On Wall Street in 1929, it had been the great banking houses of J.P. Morgan and Guaranty Trust Company.
Forget about Greece as it were – China might be a much bigger problem
If for just a few minutes, try to forget about Greece – as many would surely wish to – and spare a concept for another possible trouble spot: China.
True, the globe\’s No. 2 growth engine isn\’t running on all cylinders. No, it isn\’t heading for the ditch, either.
But it\’s also not been keeping pace using the expansion that the world have been counting on as an anchor – while U.S. and European recoveries return to course.
In China today, it\’s names like Citic Securities Co. and Guotai Junan Securities Co.
They\’re separated by 86 many 7,300 miles, but Chinese financiers are turning to the same playbook used by their American counterparts to fight a crash that\’s wiping out stock-market fortunes with an unprecedented scale.
Investors in China are hoping it works out a lot better this time around.
When five of America\’s most-powerful financiers met at the House of Morgan at 23 Wall Street on Oct. 24, 1929, the immediate impact of the plan to pool resources and prop up the market was encouraging: the panic of Black Thursday turned into a recovery and the New York Times lauded the bankers for placing a floor under share prices.
The boost to confidence didn\’t last for very long. The rout resumed by the following Monday, with the Dow Jones Industrial Average losing 13 percent. The gauge would go on to drop another 34 percent within the next 3 weeks, as the attached chart shows.
The support measures in China may also have a fleeting impact, based on Hao Hong, a strategist at Bocom International Holdings Co. in Hong Kong.
A number of 21 Chinese brokerages pledged on Saturday to commit 120 billion yuan (US$19.3 billion) to a large-cap stock fund, made to stabilize shares after the biggest three-week rout within the Shanghai Composite Index since 1992. The move coincided with a flurry of other market-boosting measures, including a halt to initial public offerings and regulatory moves to discourage short sellers.
The latest tries to stem China\’s US$3.2-trillion equity rout include central bank support for margin-trade financing and stock purchases by state-run financial firms. The steps – which follow an interest-rate cut and reduced trading fees over the past week – have so far failed to convince investors that valuations are cheap enough after a 27 percent drop in the Shanghai Composite out of this year\’s high on June 12.
\”The market didn\’t buy into the measures and the downbeat mood is quite hard to change,\” Jimmy Zuo, a trader at Guosen Securities Co. in Shenzhen, said by phone.
At stake may be the fate of the stock-market that\’s lured record levels of amateur investors and grown being the world\’s second-largest away from U.S., having a market capitalization of $6.9 trillion. Further losses threaten Chinese companies\’ efforts to curb leverage with new share sales, and may erode consumer confidence amid the weakest economic growth since 1990.
Boom, bust, repeat: China\’s US$8 trillion equity market is behaving just like a penny stockChinese stocks are becoming smashed and Morgan Stanley says don\’t buy the dip
With daily turnover on Chinese markets approaching 2 trillion yuan, the support fund may be too small to have a meaningful long-term impact, based on Hong. It also does little to boost confidence in small-cap stocks, a few of the biggest losers throughout the rout.
More than two stocks dropped for every one that rose on the Shanghai Composite Index, which climbed 2.4 percent at the close. The benchmark gauge was supported by gains in PetroChina Co. and Industrial & Commercial Bank of China Ltd., the two largest members on the index, amid speculation of purchasing by state-directed funds. The small-cap ChiNext index tumbled 4.3 per cent.
\”This 120 billion yuan won\’t continue for an hour within this market,\” Hong said by telephone from Beijing Saturday. \”It might benefit blue-chip stocks, as investors may see them as value, however the bursting of the bubble in small-cap/tech stocks will probably continue.\”
Twenty-eight companies halted their IPOs, according to filings to the nation\’s two exchanges Saturday. A group of 21 brokerages led by Citic Securities Co. will invest at least 120 billion yuan ($19.3 billion) in a stock-market fund, the Securities Association of China said within 24 hours. Executives from 25 mutual funds vowed to buy shares and hold them not less than a year, according to an industry group association.
The Shanghai Composite completed its biggest three-week tumble since 1992 on Friday amid concern leveraged traders are liquidating bullish bets after equity valuations exceeded levels throughout the country\’s stock-market bubble of 2007.
The outstanding balance of margin loans around the Shanghai Stock Exchange dropped for a 10th day on Friday, sliding to 1.24 trillion yuan within the longest stretch of declines because the city\’s bourse began compiling the information. A five-fold improvement in borrowing had helped propel the gauge to some 150 percent advance within the 12 months through June 12.
\”It is extremely difficult to stabilize a leveraged market dominated by retail investors,\” Paul Chan, the Hong Kong-based chief investment officer for Asia ex-Japan at Invesco Ltd., said by phone. \”I don\’t know how this will pan out however in near term, it is simply going to expand more volatility.\”
The Shanghai Composite\’s 50-day volatility jumped to the highest level in seven years because the gauge surged around 7.8 per cent at the open, the biggest intraday gain since 2008, before paring. Trading volumes were 17 percent above the 30-day average.
Rallies for the nation\’s biggest financial and oil companies contributed to virtually all of the Shanghai Composite\’s gains Monday. PetroChina, ICBC, Agricultural Bank of China Ltd., Bank of China Ltd., China Petroleum & Chemical Corp. and China Life Insurance Co. all climbed more than 8 percent.
The large-cap CSI 300 Index gained 2.9 percent. Hong Kong\’s Hang Seng China Enterprises Index slid 3 %. The Hang Seng Index dropped 3.2 per cent, entering a correction with a 11 percent loss from April highs.
Technology stocks tumbled in the mainland, by having an industry gauge within the CSI 300 dropping 4 per cent. Leshi Internet Information & Technology (Beijing) Co., the most heavily weighted stock within the ChiNext, slid by the 10 per cent daily limit, while East Money Information Co., the 2nd biggest, plunged 8.1 per cent.
\”Too many people are selling around the rebound, which makes it hard to sustain,\” said Nelson Yan, the chief investment officer in the Hong Kong unit of Changjiang Securities Co. \”The large scale of the supportive measures betrays deficiencies in confidence on the market.\”
Foreigners were net sellers of 13.4 billion yuan of mainland shares through the Hong Kong-Shanghai link Monday, the most since the program began in November.
In Hong Kong, the benchmark index capped its biggest reduction in three years amid speculation Chinese investors were shifting money from the city\’s market and as Greece\’s rejection of austerity measures spurred equity declines across Asia. Hong Kong Exchanges & Clearing Ltd., the exchange operator, plunged 9.6 percent for its biggest loss since October 2008 after Goldman Sachs Group Inc. recommended selling the shares.
— With the help of Amanda Wang in Shanghai and Fox Hu and Lisa Pham in Hong Kong.