Author Topic: China Bans Selling Shares for 6 Months  (Read 6143 times)

hodedofome

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China Bans Selling Shares for 6 Months
« on: July 09, 2015, 11:15:59 AM »
I don't think I've ever seen this before. I've seen short selling bans, but never an all out ban on selling...period. People with more than 5% stakes in companies in China are banned from selling for 6 months. Also, 45 percent of the stocks in China were halted from trading yesterday. Somehow I don't think China's ban is going to have the desired affect. It's probably just going to scare more people into selling once they have the chance.

http://www.reuters.com/article/2015/07/08/china-markets-idUSKCN0PI2S720150708

China's securities regulator took the drastic step of ordering shareholders with stakes of more than 5 percent from selling shares for the next six months in a bid to halt a plunge in stock prices that is starting to roil global financial markets.

The China Securities Regulatory Commission (CSRC) said on its website late on Wednesday that it would deal severely with any shareholders who violated the rule.

Separately, major shareholders of top Chinese banks including ICBC (601398.SS) (1398.HK) and companies including Sinopec (0386.HK) (600028.SS) (SNP.N) pledged to either maintain their holdings or increase their stakes in the listed companies.

ADVERTISING
 

The announcements came after China's stock market showed signs of seizing up on Wednesday, as companies scrambled to escape the rout by having their shares suspended and the CSRC warned of "panic sentiment" gripping investors.

The CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen closed down 6.8 percent on Wednesday, while the Shanghai Composite Index .SSEC dropped 5.9 percent.

More than 30 percent has been knocked off the value of Chinese shares since mid-June, and for some global investors the fear that China's market turmoil will destabilise the real economy is now a bigger risk than the crisis in Greece.

Indeed, the Obama administration is worried the stock market crash could get in the way of Beijing's economic reform agenda.

"The concern, that is a real one, is what does it mean about long-term growth in China," U.S. Treasury Secretary Jack Lew said on Wednesday at an event in Washington on financial stability.

"How do Chinese policymakers respond to this, and what does it mean in terms of core conditions of the economy?"

TRADING HALTS

More than 500 China-listed companies announced trading halts on the Shanghai and Shenzhen exchanges on Wednesday, taking total suspensions to about 1,300 - 45 percent of the market or roughly $2.4 trillion worth of stock - as companies sought to sit out the carnage.

"I've never seen this kind of slump before. I don't think anyone has. Liquidity is totally depleted," said Du Changchun, an analyst at Northeast Securities.

"Originally, many wanted to hold blue chips. But since so many small caps are suspended from trading, the only way to reduce risk exposure is to sell blue chips."

Beijing, which has struggled for more than a week to bend the market to its will, unveiled yet another battery of measures and the People's Bank of China said it would step up support to brokerages enlisted to prop up shares.

China's Finance Ministry and state investor Central Huijin Investment Ltd pledged not to reduce their shareholdings in the country's Big Four banks - Industrial and Commercial Bank of China Ltd (ICBC), China Construction Bank (0939.HK) (601939.SS), Agricultural Bank of China Ltd (1288.HK) (601288.SS) and Bank of China Ltd (601988.SS) (3988.HK).

Sinopec Corp, Asia's largest oil refiner, said in a filing on Wednesday that its controlling shareholder Sinopec Group had increased its stake in the listed company by buying 46 million A shares in Shanghai, or 0.04 percent of the total issued share capital.

Nevertheless, world stock indexes fell overnight and the yen jumped against the dollar on concerns over China's market mayhem and lingering worries over the future of Greece in the euro zone.

CHALLENGE FOR XI

The plunge in China's previously booming stock markets, which had more than doubled in the year to mid-June, is a major headache for President Xi Jinping and China's top leaders, who are already grappling with slowing growth.

Beijing's interventionist response has also raised questions about its ability to enact market liberalisation steps that are a centrepiece of its economic reform agenda.

China has orchestrated brokerages and fund managers to promise to buy billions of dollars' worth of stocks, helped by a state-backed margin finance company that the central bank pledged on Wednesday to provide sufficient liquidity.

The securities regulator said the Securities Finance Corp had provided 260 billion yuan ($41.8 billion) to 21 brokerages, though that sum is only 40 percent of the amount of leveraged positions that investors have cut since June 18.

Unlike other major stock markets, which are dominated by professional money managers, retail investors account for around 85 percent of China trade, which exacerbates volatility.

Deng Ge, a CSRC spokesman, said in remarks posted on the regulator's official channel on Weibo, China's version of Twitter, that there had been a big increase in "irrational selling" of stocks.

"It's a stampede," added Wang Feng, chief executive officer and founder of hedge fund firm Alpha Squared Capital Co and a former Wall Street trader.

"And the problem of the market is that all the players move in the same direction, and are too emotional,"

(Additional reporting by Pete Sweeney, Kazunori Takada and Adam Jourdan in Shanghai, Shu Zhang and Nicholas Heath in Beijing, Umesh Desai, Saikat Chatterjee and Michelle Chen in Hong Kong and Jason Lange and Douwe Miedema in Washington; Writing by Dean Yates; Editing by Toni Reinhold)

johnny847

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Re: China Bans Selling Shares for 6 Months
« Reply #1 on: July 09, 2015, 11:20:29 AM »
Wow. Just, wow.

Most individual investors are unaffected by the change, but like you said, it sends quite a signal to those individual investors.


A not so subtle reminder that China is not a free market.

beltim

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Re: China Bans Selling Shares for 6 Months
« Reply #2 on: July 09, 2015, 11:22:03 AM »
Great example of political risk. 

SweetLife

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Re: China Bans Selling Shares for 6 Months
« Reply #3 on: July 09, 2015, 11:59:48 AM »
Really makes me want to buy buy buy ...

MoneyCat

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Re: China Bans Selling Shares for 6 Months
« Reply #4 on: July 09, 2015, 12:03:53 PM »
China has over 1/7 of the world's population, so their market is so huge that the government can pretty much do anything it wants and investors will go along with it.  They are too big to fail.

beltim

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Re: China Bans Selling Shares for 6 Months
« Reply #5 on: July 09, 2015, 12:09:09 PM »
China has over 1/7 of the world's population, so their market is so huge that the government can pretty much do anything it wants and investors will go along with it.  They are too big to fail.

What does population have to do with it?

China's not anything exceptional when it comes to percentage of world economy in history - either for defaults or for economic depression.

forummm

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Re: China Bans Selling Shares for 6 Months
« Reply #6 on: July 09, 2015, 12:27:47 PM »
I don't understand how this could seem like a good idea. Or have any effect other than to make things worse. If 85% of the shares are owned by small investors, this trading ban only affects a very small portion of the market--people who are presumably more sophisticated, and know that dumping 5% of the total market cap of a company at once would kill their holding's value anyway.

MoneyCat

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Re: China Bans Selling Shares for 6 Months
« Reply #7 on: July 09, 2015, 12:56:59 PM »
China has over 1/7 of the world's population, so their market is so huge that the government can pretty much do anything it wants and investors will go along with it.  They are too big to fail.

What does population have to do with it?

China's not anything exceptional when it comes to percentage of world economy in history - either for defaults or for economic depression.

You must be new to investing.  China has pretty much been the world's economic engine for the past decade because they have offered access to their massive consumer market to the rest of the World.  If China's economy fails, it will trigger massive recessions in the rest of the World because foreign companies have invested a ton of money in the Chinese markets. 

forummm

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Re: China Bans Selling Shares for 6 Months
« Reply #8 on: July 09, 2015, 01:14:16 PM »
China has over 1/7 of the world's population, so their market is so huge that the government can pretty much do anything it wants and investors will go along with it.  They are too big to fail.

What does population have to do with it?

China's not anything exceptional when it comes to percentage of world economy in history - either for defaults or for economic depression.

You must be new to investing.  China has pretty much been the world's economic engine for the past decade because they have offered access to their massive consumer market to the rest of the World.  If China's economy fails, it will trigger massive recessions in the rest of the World because foreign companies have invested a ton of money in the Chinese markets. 

Uhhhhhh........

beltim

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Re: China Bans Selling Shares for 6 Months
« Reply #9 on: July 09, 2015, 01:20:57 PM »
China has over 1/7 of the world's population, so their market is so huge that the government can pretty much do anything it wants and investors will go along with it.  They are too big to fail.

What does population have to do with it?

China's not anything exceptional when it comes to percentage of world economy in history - either for defaults or for economic depression.

You must be new to investing.  China has pretty much been the world's economic engine for the past decade because they have offered access to their massive consumer market to the rest of the World.  If China's economy fails, it will trigger massive recessions in the rest of the World because foreign companies have invested a ton of money in the Chinese markets. 

Uhhhhhh........

I was debating responding but I think you said enough.

brainfart

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Re: China Bans Selling Shares for 6 Months
« Reply #10 on: July 09, 2015, 02:45:02 PM »
Isn't that some kind of a forced buy and hold scenario? Many of those "investors" dumped all their savings into the markets, sold their homes and borrowed money to buy more. Not letting them sell their shit might actually save some of them from complete bankruptcy.

johnny847

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Re: China Bans Selling Shares for 6 Months
« Reply #11 on: July 09, 2015, 02:59:50 PM »
So some interesting facts about China:


Quote from: The Economist
Lost in all the drama about the stockmarket is that it still plays a surprisingly small role in China. The free-float value of Chinese markets—the amount available for trading—is just about a third of GDP, compared with more than 100% in developed economies. 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. Many stocks were bought on debt, and the unwinding of these loans helps explain why the government has been unable to stop the rout. But this financing is not a systemic risk; it is just about 1.5% of total assets in the banking system.

So, Moneycat, China's economy is not actually "too big to fail." It's quite the opposite - the stock market makes up too little of the economy to hurt it that much.
China has over 1/7 of the world's population, so their market is so huge that the government can pretty much do anything it wants and investors will go along with it.  They are too big to fail.

What does population have to do with it?

China's not anything exceptional when it comes to percentage of world economy in history - either for defaults or for economic depression.

You must be new to investing.  China has pretty much been the world's economic engine for the past decade because they have offered access to their massive consumer market to the rest of the World.  If China's economy fails, it will trigger massive recessions in the rest of the World because foreign companies have invested a ton of money in the Chinese markets. 

Also,
Quote from: The Economist
A survey by China’s Southwestern University of Finance and Economics found that two-thirds of new investors last year did not complete high school.

Great.

marty998

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Re: China Bans Selling Shares for 6 Months
« Reply #12 on: July 09, 2015, 03:53:35 PM »
Uhh, liquidity risk anyone? If a Chinese mutual needs funds to pay redemptions, annuities and pensions, where are they going to get the funds from if they don't sell shares?

Oh wait, they're just going to borrow more money aren't they... that's worked out well for Southern Europeans...

ender

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Re: China Bans Selling Shares for 6 Months
« Reply #13 on: July 09, 2015, 04:06:47 PM »
China has over 1/7 of the world's population, so their market is so huge that the government can pretty much do anything it wants and investors will go along with it.  They are too big to fail.

What does population have to do with it?

China's not anything exceptional when it comes to percentage of world economy in history - either for defaults or for economic depression.

You must be new to investing.  China has pretty much been the world's economic engine for the past decade because they have offered access to their massive consumer market to the rest of the World.  If China's economy fails, it will trigger massive recessions in the rest of the World because foreign companies have invested a ton of money in the Chinese markets. 

Uhhhhhh........

I think what they were trying to say is that a lot of international companies have significant business interests and investments in China, rather than that others are investing in China's stock market.

So China's economy exploding would result in those international companies with marketshare in China having difficulties.

beltim

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Re: China Bans Selling Shares for 6 Months
« Reply #14 on: July 09, 2015, 04:13:20 PM »
China has over 1/7 of the world's population, so their market is so huge that the government can pretty much do anything it wants and investors will go along with it.  They are too big to fail.

What does population have to do with it?

China's not anything exceptional when it comes to percentage of world economy in history - either for defaults or for economic depression.

You must be new to investing.  China has pretty much been the world's economic engine for the past decade because they have offered access to their massive consumer market to the rest of the World.  If China's economy fails, it will trigger massive recessions in the rest of the World because foreign companies have invested a ton of money in the Chinese markets. 

Uhhhhhh........

I think what they were trying to say is that a lot of international companies have significant business interests and investments in China, rather than that others are investing in China's stock market.

So China's economy exploding would result in those international companies with marketshare in China having difficulties.

What you're saying is true.. but I don't see how it relates to moneycats "too big to fail" nonsense

ender

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Re: China Bans Selling Shares for 6 Months
« Reply #15 on: July 09, 2015, 04:15:43 PM »
Oh, I missed the first post of his, and was responding to his second.

Now I'm confused what Moneycat meant too.. ?!

waltworks

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Re: China Bans Selling Shares for 6 Months
« Reply #16 on: July 09, 2015, 05:24:11 PM »
My personal belief is that either 1) the CCP will manage a "soft landing" for the real estate/stock/debt/etc bubbles/chaos, or 2) in 20 years first year econ students will be reading about this instead of tulips.

I'd bet on 2. But I know a lot of rich Chinese folks who long ago got their money (and their kids) the F out of there, because they saw the writing on the wall. That may be affecting my judgement.

-W

MidWestLove

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Re: China Bans Selling Shares for 6 Months
« Reply #17 on: July 09, 2015, 08:15:35 PM »
I know we have done something similar when our regulators came out with 'do not short' lists over weekend essentially prohibiting betting against price decline  (as I helped implement such program for one of the institutions) so all of the governments think the same
- blame someone else (foreign interests, speculators, etc.)
- knee-jerk reaction to outlaw something so people could see you are taking action.


sheepstache

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Re: China Bans Selling Shares for 6 Months
« Reply #18 on: July 09, 2015, 08:34:58 PM »
China has over 1/7 of the world's population, so their market is so huge that the government can pretty much do anything it wants and investors will go along with it.  They are too big to fail.

What does population have to do with it?

China's not anything exceptional when it comes to percentage of world economy in history - either for defaults or for economic depression.

You must be new to investing. 

Moneycat, remember that other thread you started? :)

innerscorecard

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Re: China Bans Selling Shares for 6 Months
« Reply #19 on: July 09, 2015, 08:52:35 PM »
I heard that some brokers are refusing sell orders today from individual investors as well.

hodedofome

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Re: China Bans Selling Shares for 6 Months
« Reply #20 on: July 10, 2015, 08:32:27 AM »
I'm long AOS (with significant China exposure) for a very short term mean-reversion trade, and short VIPS (Chinese Amazon basically) for hopefully a mid term (3-12 months) trade. AOS has not been doing well but VIPS is working out ok.

My first thought is, China can't stop foreign ADRs from trading on US exchanges correct? I'm wondering is there's going to be a fantastic arbitrage opportunity with prices completely out of line in Chinese exchanges vs US.

I'm also wondering if there will be a black derivatives market that shows up from this.