China Trade Halts Locks Up $2.2 Trillion of Shares, Freezing Market

It seems the indices are down 30% or so from their prior highs, which is unpleasant but nothing like the 1929-32 period. Even Nasdaq had cratered far worse in the early 2000s. By comparison, Dow Jones went from 381 to 41 in just about 3 years from its 1929 high, which is an astonishing 90% loss. Actually I didn't know it was that bad until I looked it up.

I've read it. Galbraith's history is ok and his writing is entertaining but his economic analysis is terribly flawed. I recommend Rothbard's America's Great Depression for a solid economic analysis of the causalities involved in taking a market crash and turning it into a depression. The book is available in pdf free online: https://mises.org/library/americas-great-depression

The Great Crash comparisons are tiresome not simply because of the difference scale so far but because history is full of crashes, some with 1929 outcomes, some with other outcomes - well, naturally all fairly bad in the short run but still with important differences. Japan's meltdown in '89, the little Dragon's crash, the 2006-8 crash, etc, etc.

Have a look at the chart - http://finance.yahoo.com/echarts?s=000001.SS+Interactive#{"r... -

From Oct 2008 to Oct 2009 the SSE dropped from almost 6,000 to 1,700 (after it rose from 1,800 to 6k the year before).

Artificial bubble created by many different factors one being the limitations for Chinese investors / money to go abroad.

So we've seen much worse or the same in 2007 / 2009.

The buying power of Chinese consumers already pushed up price for many things, from commodity to luxury goods to real estates. It is unavoidable nature of society growth. This has very little to do with Chinese investors. Very few people got rich through stock market in China (probably the same everywhere).

Chinese buyers have a much bigger impact on the western coasts of the US and Canada (Vancouver specifically) than they do in the UK. Foreign buyers in the UK are mostly European or from the Middle East and conditions in both places are probably making people favor parking capital in the UK.

If you are Chinese and able to get your money out of the country and into foreign property you would probably hold on to that property for as long as you possibly can; by being outside of China it is worth far more than anything you might use to cover domestic debt.

We'll get to find out if these houses have been bought using laundered cash or if the owners are using financing dependent on foreign income.

If these houses are largely investment properties purchased to hedge against the home market, then it's more likely the former.

I expect we will see higher housing prices as the rich try harder to move more of their money out of China.

>In his view the market would "succeed" if it would always go up? Strategist? Seriously?

No, I think the Chinese genuinely believed the stock market would channel the excess savings that households have into private and public companies in a controlled manner. There is a genuine mismatch, the households save more than 30% with no place to invest while the corporate sector is burdened with debt thanks to overgenerous lending after the financial crisis.

What was supposed to be a gradual 15-20 year stock rise and conversion of debt into equity has become a boom and bust in a year or so. It also looks like a lot of small time investors piled on at the peak and might be looking at large losses. So kind of sucks for the small time Chinese investor who was looking for some growth (since they cannot invest anywhere else - property is already bust)

It's not clear from that quote if the analyst is referencing the market decline or the freezing of funds in over a thousand stocks and/or actions taken by the government to attempt to control the market.

well this is a clear signal that Chinese government has failed to control the stock market. I can't believe how naive they were thinking they could control something that is traditionally found only in non-command economies.

My guess is that they are going to come up with some bullshit like foreigners are driving down the stock prices, blame the Western devils for being homeless.

Well, it's not like people are going to go up to arms about it, it is a communist country after all, and we've seen how well Soviet Union did in keeping people in check even at the shittiest time.

Yes,

You get the feeling that the people manipulating the markets are ignorant of the basic psychology involved here.

The proper way to do this is to officially say: "We believe in letting markets find their value and we believe they are sounder than many think" while unofficially pumping money in like crazy.

It gives me the impression the credibility of the "new Mandarin" approach of China's rulers is being torn to shreds. Not sure what the upshot will be.

What would you expect to occur in terms of impact to the US and rest of the world?

ASHR is the etf with the most liquidity.

I would buy put options instead of a naked short. I know it looks like an easy trade right now, but the Chinese govt. can be unpredictable. Even if you're right over a 6 month period, you can still blow up in the short term

Good luck. The premium to borrow shares is very high right now.

And with the Chinese government saying they're going to support the market, I wouldn't want to be short.

You can buy $YANG ETF. FTSE China Bear 3X Shares

Behavioral economic studies show that humans prefer to avoid loss more than to gain --

So it's possible that markets rationally cut losses more than they rationally add capital to undervalued stocks.

Regardless, all the "freeze" does is make the published "price" no longer reflect the market price.

I think it is OK to have trading halts for particular situations. For example, a stock may be going down quickly just because of a wild rumor. Halting trade for the day may give time to investors, so they can consider what the facts are before taking a more informed decision. On the other hand, I agree with you that trade freezes are not enough to fix true underlying issues -- as it seems to be the case with China.

Trading halts are common historically in many markets in the US as well, like you said. Commodities have a history of halts, and there have been many periods where you'd have three or four days in a row of halted trading in the first minute; essentially these highly leveraged markets needed to move way, way down or up and took a while to do so with the halt system.

I don't know what commodities markets in the US do now with respect to halts, but in a world where we have retail players swimming with very sophisticated traders, I think the halts likely help more than hurt for the small players; retail brokerage users have no hope of dealing with short term spikes and may get stop-lossed out unfavorably; a halt lets them think hard and change up their stops overnight or once they see the news.

When a certain amount of time is needed to process new information, then halts make sense for relatively brief periods. Otherwise it's silly. Halting Pets.com in 2000 wouldnt have mattered, just like I suspect the halt in the majority of China's stocks wont either.

Had you bought a Chinese index share a year ago, you'd still be up around 100%...

This is a fairly broad and inaccurate statement: emerging markets are way beyond China.

If you follow the booming countries until/if they burst you will make more money in that time frame.

>This is the sort of reason why I ignore the advice to put some trifling portion of my portfolio in emerging markets.

FXI, even after falling off a cliff, is returning 11% YTD, vs 1% YTD for the SPY. It has an expense ratio of 0.74%.

Either another drop, or maybe a rebound? My money's on a drop, the SSE is only now crossing the 150 day moving average. But it won't last too much longer. I'd start freeing up some money to buy shares, but be very cautious for the immediate future.

Looks like a big move is going to happen in US markets judging by afterhours being very in the red

It won't be contained in China, that of we can be sure of in todays global economy. If things will continue in the same direction we can expect at least a mild recession in China. That will have a large knock-off effect on the world economy. Slower growth in China will result in a slower growth everywhere else.