China stock market meltdown

[XT]

[QUOTE=Fotheringay-Phipps]
But that doesn’t make the recent decline into something that it’s not. It’s still a relatively minor correction, in the overall scheme of things.
[/QUOTE]

It’s not ‘relatively minor’. It’s a pretty huge downturn that only seems to be relatively unremarked because there isn’t a lot of foreign investment or connection to the Chinese stock markets.

The only thing your assertion (if true) changes is that you’re claiming even at the lower price it’s still overpriced due to government manipulation. Time will tell on that, but it’s just a prediction. In sum, at this time, the Chinese stock markets are still at pretty high levels.

Well sure. It helps, of course, that the Chinese government has poured money like water to buy failing stocks and prop the system up, has essentially stopped trading, allowed companies to halt trading on their falling stocks, and have made it illegal (with perhaps a small death penalty involved) for folks trying to do short sales. But yeah, it’s still at pretty high levels.

[Tom_Tildrum]

@Fotheringay-Phipps

Several people have already pointed out that the China markets are actually up for the year. ISTM that those predicting Chaos and Destruction should at least address this fact.

One point to keep in mind is that trading remains halted in a large number of stocks. This means that we aren’t seeing the true bottom of the market.

[Voyager]

@Tom_Tildrum

One point to keep in mind is that trading remains halted in a large number of stocks. This means that we aren’t seeing the true bottom of the market.

Some of which were halted by the companies themselves and some by the government. The market is in some sense no longer free, and I agree that no one knows where it will end up.

Another problem is that the small investors have been buying on margin, so their losses are magnified. A lot of foreign investors, noting that the little guys got in, got out, which has helped protect the rest of the world.

[Voyager]

@Fotheringay-Phipps

It doesn’t make any sense to say “growth figures aside”.

A guy with one penny who gets another penny has doubled his wealth is still poor - so saying growth figures aside makes perfect sense.

[Fotheringay-Phipps]

@Voyager

A guy with one penny who gets another penny has doubled his wealth is still poor - so saying growth figures aside makes perfect sense.

Not in the context in which it was being used.

The issue was whether “China’s current hybrid of communism and capitalism is brilliant, and better than what we have in America”. That may or may not be true but you can’t refute it by saying that “growth figures aside” people are still poor. The best measure of the system is what kind of progress it’s making in changing the current situation, and growth is a very key component of that. That people are still poor might be the residual effect of the prior system.

[ralph124c]

The people who sold at the top are waiting to buy at the bottom. Nothing here but a classic market manipulation, to allow big investors to cash in. Of course, the small people got wiped out-that was the purpose all along.

[Voyager]

@Fotheringay-Phipps

Not in the context in which it was being used.

The issue was whether “China’s current hybrid of communism and capitalism is brilliant, and better than what we have in America”. That may or may not be true but you can’t refute it by saying that “growth figures aside” people are still poor. The best measure of the system is what kind of progress it’s making in changing the current situation, and growth is a very key component of that. That people are still poor might be the residual effect of the prior system.

If there is phenomenal growth, but the benefits mostly go into the pockets of people connected to the government and business owners while poverty remains as bad as before, then the system isn’t doing so well, is it? I’m not interested in arguing whether or not that is true, but it shows that growth by itself is not a good measure of the success of a system.

[Fotheringay-Phipps]

@Voyager

If there is phenomenal growth, but the benefits mostly go into the pockets of people connected to the government and business owners while poverty remains as bad as before, then the system isn’t doing so well, is it? I’m not interested in arguing whether or not that is true, but it shows that growth by itself is not a good measure of the success of a system.

That’s true, that’s not the same thing as saying you can just put “growth figures aside”. You have to acknowledge the growth figures and then make your case that “the benefits mostly go into the pockets of people connected to the government and business owners while poverty remains as bad as before”. (From everything I’ve read about China that is very much not the case, and poverty is not "as bad as before, but the point is if you want to argue otherwise you can do that but can’t just wave away the growth as was done here.)

[XT]

CNN article (not on their front page for some odd reason :p):

Let’s take a step back and look at the big picture. Despite official declarations of economic growth continuing at 7% per year, business barometers indicate a slowdown. This has Beijing worried. New policies have replaced tired solutions of increased investments for local governments or expanding credit for favored recipients. But the truth of the matter is that healthy economies and governments simply do not need $600 billion of forced debt restructuring and $500 billion in stock market support.

The Chinese economic boom since the global financial crisis in 2008 has been fueled primarily by debt – with total debt levels surpassing the United States. Even the recent stock market boom has been driven primarily by rising debt levels to pay for stock purchases. By one recent account, approximately 35% of freely traded shares are purchased with debt. Though the Shanghai index is still up 82% from July 2014 – driven primarily by a rapid increase in various forms of margin lending – the 27% drop since the June 8 peak has induced investor panic that Beijing is keen to avoid.

Behind the headlines, there appears little direct risk to the Chinese economy from falling equity prices, especially given the enormous gain one year ago. The real risk of a falling stock market underlies the financial fragility of the Chinese economy. Corporate profit growth is flat and producer prices are falling, making it harder for business to pay back their debts. The construction and real estate sector, responsible for nearly 30% of China’s GDP, is suffering massive oversupply throughout China and causing pricing pressures. Indebted local governments have been weighed down with unused projects and loans they cannot repay. Beijing had to order banks to continue lending even if local governments were not repaying their loans.

The underlying weakness is appearing in the international markets. Commodity prices such as oil and iron are dropping globally due to falling Chinese demand. This has weakened emerging market currencies and economies around the world used to a buoyant market for primary inputs to feed the rapidly expanding Chinese dragon.

A slowing Chinese economy has even began to drive capital out of China. One recent estimate found that $225 billion left China in the second quarter of this year.

The real risk is that the stock market collapse will join forces with the debt or currency pressures to create significant problems for the Chinese economy. Banks are already under strain from the massive local government debt restructuring and government ordered lending to support the stock market. And if firms are unable to repay their stock-linked loans easily, that could trigger a wave of selling or defaults which would create a domino effect. A falling stock market could also prompt additional capital to flee the country in a flight to safety, placing additional stress on the government imposed RMB-USD peg.

In isolation, the Chinese stock market presents little risk to the overall economy due to the low level of total stock ownership. The real risk comes from merging with other ongoing weakness, such as excessive indebtedness, in the Chinese economy.

It’s amazing to me how little play this is all getting. I did a search on the BBC’s web page and took me a while to scroll down to find one. And most people seem to be of the opinion that it’s no big deal.

[XT]

So…I guess now we know. The US stock market is current in a rather large correction phase, and has lost over $2 trillion and, at least according to this, China’s own melt down has been one of the drivers (the other, the low price of oil is probably affected by China’s slowdown as well).

The American stock market has surrendered a stunning $2.1 trillion of value in just the last six days of market chaos.

The enormous losses reflect the deep fears gripping markets about how the world economy will fare amid a deepening economic slowdown in China.

The dramatic retreat on Wall Street has been fueled by serious concerns about the fallout of China’s economic slowdown. While everyone already knew China’s economy was no longer enjoying explosive growth, investors have seized on possible new signs the slowdown is more serious.

What the heck is going on with stocks?
The American stock market has surrendered a stunning $2.1 trillion of value in just the last six days of market chaos.

The enormous losses reflect the deep fears gripping markets about how the world economy will fare amid a deepening economic slowdown in China.

The Dow, S&P 500 and Nasdaq have all tumbled into correction territory, their first such 10% decline from a recent high since 2011.

The S&P 500 – the best barometer for the biggest U.S. companies – has lost trillions of market value, according to S&P Dow Jones Indices.

[Voyager]

As I write we are out of correction territory. How long we’ll be out of it is unclear. Some said the market crash was an overreaction to China - we’ll see.

Not that many Chinese have money in the market, not even the middle class. And there is still a huge savings rate. Though there is $28 trillion in debt. Growth, though not as high as before, is still quite high by all reports.

Why worry? Because the new government tried to control the market and seems to have failed miserably. The Times reported yesterday that state run new agencies were not allowed to even report on the market crash. There is some doubt about how accurate government statistics on the economy are. If the newly rich and the middle class are hurt bad enough they can turn on those in power, not in the streets but in ways that will really hurt, and that can cause instability which is something to really worry about. Plus, local governments are in deep from some building programs which have been disasters. Are there enough reserves to cover that?

Someone has a list of companies sorted by exposure to China. Apple is #1.