China 1929 Crash Worsens; Contagion Spreads To HK: Rest-of-World Next?

1. At last the world appears to be waking up to the fact that China’s stock market crash is a much bigger deal than Greece.

2. Nearly $3.5 trillion has already been wiped off the China stock market in the last few weeks. This crash is taking place in the world’s second-largest stock market after the United States.

3. The panic in China’s mainland markets is showing signs of contagion as it ripples across the border, knocking the Hong Kong market down more than 4 percent in a single day. Overseas-listed Chinese companies are also slumping.

4. Almost all the experts are agreed that the China stock market is going down too fast and this is wealth destruction on an unprecedented scale in recent years.

5. The epic collapse in Chinese equities, which is still unfolding, has been one of the most significant market routs since the financial crisis of 2007-2008.

6. The total losses are more than 14 times the GDP of Greece; just a shade under the GDP of Germany; or more than one and a half times India’s GDP.

7. China’s stocks have collectively plummeted by more than 30 percent since their mid-June highs, and a series of measures by the country’s securities regulator have failed to slow the decline.

8. The Shenzhen Composite Index has led the market crash with a 39 percent plunge since its June 12 peak, as margin traders continue to unwind bullish bets.

9. The crash comes after the Shanghai Composite soared nearly 60 percent since the start of 2015, while the Shenzhen Composite jumped by 120 percent since the start of this year, easily making them the world’s best performing stock markets.

10. As a result of this year’s rally, the Shanghai Stock Exchange briefly became the world’s third-biggest by market cap at US$5.9 trillion.  Only the New York Stock Exchange, with a market cap of circa $20 trillion, and the Nasdaq, at circa $7 trillion, were bigger at the time.

11. Much of the rise in the domestic stock markets has been fueled by Chinese state media that promoted the benefits of stock investing to regular Chinese people.

12. Like many of history’s great bubbles, this one was built on borrowed money. Total margin lending – borrowing money to buy stocks – is estimated by analysts to add up to $645 billion, which accounts for a significant portion of China’s $7 trillion stock market when leveraged up.

13. The investing frenzy became so feverish that many ordinary citizens engaged in high risk investing, such as buying on margin.

14. Chinese companies immediate solution to avoid further losses at the stock market is to suspend trading.

15. Around 1,544 Chinese companies have so far decided to suspend trading of their stocks, which equates to more than 54%  percent of all listed companies on Chinese markets.

16. These corporate suspensions have locked up $2.6 trillion of shares, or more than 40 percent of China’s market capitalisation, and have become increasingly popular as stock prices continue to tumble.

17. For some, the China market appears to have failed.  They say that the market has become significantly illiquid, less transparent, less efficient and less fair.

18. The China stock market crash entered bear territory at the end of June this year.

19. The crash in the Chinese stock market bears a striking resemblance to the market crash in the US in 1929.

20. The panicked Chinese authorities in Beijing have ramped up their efforts to curb further market losses by:

A. Cutting interest rates to a record low;

B. Relaxing margin lending rules;

C. Pumping liquidity into the banking system;

D. Suspending initial public offerings (IPOs) indefinitely;

E. Making stock purchases by state-directed funds;

F. Setting up a market-stabilisation fund; and

G. Having the top 25 mutual fund houses speed up the application and issuance of equity funds.

21. China’s top 21 securities brokerages have also vowed not to sell shares and even buy to help stabilise the market. Over the weekend, the brokerages announced they would collectively pump 15 per cent of their net assets around $19 billion into stock markets to help support prices.

22. Unfortunately, none of  China’s measures appear to have worked.  Everything but the kitchen sink approach continues to fail to work as losses have deepened in Chinese stock markets’ daily volatile trading.

23. All of this has raised fears that China’s economy could be in serious trouble. Growth had already been slowing for the past few years, and numerous economists have raised the alarm about a possible hard landing in the country.

24. A stock market crash in China is likely to further complicate global financial market dynamics, given that those are already spooked by the Eurozone-Greece crisis.  

25. Domestic fiscal and monetary policies that aim to guide the Chinese economy into slower growth may also receive a large and unprecedented setback as a result of the out-of-control events now unfolding in the China stock market.

26. When do we recognise fully that Greece is a relative side-show in comparison to China given that the losses in China’s stock market now exceed 14 times Greece’s GDP?


What are your thoughts, observations and views?