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Permalink Reply by Skip Peel - Mineral Consultant on July 8, 2015 at 6:55

China stock market crash punches a hole in Xi’s China Dream

By Simon Denyer July 8 at 12:18 PM washingtonpost.com

BEIJING — What had been hailed as a bull market that would embody China’s dream of national rejuvenation has turned into a burst bubble, and fevered government efforts to arrest a month-long slide in stock prices proved fruitless Wednesday.

Shanghai’s main share index fell 5.9 percent and now stands more than 30 percent below its June peak. Trading in nearly half the listed shares is now suspended, and even the securities regulator is talking about a mood of “panic.”

President Xi Jinping’s aura of invincibility has taken perhaps its biggest dent since he took and ruthlessly consolidated power from late 2012 onwards, experts say.

China’s economy can probably withstand the stock market crash, although growth is already slowing and challenges are mounting all the time. But the authorities’ response raises serious questions about their willingness to embrace tough but very necessary economic reforms to curb the power of state-controlled companies and unleash the power of market forces.

As the stock market collapsed, Chinese authorities had taken unprecedented steps to stop the slide, ordering brokers to buy and investors not to sell. Patriotism was invoked, foreigners blamed and rumor-mongers arrested.

“The intervention comes with some real costs that will not be easy to overcome,” said Scott Kennedy at the Center for Strategic and International Studies in Washington.

“The scale and aggressiveness of these measures make a mockery of the leadership's claim to allow the market to play a ‘decisive role’ in determining the allocation of resources and the direction of the economy.”

Anger at the government’s clumsy attempts at rescuing the market spread like a rash across social media.

But it is in less tangible, political ways that the reverberations of the stock market collapse could be remembered.

For decades, enthusiasts have argued that China was the exception to the rule: that its far-sighted leaders could avoid the debt trap that every other so-called miracle economy had fallen into since the Second World War. That idea could be the biggest casualty of the crash, both at home and abroad.

“It is remarkable to us how analysts and investors around the world who deeply believe in the laws of economics and free markets have tacitly bought into the idea of Chinese exceptionalism,” wrote Anne Stevenson-Yang, director of J Capital Research.

Like many skeptics, Stevenson-Yang argues that China’s engineered “economy-by-fiat” is becoming ever more wasteful in its allocation of resources and that Xi’s grand vision of regional economic dominance through a New Silk Road economic area was an example of overreach. On Monday, she predicted the market rescue plan would fail.

 “With it, the vaunted reputation of the Chinese government for meeting the targets it sets dies a little more," she wrote. “The potential impact of that will reach from the halls of Wall Street to the farthest ends of the New Silk Road.”

Before peaking on June 12, China’s stock market had risen by around 150 percent in a year, completely divorcing itself from increasingly worrying economic and corporate fundamentals. The combined value of the exchanges in Shanghai and Shenzhen surpassed national gross domestic product, while price-earnings ratios on many shares shot up toward 100 or even above, way above global market norms.

Frenzy gripped the nation; from high school students to farmers, ordinary Chinese people pooled ideas to take advantage of what looked like easy money. Thousands of people gathered in “street stock market saloons” in Shanghai from early afternoon until late in the evening to swap tips.

According to state news agency Xinhua, 31 percent of college students had become active stock market investors; 90 million people, more than the entire membership of the Communist Party, had trading accounts. Retail investors dominated the market, and the value of trading in Shanghai alone exceeded that of all of North America in May, according to data from the World Federation of Exchanges.

“If you don't invest in stocks, you don't have anything to talk about with your peers,” said one professional woman in her 20s, who declined to give her name because of the increasing sensitivity of the subject. “I wanted to invest so that I could have something to talk about.”

Many people borrowed money to bet on an ever-rising market. By some accounts, the Chinese market became the most leveraged in history. But as the market has fallen, traders have been forced to unwind those leveraged positions and join the line of sellers.

The authorities responded first by easing monetary policy, suggesting pension funds would invest more, cutting trading fees and even relaxing rules of using borrowed money to speculate in the markets. Opinion leaders took to social media to demand investors buy shares “for the nation.” Elderly women burst into trading halls to sing patriotic songs.

Then, with nothing working, they brought out the big guns. Last weekend, banks announced new share issuance through initial public offerings would be suspended, while 21 brokerages said they would contribute $19 billion to stabilize the market. The Shanghai composite index opened 7 percent higher on Monday but immediately started to slide again. With trading in so many shares now suspended, pent-up selling pressure appears to be rising.

Hong Rong, a well-known financial expert with more than half a million followers on social media, had assured investors last week of the government’s “clear attitude and determination to save the market.” This week, he was forced to apologize for his misplaced faith in the authorities.

When regulators posted comments on social media in an attempt to calm the market, they were greeted with thousands of abusive comments.

“I am not a 3-year-old. How many more times are you going to lie to me?” said one social media user. “This is how you treat your own people,” said another. “Give me my money back,” a third simply wrote.

The government was accused of being incapable and corrupt, and of using the stock market crisis to rob its own people.

“The best time to win people’s hearts has gone, and many people who believed in the government are now desperate,” said one user, before using a phrase referring to a visit by officials from the feared Public Security Bureau. “I don’t have the strength to curse now, also I am afraid someone would come to ‘check my water meter.’ ”

China's economy had seemingly not benefited significantly from the stock market bubble, economists said, with households still holding a relatively small proportion of their assets in shares. It should therefore be able to withstand the bubble’s bursting.

But growth is already slowing, and a transformation away from an investment-led, debt-financed and state-controlled model of economic development toward a consumer-led, market-controlled model has proved a huge challenge, not least because powerful vested interests stand in the way of reform. Although official data show economic growth of 7 percent, many economists say the real growth number could be lower.

It remains unclear if the stock market crash will encourage the government to embrace tough reforms or make it more reluctant to relinquish control of the economy to market forces.

Gu Jinglu contributed to this report.

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Permalink Reply by tc on July 8, 2015 at 7:57

A stock market and an economy are not the same thing.  Look at the US, the stock market over the last 5 years says we have a strong economy, the actual data says something different. 

A more interesting question is will the Chinese stock market crash effect the ability of Chinese energy companies to raise capital to buy and develop reserves around the world.

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Permalink Reply by Skip Peel - Mineral Consultant on July 8, 2015 at 8:03

The weakness in the Chinese stock market is one of many indicators of their slowing economy.  A slowing economy equates to lower demand for oil.  The last thing we need in a supply glut is falling demand on the scale of China.

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Permalink Reply by Skip Peel - Mineral Consultant on July 8, 2015 at 10:02

If China loses control, look out oil: Dan Yergin

cnbc.com  July 8, 2015

Dan Yergin, IHS vice chairman, shares his outlook on oil prices and production.

The massive selling in Chinese stocks is stoking fears that the government there may be losing control of its carefully managed economy, said Dan Yergin, a leading expert in international politics, energy, and economics—a prospect that's pressuring oil prices.

"We are seeing a panic in China. It goes back to 2008, when it always seemed the Chinese were really in control of their economy. They were the first ones out there with a stimulus, and now it looks like they don't know what to do," the vice chairman of information and analytics provider IHS told CNBC's "Squawk Box" Wednesday.

"The Chinese economy has already been slowing from the growth that it had been before," he continued. "The prime minister says it's no longer high growth, its medium-to-high growth. And if it's medium or low-to-medium growth, that's a big hit for the oil market."

A Pulitzer Prize winner for his book "The Epic Quest for Oil, Money & Power," Yergin stressed the importance of China as a consumer of crude. "If you look between 2003 and 2013 ... half of all the growth in world oil demand was in China," he said.

Many experts have been arguing that the Chinese economy won't be hurt by the meltdown in stocks there, which saw the Shanghai composite and Hong Kong's Hang Seng index each fall nearly 6 percent Wednesday.

The Shanghai composite is down more than 30 percent since hitting a seven-year peak of 5,166.35 on June 12. But despite the recent rout, the index was still nearly 9 percent higher for the year as of Wednesday's close and up 70 percent in the past 12 months.

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Permalink Reply by Hopeful About Natural Gas on July 9, 2015 at 7:53

It's been a mania - look at how fast it ran up 150% in one year!  that is not sustainable in any economy.

"Before peaking on June 12, China’s stock market had risen by around 150 percent in a year, completely divorcing itself from increasingly worrying economic and corporate fundamentals."

but, to answer your question - yes it will have a negative effect on all of us. I live on the West Coast it might be worse here because more businesses have close ties to Chinese business.

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Permalink Reply by Skip Peel - Mineral Consultant on July 9, 2015 at 8:02

Let China drop another 5% and Iran agreed to the treaty that lets them commence exporting and a barrel of crude might be closer to $40 than to $60.  And just in time for most E&P companies to have their hedges expire.  The last half of the year will be a soap opera.  I hope it has a good ending but I'm not betting on it.

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Permalink Reply by Skip Peel - Mineral Consultant on July 24, 2015 at 15:52

China factories falter, commodities take the hit

Activity in China's factory sector seemingly contracted at the fastest pace in 15 months in July, a preliminary private survey showed on Friday in a blow undercutting recent signs of stabilization in the struggling economy.

By: Reuters | July 24, 2015 4:05 pm

Activity in China’s factory sector seemingly contracted at the fastest pace in 15 months in July, a preliminary private survey showed on Friday in a blow undercutting recent signs of stabilization in the struggling economy.

The news came as Beijing announced it would allow its yuan currency to fluctuate more widely within its trading band as a way to support the trade sector.

Fears of faltering demand in the world’s largest commodity buyer piled further pressure on resource prices, sending gold to a five-year low and copper to a six-year trough.

It also added to the woes of emerging market nations already struggling with the risk of a rise in U.S. interest rates later this year.

The flash Caixin/Markit China Purchasing Managers’ Index (PMI) dropped to 48.2, the lowest reading since April last year and the fifth straight month under 50, the level which the survey-makers say separates contraction from expansion. According to government data, industrial output is still rising.

The drop confounded forecasts for a rise to 49.7, from June’s final reading of 49.4, and slugged the Australian dollar to a six-year low.

China is Australia’s biggest export market and investors use the currency as a liquid proxy for risk in the Asian giant.

The survey of executives in over 420 Chinese manufacturing firms found output, new orders and export orders all decreased.

“Today, it’s big, bad news with this number well below consensus,” said analyst Helen Lau of Argonaut Securities in Hong Kong. “It shows there’s no signs of recovery in small and mid-sized business in China, but I think it’s also related to the summer weak season for demand.”

The China survey overshadowed better news from Japan where the flash Markit/Nikkei PMI rose to a seasonally adjusted 51.4 in July, from a final 50.1 in June, a welcome hint of economic acceleration after a surprise slowdown last quarter.

Notably, new orders in Japan pushed into positive territory which might help explain recent data showing firms are becoming more confident about increasing capital spending.

Yet the survey also found a slowdown in export orders, a trend that is bedevilling Asia and emerging markets generally.

EMERGING STRAINS

Expectations of a U.S. rate rise this year have already dented investor appetite for high-yielding but risky emerging market assets. The latest Reuters poll found a majority of analysts now believe the Federal Reserve will hike in September.

The ripples are being felt far and wide. Aberdeen Asset Management on Thursday reported investors withdrew almost 10 billion pounds ($15.6 billion) over the past three months to cut exposure to Asia and emerging market equities.

The closely-watched MSCI emerging market index has fallen 13 percent since late April as commodity prices entered a new bear phase. In the same period, the Thomson Reuters CRB index of commodities has shed 10 percent to within a whisker of its lowest since 2009.

Earlier in the week, Goldman Sachs slashed its outlook for copper prices citing expectations of lower Chinese demand and expanding supply.

The combination of weak resource prices and a strong U.S. dollar is proving a headache for policymakers.

South Africa’s Reserve Bank on Thursday raised rates for the first time in a year in an attempt to head off inflationary pressure from a falling rand.

“The rand remains vulnerable to global market reaction to U.S. monetary policy normalisation,” warned Governor Lesetja Kganyago, adding that Fed tightening would likely trigger an “exchange rate-inflation spiral."

 

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Permalink Reply by 208ef0t5wi05p on July 25, 2015 at 2:52

Let's hope so. Just in case these high wind storms are being caused by fossil fuels.

There are limits to the wind speed a house can withstand, even when using Simpson Hurricane ties to hold your house together.

If this wind speed keeps increasing, we'll have to build our homes under ground.

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Permalink Reply by Skip Peel - Mineral Consultant on July 25, 2015 at 2:55

What high wind storms, Ron?

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Permalink Reply by Skip Peel - Mineral Consultant on July 27, 2015 at 2:08

GLOBAL MARKETS-China slides again, Europe follows

reuters.com  Mon Jul 27, 2015 8:24am EDT By Patrick Graham

LONDON, July 27 (Reuters) - Concerns over China dominated financial markets on Monday, with the biggest fall in Shanghai shares in eight years driving stock markets and prices of major commodities lower across the board.

The dollar was weak ahead of the week's main set piece - Wednesday's Federal Reserve policy decision and statement - with a better-than-expected survey of German business sentiment prodding the euro above $1.11 for the first time in two weeks.

But it was the stunning 8.5 percent fall in Shanghai that drove most of the moves early in the European day: Share indices in Frankfurt, London and Paris all slumped by more than 1 percent.

Traders and investors said that was all rooted in broader concerns over global growth midway through the corporate results reason and following a poor economic reading out of China late last week.

Wall Street was also expected to open more than half a percent lower.

"This really has its roots in nervousness that began in the U.S. at the end of last week," said Andy Sullivan, a portfolio manager with Swiss investment firm GL Financial Group.

"Shanghai is an artificial market at the moment reliant on government support, and they have thrown the kitchen sink at it in recent weeks. The selling just ratcheted up steadily this morning."

The CSI300 index of the largest listed companies in Shanghai and China's other major market, Shenzhen, ended 8.5 percent lower. Japan's Nikkei slipped more than 1 percent, while MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.6 percent.

Both copper, for which Chinese demand is an important driver, and the broader Thomson Reuters CRB commodities index hit their lowest point in six years. Copper futures fell another 1 percent on Monday.

"The drop in Chinese equities and the negative growth backdrop in China are clearly going to leave you very concerned about Chinese demand in the months ahead," said Nic Brown, head of commodities research at Natixis.

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Permalink Reply by Skip Peel - Mineral Consultant on July 27, 2015 at 6:40

I'm in Louisiana, Ron.  And I've never taken a lease in my life.  My clients are largely land/mineral owners and the O&G law firms that represent them. I don't consider wind speed in Kentucky to be germane to the topic of the discussion thread.  Please remain on topic.

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