must cash out to avoid ruin. Others are speculators trying to ride various trends, but in the end we all benefit from prices being corrected.

fleitz 11y ago
> yet when prices fall humans sentimentally believe the old, higher price must have been correct. It's ridiculous. Only sellers believe this, buyers believe that the old lower price was correct and they are being gouged. (See anyone who tries to buy a generator after a hurricane)

deleted 11y ago

[deleted]

hodder 11y ago

People often point to the "ghost cities" like Ordos when declaring China to be in a massively overbuilt real estate bubble. Yet studies such as those done by Mckinsey below predict 350M more people moving to cities by 2030 [1]. Given NYC has a population of about 8M, it appears China actually needs to build an additional 44 NYC sized cities (or expand existing ones) by 2030. Makes you question weather they really in a bubble? It appears they could fill Ordos and 43 other new cities in the next 15 yrs! Perhaps they need to be putting these cities up even more rapidly. [1]http://www.mckinsey.com/insights/urbanization/preparing_for_urban_billion_in_china http://www.mckinsey.com/insights/urbanization/preparing_for_...

dmoy 11y ago
The issue may not be that there is too much building, but that they're building in places people aren't going to be moving to. Ordos is in inner mongolia, and while there are a lot of people there, a lot more are moving to the east coast cities. Right, like if you were predicting 40% city growth in the US, the solution would not be to build new mega cities in Utah (which has a comparable percentage of US's population as Inner Mongolia has in China).
- hodder 11y ago
  Agree completely, just pointing out the scale of urbanization and trying to make people question what the media "knows" about China.
- harmegido 11y ago
  Would it be outside the realm of possibility for China to mandate that people move to those cities to fill them?
  - toomuchtodo 11y ago
    No.
turar 11y ago
Outside of Ordos, I don't think there are much of any other ghost cities really, unless someone can prove me wrong. All ghost cities from 3-5 years ago that were prominently featured in media are now populated. It just takes that much time for them to get to or near their planned capacity. China's political system allows it a luxury of very long-term planning, unlike the US, unfortunately.

racl101 11y ago

At the risk of sounding stupid, why would Paypal freeze their account and why would the author of this story describe this as "understandably"? Is there something dubious about having that much money in any one account?

s_q_b 11y ago

The Chinese stock market is so far divorced from the real Chinese economy as to be a joke. The government intervention is direct and strong, far stronger than anything we saw in 2008. These companies' listed values might have well have been picked by a roulette wheel.

rchaud 11y ago
What numbers are you comparing though? The headline figure for TARP in the US was $700 billion, but even the GAO audit cannot perfectly trace how much it actually cost, as opportunity cost can't be calculated. Financing TARP took resources away from infrastructure projects or other projects for which positive economic externalities apply directly to society, not just bondholders. China has 4x the population of the US. How "big" would the intervention have to be to be stronger than anything in 2008?
- adventured 11y ago
  TARP was fully repaid. It didn't take money away from routine infrastructure spending. TARP was financed through deficit spending, and it never amounted to $700 billion as it was reduced to a limit of $475 billion. The final tally was $426b put in, $441b repaid. At this point China has thrown roughly a trillion dollars just at trying to prop up their stock market [1]. That doesn't include what they've burned trying to control their currency, what they've spent trying to keep their real estate bubble from completely falling apart, and what they've spent dealing with zombie companies and their vast shadow corporate and muni debt, and so on. [1] http://uk.reuters.com/article/uk-china-markets-rescue-idUKKCN0PX0AU20150723 http://uk.reuters.com/article/uk-china-markets-rescue-idUKKC...
  - s_q_b 11y ago
    A nit I'd like to pick is also that China has a vastly smaller PPP adjusted total GDP. So even four times the number of people, even a guaranteed loan program the size of TARP would be a larger intervention. To digress a little bit, I know this may be heresy, but TARP was the single most courageous and under appreciated accomplishment of the G.W. Bush administration. It's an economic miracle that when push came to shove, suddenly we were all Keynesians again.

whiddershins 11y ago

I wonder if the auto-halting behavior makes the problem worse, not better. Psychologically, if you know the markets will close if they drop too fast, it might actually encourage traders try harder and rush faster to be the first one to sell off more stocks that day before time runs out.

chvid 11y ago

A thing to remember in this are the sizes of the various markets. NYSE, the largest in USA, has a combined market value of 20 trillion dollars, whereas the largest in China (Shanghai Stock Exchange) has a combined market value of 4 trillion. This is for two economies of about the same size. This means that when the Chinese market drops (or raises) the overall impact for the wealth of the country is much smaller than a similar change would cause in the American markets. https://en.wikipedia.org/wiki/Stock_exchange https://en.wikipedia.org/wiki/Stock_exchange

doyoulikeworms 11y ago
While GDP (PPP) of China and USA are similar, this isn't the same as saying that their wealth is similar. The USA's net national wealth is about $85 trillion, while China's is about $22 trillion. I have a feeling that a much larger proportion of the USA's stock market is held by foreigners compared to China. It is possible that drops (or raises) in the Chinese market actually affect Chinese wealth more than in American markets... https://en.wikipedia.org/wiki/National_wealth https://en.wikipedia.org/wiki/National_wealth
- dmix 11y ago
  I'd be more interested in what percentage of the US stock market vs China is held by a tiny percentage of the population vs a broader public. Reductions in wealthy by a tiny minority has a smaller impact than the latter when looking beyond statistics.

jzd 11y ago

What does this mean for Bitcoin?

fleitz 11y ago
Nothing, the block chain fixes all this because hashes.

fleitz 11y ago

What China did just put out a giant flashing neon sign that they will buy any (overvalued) asset at the current market price. Every owner of an equity is lining up to sell their assets to the big idiot with the giant flashing neon sign saying they will buy anything, knowing that the more they flood the market, the more the central committee will buy. China, you just got played, welcome to the market.

Kinnard 11y ago

https://news.ycombinator.com/item?id=10862007 https://news.ycombinator.com/item?id=10862007 I'm surprised there's no mention of the impact of recently rising Federal Reserve Rates[1] on the Chinese Currency or the fact that the Yen was recently added the IMF's Special Drawing Rights currency[2]. Since China's moves in August I think its fair to characterize this as a currency war. And it's Dollar Hegemony that's hanging in the balance[3]. Many have characterized it as a war for much longer. What's different now? The proxy wars between the United States and Russia are heating up and tensions between China and the rest of East Asia are heating up. Western sanctions on Russia for Ukraine pushed it toward China and that may just have been the tipping point[4]. I find it remarkable how able the performances of equity markets are to obfuscate the currency and bond markets that are driving them[5]. When equities move fortunes change, when currencies move, the balance of power on the planet changes. [1] http://qz.com/588049/what-the-fed-was-thinking-when-it-finally-raised-interest-rates-last-month/ http://qz.com/588049/what-the-fed-was-thinking-when-it-final... [2] http://www.globalresearch.ca/chinese-yuan-incorporated-into-imf-special-drawing-rights-sdr-us-congress-gives-in-and-endorses-the-imf-quotas-reform/5499619 http://www.globalresearch.ca/chinese-yuan-incorporated-into-... [3] http://www.brookings.edu/blogs/ben-bernanke/posts/2016/01/07-dollar-international-role http://www.brookings.edu/blogs/ben-bernanke/posts/2016/01/07... [4] http://www.economist.com/news/china/21650566-crisis-ukraine-drawing-russia-closer-china-relationship-far-equal http://www.economist.com/news/china/21650566-crisis-ukraine-... [5] http://qz.com/588704/chinas-stock-market-isnt-the-problem/ http://qz.com/588704/chinas-stock-market-isnt-the-problem/

tim333 11y ago

Looking at the graph the Chinese market traded around 2000 to 2500 from until late 2014 so that's probably what its companies are worth. Since then it doubled with speculators buying because things were going up but now that's stopped and the companies are still worth what they are worth and so back it goes. That's how markets are supposed to work - people but and sell stuff for roughly what it's worth. The current Chinese government seems to have some other bright ideas though like trying to boost prices when there is a parade on (http://www.slate.com/blogs/moneybox/2015/08/31/china_s_stock_market_intervention_the_government_intervened_for_the_sake.html http://www.slate.com/blogs/moneybox/2015/08/31/china_s_stock...). Not sure that works long term.

fratlas 11y ago

What does this mean in layman terms?