10 ms·

China stocks drop over 8%

213 points by pingec 11y ago

smegel 11y ago
> reviving the specter of a full-blown market crash Or a full-blown market correction even.
- simonh 11y ago
  Indeed. Is it really a crash if share prices fall to fair, economically justifiable valuation levels?
  - gchokov 11y ago
    Spot on! Exactly..
  - mwill 11y ago
    Your answer to this probably depends on your own financial exposure to the Chinese market : P
  - tomp 11y ago
    Looking back, "share prices fell to a fair level" is a perfect description for every crash in history.
    - goodcanadian 11y ago
      From what I can see, share prices often overshoot "fair" levels and become too cheap in a crash. Not that I'm complaining, necessarily; it can create an excellent buying opportunity.
      - foxhedgehog 11y ago
        Exactly. "Animal spirits."
        VLM 11y ago
        Well there are logical reasons not just animal spirits, under "normal" conditions some amount of demand lifts market prices a measurable amount because: 1) Workers buy into "it always goes up over a long period" so retirement money gets tossed into the market. However they're likely (temporarily?) unemployed or underemployed. 2) There normally exists a small but lively trading on margins market, day trading market, etc. However the margin / daytraders have been wiped out in the crash and it'll take awhile to grow a new crop of suckers. 3) Stable prices mean stable financial market means stable income for capex means stable growth. Collapsing prices make it hard to raise funds for capex. So you can't make more profit next quarter off a refinery expansion today if you can't raise the dough to do a refinery expansion today due to collapsing prices. When things stabilize you'll pop back up to normal growth and prices. That might take weeks to decades based on past bubble experiences. DJIA only took from 1929 to sometime in the 50s to break even, inflation adjusted, so it could be 20+ years. Or maybe just a couple months. This being an epic 1929 scale bubble it could very well be 20 years. I do acknowledge the stereotypical retail investor thing of always selling at bottoms and buying at tops due to animal spirits or whatever, but there are rationalizations beyond the future must be the same as the very short term past.
      - joering2 11y ago
        Its also called "catching falling knifes"
        mlrtime 11y ago
        Also. watch out for the dead cat bounce.
        waylandsmithers 11y ago
        Assigning a catch phrase to a certain activity doesn't make it any more or less of a good idea, but if you're buying "because it went down" you are probably just gambling.
        seanmcdirmid 11y ago
        Technically, if you are buying for short term gain without insider information, you are probably gambling (unless you see something others have missed, but does that count as outside information?). Otherwise, you want market growth over the long term, or are just hedging.
      - marincounty 11y ago
        Buying opportunity where you have some faith in the company, and it's financials? Too many NQ mobile's in that country. And the amount of fraud is appalling? Whatever system of government you have--cut down on graft, and fraud. Then, and only then will I gamble in your country.(NQ mobile can be bought here? What does that say about our stock market?). Janet--raise the interest rate! The poor, and middle class are hurting! Enough is enough! Get CD's back to 5 %? The big boys are just playing at this point. Banks are not giving back?
        sokoloff 11y ago
        Aren't the poor wildly more likely to pay interest than to collect interest and the rich the opposite? If so, it would seem that raising interest rates would differentially harm the poor.
        datashaman 11y ago
        zero f*cks given.
  - pjc50 11y ago
    It is if enough people have bought on margin.
  - joosters 11y ago
    Once again, the problem is determining a 'fair, economically justifiable valuation' that a majority can agree on... generally a definition of this is the current stock price.
    - simonh 11y ago
      Not at all. If the stock price is primarily driven by speculators buying the stock simply because it's price is going up and they intend to profit thereby, then the stock's value has become independent of the economics of the business. This is why I specificaly mentioned economic justifiability. Speculators of that kind have no interest in the actual business or it's economics or even it's justifiability, only the short term stock price.
  - VLM 11y ago
    If it happened in housing we'd call it a crash, LOL
- johnchristopher 11y ago
  In a casino, when someone breaks the bank: do we call that a `market correction event' ?
- moistgorilla 11y ago
  I love it when people call this a correction, as if unsophisticated Chinese investors are unlike the rest of humanity and will behave perfectly rational when they see all the value the gained disappear in a couple of months. Here's what will actually happen in the coming months, China will keep on intervening in the stock market causing it to stop falling (because selling will be impossible). Investors will see their money become valueless because it's held up in worthless Chinese stocks killing whatever trust they had in the Chinese government. Then China will reach a period of 10 to 30 years where its market will not grow (because of lack of trust in the Chinese government). If Chinese investors can get hyped enough to drive up valuations to 3000 p/e then they can also have a market panic.
  - crimsonalucard 11y ago
    There's no way you can predict the next five years let alone 30.
darkhorn 11y ago
Why?
- abluecloud 11y ago
  Because their stocks have been over valued for a while now. This is basically the market adjusting to what it should have been. Check here: http://www.bloomberg.com/quote/SHCOMP:IND http://www.bloomberg.com/quote/SHCOMP:IND with 1 year comparison.
  - netrus 11y ago
    Looking at the 5y chart I have to ask: what happened in June '14? That appears to be the more extraordinary date.
    - aNoob7000 11y ago
      It looks like the Chinese government was telling everyone to go and buy stocks. http://www.bloomberg.com/news/articles/2014-09-03/china-s-state-media-join-brokerages-saying-buy-equities http://www.bloomberg.com/news/articles/2014-09-03/china-s-st...
  - visarga 11y ago
    Chinese have a cultural bias to save money. This was a problem in the past because vast quantities of cash were stuck in the "mattress" sort of speak. They encouraged people to invest their money in stocks, and that led to the bubble that is crushing now.
    - crdoconnor 11y ago
      It's not cultural. It was triggered by the smashing of the iron rice bowl.
      - seren 11y ago
        If anyone is as puzzled as myself : https://en.wikipedia.org/wiki/Iron_rice_bowl https://en.wikipedia.org/wiki/Iron_rice_bowl
tomp 11y ago
This. Was. Not. Supposed. To. Happen. (Quoting ZeroHedge.) Worth noting: in the past few weeks, Chinese government tried very hard to stop the fall and prevent a crash - preventing selling by large stock holders, criminalizing short-selling, ordering stock buybacks, outright buying stocks, relaxing margin requirements, stopping IPOs, ... Obviously, that's not a viable long term solution.
- JohnTHaller 11y ago
  They'd have fallen a lot further if China hadn't added so many artificial controls. So, they'll likely be falling a lot further, just more slowly.
  - bko 11y ago
    A lot of economists and market participants believe that these measure not only fail to mitigate falling asset prices but make them worse. For instance, short selling often makes matters worse: >In 2008, U.S. regulators banned the short-selling of financial stocks, fearing that the practice was helping to drive the steep drop in stock prices during the crisis. However, a new look at the effects of such restrictions challenges the notion that short sales exacerbate market downturns in this way. The 2008 ban on short sales failed to slow the decline in the price of financial stocks; in fact, prices fell markedly over the two weeks in which the ban was in effect and stabilized once it was lifted. Similarly, following the downgrade of the U.S. sovereign credit rating in 2011—another notable period of market stress—stocks subject to short-selling restrictions performed worse than stocks free of such restraints. [0] Short selling allows market participants to put downward pressure on a security earlier helping the security reach equilibrium faster. Also, allowing the short sale of a stock incentivizes research that bring new less favorable information to public view. For instance, ability to profit off the decline of a stock may result in market participants in uncovering and reporting fraud or helping to pop bubbles. Often times government interventions and restrictions in the market fuel panic. [0] http://www.newyorkfed.org/research/current_issues/ci18-5.pdf http://www.newyorkfed.org/research/current_issues/ci18-5.pdf
    - 11y ago
eddd 11y ago
Chinese stocks were overvalued for a while now, at least I heard that many times before. It seems that no one can beat beat the willing of free market - even Chinese government.
kfk 11y ago
China lacks innovation and innovation culture, for now. If they don't get that solved, they will not grow as much as they did during the last 40 years. They need to find ways to climb up the value added chain, innovation and know how would be the best way, but let's see how they play this out. They have a huge market though, so there is that.
- rm_-rf_slash 11y ago
  I think the problem may be deeper. China certainly is innovative and technically adept, but they have a serious sex problem (one-child policy and demographics pun partially intended). China isn't cool. Even the Chinese elite drive Western cars, watch Western entertainment, wear Western brands, and so on. Given that China's labor costs are nearly equal to American labor, if additive manufacturing strips away their manufacturing ecosystem advantage, there will be little reason to buy from China what can be cheaply made at home or elsewhere. China can make anything that anyone else in the world makes, but "Made in China" is the last thing people expect to see on a luxury product, unless it's accompanied by "Designed in California."
  - tonyedgecombe 11y ago
    I think corruption is a much bigger problem and they won't resolve that until they become democratic.
    - rm_-rf_slash 11y ago
      Democracy and corruption are very complex issues in China. Chinese in general aren't all that concerned about democracy, and the West has plenty of corruption, just in a different way. For example, American congressmen are hesitant to close expensive and unnecessary domestic bases because they mean jobs and votes for their home districts. Perhaps China could adopt an anti-corruption method pioneered by China's only female leader to have ever held the masculine title of emperor: Wu Zetian. She instituted a system of anonymous complaint boxes for local officials that went straight to Beijing. Although undemocratic, it helped stamp out corruption and improved the public's perception of fairness.
the-dude 11y ago
What I find more worrying is mining and oil companies doing big layoffs and postponing investments at this very moment ( partly due to overproduction on anticipation on Chinese demand ). I wonder what this will mean for the world economy. Are we limping from one recession into the next?
- randomname2 11y ago
  The Philips CEO just said China is really slowing down, as is Brazil. Similar comments from Caterpillar last week.
  - jbverschoor 11y ago
    Apple goes full on in china
- cm2187 11y ago
  I am not sure limping is the right word. We are close to full employement both in the UK and the US.
  - Bill_Dimm 11y ago
    Not really (at least for the US -- I don't know about the UK). The unemployment rate is only low because so many people have given up on looking for work. The labor participation rate is at its lowest level since 1977. Here is a nice chart: http://www.tradingeconomics.com/united-states/labor-force-participation-rate http://www.tradingeconomics.com/united-states/labor-force-pa...
    - tcbawo 11y ago
      Also, full employment usually implies rising wages as employers chase scarce talent. This has not been very visible in the US. Perhaps the ability for employers to invest in the global talent pool could be tempering this affect.
      - 11y ago
haosdent 11y ago
Chinese government could save this. Never mind.
randomname2 11y ago
Today's crash was their biggest one-day drop since February 2007 and the second biggest crash in history. This despite threats of arrests to "malicious sellers", "an $800B worth of public and private money enlisted to prop up its wobbly stock markets" (10% of its GDP), and government intervention on at least 40 different occasions in the past month: http://uk.mobile.reuters.com/article/idUKKCN0PX0AU20150723?irpc=932 http://uk.mobile.reuters.com/article/idUKKCN0PX0AU20150723?i...
- slacka 11y ago
  Yes, but if you invested a year ago in the Shanghai Stock Exchange Composite Index, you'd still have almost doubled your money. 3 months ago, and you'd still be even after today's drop. It's a bad single day drop, but the actual levels are not so bad.
  - bhouston 11y ago
    What a frothy market. Sounds like the NASQAD runup in 2000: https://en.wikipedia.org/wiki/Nasdaq_Composite#/media/File:Nasdaq_Composite.png https://en.wikipedia.org/wiki/Nasdaq_Composite#/media/File:N... The only downside is that it took 15 years for the NASDAQ to recover to that frothy level. I do not know enough about China's markets to make any predictions though.
  - peteretep 11y ago
    If you had invested all of your money then, yes. If - as seems to be the case in many cases for this particular bubble - you'd been so cheered by your gains that you took out a loan to continue playing, you'd be fucked.
    - bhouston 11y ago
      That is one of the main issues with such a bubble, the hype when it is going up attract a lot of suckers who are quick to be separated from their money. The VC market for tech companies basically died after the NASDAQ crash in 2000 for a good 3 to 6 years (I do not know precise times as it was a little before my time.) I think that is because a lot of VC's lost liquidity and couldn't make further on investments in their existing porfolio, there was very little M&A action, and there was no real IPO market. Thus these bubbles, even if they do not wipe everyone out can have serious long term effects for segments of the economy. This is likely more serious than the NASDAQ because it is the general market rather than a tech specialty market -- but take all this with a grain of salt as I knowing nothing really about specifically China's situation, just making analogies with what happened in North America.
akandiah 11y ago
They would fall further if it weren't for the 10% 'fall-limit' that's imposed by the government.
phatbyte 11y ago
How bad can this spread to the rest of the world ? I remember 2008 with the US it affected Europe bad, I'd imagine China causing the same effect if not worse..
- mmorris 11y ago
  A widespread slowdown in China's economy would have major impacts on the rest of the world, but it's important to remember that the stock market is not the economy (just an imperfect measuring device). The stock markets in China have been very bubbly lately. My (admittedly limited) understanding is that most economists are still expecting significant growth in China this year, though not as strong as previous years. Also, the recent financial crisis in the US was partially/mostly driven by a debt crisis (housing/mortgage issues), which historically has had far larger and longer-term impacts than a stock market crash/correction.
  - bhouston 11y ago
    The US's whole financial system is tied into its stock market and the financial sector around it (because of leverage and derivatives and every company being public) -- I understand this may not be the case with China? Or am I wrong on this front.
    - mmorris 11y ago
      I believe you're correct that the stock markets in China are less directly tied to the economy than than the stock markets in the US. But, even in the US, I think stock markets are like a balloon tied to the wrist of a toddler on a windy day. They may very generally track where some part of the economy is, but there's too much interference and interpretation to get a precise picture. Even worse, the length of the string is unclear.
    - rhino369 11y ago
      Even in the United States a pretty major crash can have pretty limited economic impact. The 1987 crash was the largest in US history. In one day, the Dow Jones dropped 22%. Yet, it didn't even cause a recession.
mempko 11y ago
The Communist Chinese government, experiencing the wonders of markets.
nabla9 11y ago
Crucial detail left out: Even after these drops SHSZ300 and .SSEC are still valued almost 2X from what they were year ago. This is crazy within a year bubble that is bursting. There will be several 8% drops until markets have retreated just one year.
- korisnik 11y ago
  It's not left out, the article clearly states that the value doubled since last year.
- ghshephard 11y ago
  From the article, "China's main stock indexes had more than doubled over the year to mid-June,"
- blazespin 11y ago
  Yeah, I'm sure those sorts of statements were made when NASDAQ was dropping rapidly in late 1999/2000.
deleted 11y ago
[deleted]
vasilipupkin 11y ago
The biggest issue that regulators all over the world get confused about is, they think somebody has to sell for the market to go down, so if you ban selling, market will not go down as much. But in fact, if you ban selling, market becomes less liquid, and so, buyers have to demand compensation for incurring additional liquidity risk. therefore, they will lower their bids and market will drop even more !
partiallypro 11y ago
The problem is that the valuation in the market is insanity, China's growth is slowing, and there are margin accounts that aren't on the books because they are done through backdoor lending channels. Couple all of that with the government's idiotic actions that have forced lockins for big institutional buyers and you have a disaster on your hands. Why would a large institution buy the market if you have told them they have to hold it for 6 months? Idiocy. Not to mention there are stocks listed on the exchange that literally do nothing. Very much like the Dot Com bubble. I heard a story about a public company trading in China's A shares that is developing an "invisibility cloak." I suspect the market will rally back hard, maybe even tomorrow, but over the next 6 months? I wouldn't want to touch it.
- hodwik 11y ago
  The Chinese economy is huge, and as a nation it is undervalued, but there is no way for these stocks to actually provide coverage to that portion of the Chinese economy. Too much of that money is off the books, too many of its employees are unreported. Most estimates put it between 10 and 30% of GDP. I think even that is too low, count me with Shaun Rein of China Market Research Group -- "The official economic growth numbers are not too high at all. They’re too low. Why? Because China’s underground economy is far bigger than the 10% to 20% of the total economy that most economists estimate when they do their calculations. Politically the government can’t admit that. A decade ago the U.S. Treasury estimated that 50% of Russia’s economy stayed underground, evading onerous taxes. China’s underground economy as a portion of the overall economy is at least as large as Russia’s."
  - roymurdock 11y ago
    Does he ever qualify this analysis with any hard numbers? I remember reading a study once where researchers looked at electricity usage in Argentina to see what the theoretical output of the country should be vs. the actual output, and used this to approximate the size of the black market.
    - hodwik 11y ago
danmaz74 11y ago
So, in one day, the stock market has lost everything that it had recovered during the last 3 weeks, after the government intervention to stop the fall that started in June. Looks like those interventions ran out of steam.
netcan 11y ago
The price drop is a price drop. I don't think we can add too much useful commentary to it. The politics of it, well that is interesting. The Chinese government is acting a little panicky. Suspending trading, banning "malicious" selling, state supported margin loans. It makes me think that they may have taken on the pundits' belief that the chinese public will support the CPC regime only as long as rapid economic growth is part of the package, that any economic troubles will result in regime change. IMO, that's the storyline to watch.
- blazespin 11y ago
  The CPC just want a soft landing, not necessarily maintaining high growth. Rapid deceleration of this nature is not a soft landing and is extremely disruptive. The whole system can come apart at the seams from wild swings as the Chinese economy is built on layer upon layer of structured fascism, unlike the mostly free market system of western economies which have evolved to mostly absorb these sorts of blows.
- _jgdh 11y ago
  Well put. However, you have to question the assumption that a stock market crash affects the economy in a significant way. For example, it would make sense if a lot of savings were lost, because that would affect consumption. However, that's not the case. As the Economist pointed out - "Less than 15% of household financial assets are invested in the stockmarket: which is why soaring shares did little to boost consumption and crashing prices will do little to hurt it." [1] The fundamentals of the Chinese economy remain strong and the the Communist Party's panic-stricken attitude isn't helping matters much. http://www.economist.com/blogs/freeexchange/2015/07/chinas-stockmarket-crash http://www.economist.com/blogs/freeexchange/2015/07/chinas-s...
  - netcan 11y ago
    Possibly… I don't really understand how that stock market-economy relationship works. It's also entirely possible that the CPC could survive a full blown high street recession. I don't really know. But this is a game of he thinks she thinks that I think. The CPC seems to be reacting (so far, not that severely) in ways that suggest they are worried. I suspect they are worried about political consequences, not just economic ones. Nothing has happened yet. I'm just speculating. But, I'll prick my ears if scapegoats start emerging, arrests happen, someone is accused of intentionally sabotaging the chinese economy…
jaawn 11y ago
The bubble is clearly visible here: http://www.bloomberg.com/quote/SHSZ300:IND http://www.bloomberg.com/quote/SHSZ300:IND (change time frame to 5Y) Based on my completely non-expert analysis, it looks like the index is likely to drop down to around 2,800-3,000 or lower...unless there is some realistic explanation for an index which was on a slight downward, long-term trend to suddenly jump up by 130% in ~9 months.
djb_hackernews 11y ago
This isn't that big of a deal. The Chinese stock market is tiny compared to its economy[0], something us westerners have a hard time understanding. The Chinese government is really just experimenting with all of their interventions, this really has no bearing on the health of the Chinese economy or world economy and is really only bad news for people that heavily invested in the last few months. [0] http://static.businessinsider.com/image/55800e76ecad047824bc01a8/image.jpg http://static.businessinsider.com/image/55800e76ecad047824bc...
whitenoice 11y ago
Time to put an alert on my alibaba stock!
ommunist 11y ago
I'd rather say "China stocks adjusted over 8%". It's perceived size is "adjusted" to real value, but is not still adjusted fully. By the way - buy.
- hartator 11y ago
  A bubble seems to be popping and you recommand buying Chinese stocks?
  - crimsonalucard 11y ago
    So you'd rather buy at peak bubble? Buying after it pops is valid strategy.
    - gjvc 11y ago
      No it isn't, unless you like catching falling knives.
      - crimsonalucard 11y ago
        Once you hit the floor the only direction that's left is up. So when you buy at when the price is on the floor, there is only one direction it can go. Up.
- ommunist 11y ago
  To those downvoting me. Are you from another planet? On this one China is just about to incorporate Russia in about 10 years. Buy railway-connected stock, I am serious.
  - reddytowns 11y ago
    If the herd is sure enough to wager their own money on their opinion, why do you think they wouldn't downvote alternative ideas as well?
crimsonalucard 11y ago
People become addicted to unsustainable economic growth.
dharma1 11y ago
I guess the tens of millions of retail investors who entered the market in the past year or so will burn their fingers. Lenders will probably take a hit since a lot of people were playing with borrowed money. The credibility of the government will take a hit - many have already been moving money out of the country at a record rate because they don't trust the government, and retail investors who are now losing their savings will start questioning the government.
randomname2 11y ago
Excellent reporting on the total Chinese loss of control by the SCMP's George Chen: BREAKING: Shareholders of 9 listed firms incl. Southwest Sec (600369) under CSRC investigation for illegally selling stocks -company filings — George Chen (@george_chen) July 27, 2015 China Securities Regulatory Commission urges everyone to report illegal trade and you can report malicious sellers at http://t.co/xNGiLniBLq — George Chen (@george_chen) July 27, 2015 China Securities Regulatory Commission says to continue to monitor market activities and will forward case to police for arrest if necessary — George Chen (@george_chen) July 27, 2015 CSRC spokesman: Can't rule out possibilities some investors are still "selling stocks maliciously"; regulator will continue to investigate — George Chen (@george_chen) July 27, 2015 CSRC spokesman: we welcome all parties in society to provide clues about, report those who conduct malicious selloff. Hotline +8610 88060082 — George Chen (@george_chen) July 27, 2015 CSRC spokesman: China's state agency for margin finance has not "quit market" and will continue to increase stock holdings "at proper time" — George Chen (@george_chen) July 27, 2015 Remember Mao's Cultural Revolution? Now there is Cultural Revolution in Chinese stock market: welcome everyone to report each other! Insane! — George Chen (@george_chen) July 27, 2015 My view: China stock market crisis now proved to be more than market crisis but crisis in governance - show how incompetent, insecure gov is — George Chen (@george_chen) July 27, 2015
curiousjorge 11y ago
It's in Chinese governments interest to see that the mass population's wealth are not wiped out, especially when they have encouraged people to put money in the stock market, even on margins. Already before the rally of the SSE, China was not in a healthy state with large amount of debt. Now they are printing more money, taking on more debts to prop up the stock market and they've shown everyone that they are powerless. In the meantime,I speculate that Chinese government will go all out to prevent the SSE from sliding any further. It's government continuity is indirectly threatened. And this is why I can't speculate on China anymore, it's exactly like a casino where you are playing against the house, and they won't let you leave with any large profits and accuse you of cheating.
godgod 11y ago
Here come the glitches by US banks/stock market.

213 points by pingec 11y ago

smegel 11y ago

> reviving the specter of a full-blown market crash Or a full-blown market correction even.

simonh 11y ago
Indeed. Is it really a crash if share prices fall to fair, economically justifiable valuation levels?
- gchokov 11y ago
  Spot on! Exactly..
- mwill 11y ago
  Your answer to this probably depends on your own financial exposure to the Chinese market : P
- tomp 11y ago
  Looking back, "share prices fell to a fair level" is a perfect description for every crash in history.
  - goodcanadian 11y ago
    From what I can see, share prices often overshoot "fair" levels and become too cheap in a crash. Not that I'm complaining, necessarily; it can create an excellent buying opportunity.
    - foxhedgehog 11y ago
      Exactly. "Animal spirits."
      - VLM 11y ago
        Well there are logical reasons not just animal spirits, under "normal" conditions some amount of demand lifts market prices a measurable amount because: 1) Workers buy into "it always goes up over a long period" so retirement money gets tossed into the market. However they're likely (temporarily?) unemployed or underemployed. 2) There normally exists a small but lively trading on margins market, day trading market, etc. However the margin / daytraders have been wiped out in the crash and it'll take awhile to grow a new crop of suckers. 3) Stable prices mean stable financial market means stable income for capex means stable growth. Collapsing prices make it hard to raise funds for capex. So you can't make more profit next quarter off a refinery expansion today if you can't raise the dough to do a refinery expansion today due to collapsing prices. When things stabilize you'll pop back up to normal growth and prices. That might take weeks to decades based on past bubble experiences. DJIA only took from 1929 to sometime in the 50s to break even, inflation adjusted, so it could be 20+ years. Or maybe just a couple months. This being an epic 1929 scale bubble it could very well be 20 years. I do acknowledge the stereotypical retail investor thing of always selling at bottoms and buying at tops due to animal spirits or whatever, but there are rationalizations beyond the future must be the same as the very short term past.
    - joering2 11y ago
      Its also called "catching falling knifes"
      - mlrtime 11y ago
        Also. watch out for the dead cat bounce.
      - waylandsmithers 11y ago
        Assigning a catch phrase to a certain activity doesn't make it any more or less of a good idea, but if you're buying "because it went down" you are probably just gambling.
        seanmcdirmid 11y ago
        Technically, if you are buying for short term gain without insider information, you are probably gambling (unless you see something others have missed, but does that count as outside information?). Otherwise, you want market growth over the long term, or are just hedging.
    - marincounty 11y ago
      Buying opportunity where you have some faith in the company, and it's financials? Too many NQ mobile's in that country. And the amount of fraud is appalling? Whatever system of government you have--cut down on graft, and fraud. Then, and only then will I gamble in your country.(NQ mobile can be bought here? What does that say about our stock market?). Janet--raise the interest rate! The poor, and middle class are hurting! Enough is enough! Get CD's back to 5 %? The big boys are just playing at this point. Banks are not giving back?
      - sokoloff 11y ago
        Aren't the poor wildly more likely to pay interest than to collect interest and the rich the opposite? If so, it would seem that raising interest rates would differentially harm the poor.
        datashaman 11y ago
        zero f*cks given.
- pjc50 11y ago
  It is if enough people have bought on margin.
- joosters 11y ago
  Once again, the problem is determining a 'fair, economically justifiable valuation' that a majority can agree on... generally a definition of this is the current stock price.
  - simonh 11y ago
    Not at all. If the stock price is primarily driven by speculators buying the stock simply because it's price is going up and they intend to profit thereby, then the stock's value has become independent of the economics of the business. This is why I specificaly mentioned economic justifiability. Speculators of that kind have no interest in the actual business or it's economics or even it's justifiability, only the short term stock price.
- VLM 11y ago
  If it happened in housing we'd call it a crash, LOL
johnchristopher 11y ago
In a casino, when someone breaks the bank: do we call that a `market correction event' ?
moistgorilla 11y ago
I love it when people call this a correction, as if unsophisticated Chinese investors are unlike the rest of humanity and will behave perfectly rational when they see all the value the gained disappear in a couple of months. Here's what will actually happen in the coming months, China will keep on intervening in the stock market causing it to stop falling (because selling will be impossible). Investors will see their money become valueless because it's held up in worthless Chinese stocks killing whatever trust they had in the Chinese government. Then China will reach a period of 10 to 30 years where its market will not grow (because of lack of trust in the Chinese government). If Chinese investors can get hyped enough to drive up valuations to 3000 p/e then they can also have a market panic.
- crimsonalucard 11y ago
  There's no way you can predict the next five years let alone 30.

darkhorn 11y ago

Why?

abluecloud 11y ago
Because their stocks have been over valued for a while now. This is basically the market adjusting to what it should have been. Check here: http://www.bloomberg.com/quote/SHCOMP:IND http://www.bloomberg.com/quote/SHCOMP:IND with 1 year comparison.
- netrus 11y ago
  Looking at the 5y chart I have to ask: what happened in June '14? That appears to be the more extraordinary date.
  - aNoob7000 11y ago
    It looks like the Chinese government was telling everyone to go and buy stocks. http://www.bloomberg.com/news/articles/2014-09-03/china-s-state-media-join-brokerages-saying-buy-equities http://www.bloomberg.com/news/articles/2014-09-03/china-s-st...
- visarga 11y ago
  Chinese have a cultural bias to save money. This was a problem in the past because vast quantities of cash were stuck in the "mattress" sort of speak. They encouraged people to invest their money in stocks, and that led to the bubble that is crushing now.
  - crdoconnor 11y ago
    It's not cultural. It was triggered by the smashing of the iron rice bowl.
    - seren 11y ago
      If anyone is as puzzled as myself : https://en.wikipedia.org/wiki/Iron_rice_bowl https://en.wikipedia.org/wiki/Iron_rice_bowl

tomp 11y ago

This. Was. Not. Supposed. To. Happen. (Quoting ZeroHedge.) Worth noting: in the past few weeks, Chinese government tried very hard to stop the fall and prevent a crash - preventing selling by large stock holders, criminalizing short-selling, ordering stock buybacks, outright buying stocks, relaxing margin requirements, stopping IPOs, ... Obviously, that's not a viable long term solution.

JohnTHaller 11y ago
They'd have fallen a lot further if China hadn't added so many artificial controls. So, they'll likely be falling a lot further, just more slowly.
- bko 11y ago
  A lot of economists and market participants believe that these measure not only fail to mitigate falling asset prices but make them worse. For instance, short selling often makes matters worse: >In 2008, U.S. regulators banned the short-selling of financial stocks, fearing that the practice was helping to drive the steep drop in stock prices during the crisis. However, a new look at the effects of such restrictions challenges the notion that short sales exacerbate market downturns in this way. The 2008 ban on short sales failed to slow the decline in the price of financial stocks; in fact, prices fell markedly over the two weeks in which the ban was in effect and stabilized once it was lifted. Similarly, following the downgrade of the U.S. sovereign credit rating in 2011—another notable period of market stress—stocks subject to short-selling restrictions performed worse than stocks free of such restraints. [0] Short selling allows market participants to put downward pressure on a security earlier helping the security reach equilibrium faster. Also, allowing the short sale of a stock incentivizes research that bring new less favorable information to public view. For instance, ability to profit off the decline of a stock may result in market participants in uncovering and reporting fraud or helping to pop bubbles. Often times government interventions and restrictions in the market fuel panic. [0] http://www.newyorkfed.org/research/current_issues/ci18-5.pdf http://www.newyorkfed.org/research/current_issues/ci18-5.pdf
  - 11y ago

eddd 11y ago

Chinese stocks were overvalued for a while now, at least I heard that many times before. It seems that no one can beat beat the willing of free market - even Chinese government.

kfk 11y ago

China lacks innovation and innovation culture, for now. If they don't get that solved, they will not grow as much as they did during the last 40 years. They need to find ways to climb up the value added chain, innovation and know how would be the best way, but let's see how they play this out. They have a huge market though, so there is that.

rm_-rf_slash 11y ago
I think the problem may be deeper. China certainly is innovative and technically adept, but they have a serious sex problem (one-child policy and demographics pun partially intended). China isn't cool. Even the Chinese elite drive Western cars, watch Western entertainment, wear Western brands, and so on. Given that China's labor costs are nearly equal to American labor, if additive manufacturing strips away their manufacturing ecosystem advantage, there will be little reason to buy from China what can be cheaply made at home or elsewhere. China can make anything that anyone else in the world makes, but "Made in China" is the last thing people expect to see on a luxury product, unless it's accompanied by "Designed in California."
- tonyedgecombe 11y ago
  I think corruption is a much bigger problem and they won't resolve that until they become democratic.
  - rm_-rf_slash 11y ago
    Democracy and corruption are very complex issues in China. Chinese in general aren't all that concerned about democracy, and the West has plenty of corruption, just in a different way. For example, American congressmen are hesitant to close expensive and unnecessary domestic bases because they mean jobs and votes for their home districts. Perhaps China could adopt an anti-corruption method pioneered by China's only female leader to have ever held the masculine title of emperor: Wu Zetian. She instituted a system of anonymous complaint boxes for local officials that went straight to Beijing. Although undemocratic, it helped stamp out corruption and improved the public's perception of fairness.

the-dude 11y ago

What I find more worrying is mining and oil companies doing big layoffs and postponing investments at this very moment ( partly due to overproduction on anticipation on Chinese demand ). I wonder what this will mean for the world economy. Are we limping from one recession into the next?

randomname2 11y ago
The Philips CEO just said China is really slowing down, as is Brazil. Similar comments from Caterpillar last week.
- jbverschoor 11y ago
  Apple goes full on in china
cm2187 11y ago
I am not sure limping is the right word. We are close to full employement both in the UK and the US.
- Bill_Dimm 11y ago
  Not really (at least for the US -- I don't know about the UK). The unemployment rate is only low because so many people have given up on looking for work. The labor participation rate is at its lowest level since 1977. Here is a nice chart: http://www.tradingeconomics.com/united-states/labor-force-participation-rate http://www.tradingeconomics.com/united-states/labor-force-pa...
  - tcbawo 11y ago
    Also, full employment usually implies rising wages as employers chase scarce talent. This has not been very visible in the US. Perhaps the ability for employers to invest in the global talent pool could be tempering this affect.
    - 11y ago

haosdent 11y ago

Chinese government could save this. Never mind.

randomname2 11y ago

Today's crash was their biggest one-day drop since February 2007 and the second biggest crash in history. This despite threats of arrests to "malicious sellers", "an $800B worth of public and private money enlisted to prop up its wobbly stock markets" (10% of its GDP), and government intervention on at least 40 different occasions in the past month: http://uk.mobile.reuters.com/article/idUKKCN0PX0AU20150723?irpc=932 http://uk.mobile.reuters.com/article/idUKKCN0PX0AU20150723?i...

slacka 11y ago
Yes, but if you invested a year ago in the Shanghai Stock Exchange Composite Index, you'd still have almost doubled your money. 3 months ago, and you'd still be even after today's drop. It's a bad single day drop, but the actual levels are not so bad.
- bhouston 11y ago
  What a frothy market. Sounds like the NASQAD runup in 2000: https://en.wikipedia.org/wiki/Nasdaq_Composite#/media/File:Nasdaq_Composite.png https://en.wikipedia.org/wiki/Nasdaq_Composite#/media/File:N... The only downside is that it took 15 years for the NASDAQ to recover to that frothy level. I do not know enough about China's markets to make any predictions though.
- peteretep 11y ago
  If you had invested all of your money then, yes. If - as seems to be the case in many cases for this particular bubble - you'd been so cheered by your gains that you took out a loan to continue playing, you'd be fucked.
  - bhouston 11y ago
    That is one of the main issues with such a bubble, the hype when it is going up attract a lot of suckers who are quick to be separated from their money. The VC market for tech companies basically died after the NASDAQ crash in 2000 for a good 3 to 6 years (I do not know precise times as it was a little before my time.) I think that is because a lot of VC's lost liquidity and couldn't make further on investments in their existing porfolio, there was very little M&A action, and there was no real IPO market. Thus these bubbles, even if they do not wipe everyone out can have serious long term effects for segments of the economy. This is likely more serious than the NASDAQ because it is the general market rather than a tech specialty market -- but take all this with a grain of salt as I knowing nothing really about specifically China's situation, just making analogies with what happened in North America.

akandiah 11y ago

They would fall further if it weren't for the 10% 'fall-limit' that's imposed by the government.

phatbyte 11y ago

How bad can this spread to the rest of the world ? I remember 2008 with the US it affected Europe bad, I'd imagine China causing the same effect if not worse..

mmorris 11y ago
A widespread slowdown in China's economy would have major impacts on the rest of the world, but it's important to remember that the stock market is not the economy (just an imperfect measuring device). The stock markets in China have been very bubbly lately. My (admittedly limited) understanding is that most economists are still expecting significant growth in China this year, though not as strong as previous years. Also, the recent financial crisis in the US was partially/mostly driven by a debt crisis (housing/mortgage issues), which historically has had far larger and longer-term impacts than a stock market crash/correction.
- bhouston 11y ago
  The US's whole financial system is tied into its stock market and the financial sector around it (because of leverage and derivatives and every company being public) -- I understand this may not be the case with China? Or am I wrong on this front.
  - mmorris 11y ago
    I believe you're correct that the stock markets in China are less directly tied to the economy than than the stock markets in the US. But, even in the US, I think stock markets are like a balloon tied to the wrist of a toddler on a windy day. They may very generally track where some part of the economy is, but there's too much interference and interpretation to get a precise picture. Even worse, the length of the string is unclear.
  - rhino369 11y ago
    Even in the United States a pretty major crash can have pretty limited economic impact. The 1987 crash was the largest in US history. In one day, the Dow Jones dropped 22%. Yet, it didn't even cause a recession.

mempko 11y ago

The Communist Chinese government, experiencing the wonders of markets.

nabla9 11y ago

Crucial detail left out: Even after these drops SHSZ300 and .SSEC are still valued almost 2X from what they were year ago. This is crazy within a year bubble that is bursting. There will be several 8% drops until markets have retreated just one year.

korisnik 11y ago
It's not left out, the article clearly states that the value doubled since last year.
ghshephard 11y ago
From the article, "China's main stock indexes had more than doubled over the year to mid-June,"
blazespin 11y ago
Yeah, I'm sure those sorts of statements were made when NASDAQ was dropping rapidly in late 1999/2000.

deleted 11y ago

[deleted]

vasilipupkin 11y ago

The biggest issue that regulators all over the world get confused about is, they think somebody has to sell for the market to go down, so if you ban selling, market will not go down as much. But in fact, if you ban selling, market becomes less liquid, and so, buyers have to demand compensation for incurring additional liquidity risk. therefore, they will lower their bids and market will drop even more !

partiallypro 11y ago

The problem is that the valuation in the market is insanity, China's growth is slowing, and there are margin accounts that aren't on the books because they are done through backdoor lending channels. Couple all of that with the government's idiotic actions that have forced lockins for big institutional buyers and you have a disaster on your hands. Why would a large institution buy the market if you have told them they have to hold it for 6 months? Idiocy. Not to mention there are stocks listed on the exchange that literally do nothing. Very much like the Dot Com bubble. I heard a story about a public company trading in China's A shares that is developing an "invisibility cloak." I suspect the market will rally back hard, maybe even tomorrow, but over the next 6 months? I wouldn't want to touch it.

hodwik 11y ago
The Chinese economy is huge, and as a nation it is undervalued, but there is no way for these stocks to actually provide coverage to that portion of the Chinese economy. Too much of that money is off the books, too many of its employees are unreported. Most estimates put it between 10 and 30% of GDP. I think even that is too low, count me with Shaun Rein of China Market Research Group -- "The official economic growth numbers are not too high at all. They’re too low. Why? Because China’s underground economy is far bigger than the 10% to 20% of the total economy that most economists estimate when they do their calculations. Politically the government can’t admit that. A decade ago the U.S. Treasury estimated that 50% of Russia’s economy stayed underground, evading onerous taxes. China’s underground economy as a portion of the overall economy is at least as large as Russia’s."
- roymurdock 11y ago
  Does he ever qualify this analysis with any hard numbers? I remember reading a study once where researchers looked at electricity usage in Argentina to see what the theoretical output of the country should be vs. the actual output, and used this to approximate the size of the black market.
  - hodwik 11y ago

danmaz74 11y ago

So, in one day, the stock market has lost everything that it had recovered during the last 3 weeks, after the government intervention to stop the fall that started in June. Looks like those interventions ran out of steam.

netcan 11y ago

The price drop is a price drop. I don't think we can add too much useful commentary to it. The politics of it, well that is interesting. The Chinese government is acting a little panicky. Suspending trading, banning "malicious" selling, state supported margin loans. It makes me think that they may have taken on the pundits' belief that the chinese public will support the CPC regime only as long as rapid economic growth is part of the package, that any economic troubles will result in regime change. IMO, that's the storyline to watch.

blazespin 11y ago
The CPC just want a soft landing, not necessarily maintaining high growth. Rapid deceleration of this nature is not a soft landing and is extremely disruptive. The whole system can come apart at the seams from wild swings as the Chinese economy is built on layer upon layer of structured fascism, unlike the mostly free market system of western economies which have evolved to mostly absorb these sorts of blows.
_jgdh 11y ago
Well put. However, you have to question the assumption that a stock market crash affects the economy in a significant way. For example, it would make sense if a lot of savings were lost, because that would affect consumption. However, that's not the case. As the Economist pointed out - "Less than 15% of household financial assets are invested in the stockmarket: which is why soaring shares did little to boost consumption and crashing prices will do little to hurt it." [1] The fundamentals of the Chinese economy remain strong and the the Communist Party's panic-stricken attitude isn't helping matters much. http://www.economist.com/blogs/freeexchange/2015/07/chinas-stockmarket-crash http://www.economist.com/blogs/freeexchange/2015/07/chinas-s...
- netcan 11y ago
  Possibly… I don't really understand how that stock market-economy relationship works. It's also entirely possible that the CPC could survive a full blown high street recession. I don't really know. But this is a game of he thinks she thinks that I think. The CPC seems to be reacting (so far, not that severely) in ways that suggest they are worried. I suspect they are worried about political consequences, not just economic ones. Nothing has happened yet. I'm just speculating. But, I'll prick my ears if scapegoats start emerging, arrests happen, someone is accused of intentionally sabotaging the chinese economy…

jaawn 11y ago

The bubble is clearly visible here: http://www.bloomberg.com/quote/SHSZ300:IND http://www.bloomberg.com/quote/SHSZ300:IND (change time frame to 5Y) Based on my completely non-expert analysis, it looks like the index is likely to drop down to around 2,800-3,000 or lower...unless there is some realistic explanation for an index which was on a slight downward, long-term trend to suddenly jump up by 130% in ~9 months.

djb_hackernews 11y ago

This isn't that big of a deal. The Chinese stock market is tiny compared to its economy[0], something us westerners have a hard time understanding. The Chinese government is really just experimenting with all of their interventions, this really has no bearing on the health of the Chinese economy or world economy and is really only bad news for people that heavily invested in the last few months. [0] http://static.businessinsider.com/image/55800e76ecad047824bc01a8/image.jpg http://static.businessinsider.com/image/55800e76ecad047824bc...

whitenoice 11y ago

Time to put an alert on my alibaba stock!

ommunist 11y ago

I'd rather say "China stocks adjusted over 8%". It's perceived size is "adjusted" to real value, but is not still adjusted fully. By the way - buy.

hartator 11y ago
A bubble seems to be popping and you recommand buying Chinese stocks?
- crimsonalucard 11y ago
  So you'd rather buy at peak bubble? Buying after it pops is valid strategy.
  - gjvc 11y ago
    No it isn't, unless you like catching falling knives.
    - crimsonalucard 11y ago
      Once you hit the floor the only direction that's left is up. So when you buy at when the price is on the floor, there is only one direction it can go. Up.
ommunist 11y ago
To those downvoting me. Are you from another planet? On this one China is just about to incorporate Russia in about 10 years. Buy railway-connected stock, I am serious.
- reddytowns 11y ago
  If the herd is sure enough to wager their own money on their opinion, why do you think they wouldn't downvote alternative ideas as well?

crimsonalucard 11y ago

People become addicted to unsustainable economic growth.

dharma1 11y ago

I guess the tens of millions of retail investors who entered the market in the past year or so will burn their fingers. Lenders will probably take a hit since a lot of people were playing with borrowed money. The credibility of the government will take a hit - many have already been moving money out of the country at a record rate because they don't trust the government, and retail investors who are now losing their savings will start questioning the government.

randomname2 11y ago

Excellent reporting on the total Chinese loss of control by the SCMP's George Chen: BREAKING: Shareholders of 9 listed firms incl. Southwest Sec (600369) under CSRC investigation for illegally selling stocks -company filings — George Chen (@george_chen) July 27, 2015 China Securities Regulatory Commission urges everyone to report illegal trade and you can report malicious sellers at http://t.co/xNGiLniBLq — George Chen (@george_chen) July 27, 2015 China Securities Regulatory Commission says to continue to monitor market activities and will forward case to police for arrest if necessary — George Chen (@george_chen) July 27, 2015 CSRC spokesman: Can't rule out possibilities some investors are still "selling stocks maliciously"; regulator will continue to investigate — George Chen (@george_chen) July 27, 2015 CSRC spokesman: we welcome all parties in society to provide clues about, report those who conduct malicious selloff. Hotline +8610 88060082 — George Chen (@george_chen) July 27, 2015 CSRC spokesman: China's state agency for margin finance has not "quit market" and will continue to increase stock holdings "at proper time" — George Chen (@george_chen) July 27, 2015 Remember Mao's Cultural Revolution? Now there is Cultural Revolution in Chinese stock market: welcome everyone to report each other! Insane! — George Chen (@george_chen) July 27, 2015 My view: China stock market crisis now proved to be more than market crisis but crisis in governance - show how incompetent, insecure gov is — George Chen (@george_chen) July 27, 2015

curiousjorge 11y ago

It's in Chinese governments interest to see that the mass population's wealth are not wiped out, especially when they have encouraged people to put money in the stock market, even on margins. Already before the rally of the SSE, China was not in a healthy state with large amount of debt. Now they are printing more money, taking on more debts to prop up the stock market and they've shown everyone that they are powerless. In the meantime,I speculate that Chinese government will go all out to prevent the SSE from sliding any further. It's government continuity is indirectly threatened. And this is why I can't speculate on China anymore, it's exactly like a casino where you are playing against the house, and they won't let you leave with any large profits and accuse you of cheating.

godgod 11y ago

Here come the glitches by US banks/stock market.