Post From KTFA By backdoc » July 9th, 2015,
CONTRACTS TRADE AND CURRENCIES Part 2 OF 2
VIDEO: China stock market freezing up as sell-off gathers pace
China's tumbling stock market showed signs of seizing up on Wednesday, as companies scrambled to escape the rout by having their shares suspended and indexes plunged after the securities regulator warned of "panic sentiment" gripping investors.
Beijing, which has struggled for more than a week to bend the market to its will, unveiled yet another battery of measures to arrest the sell-off, and the People's Bank of China said it would step up support to brokerages enlisted to prop up shares.
The CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen closed down 6.8 percent, while the Shanghai Composite Index .SSEC dropped 5.9 percent.
With nearly half the market on a trading halt and another round of margin calls forcing leveraged investors to dump whatever shares could find a buyer, blue chips that had been supported by stabilization funds earlier in the week bore the brunt.
"I've never seen this kind of slump before. I don't think anyone has. Liquidity is totally depleted," said Du Changchun, an analyst at Northeast Securities.
"Originally, many wanted to hold blue chips. But since so many small caps are suspended from trading, the only way to reduce risk exposure is to sell blue chips."
More than 30 percent has been knocked off the value of Chinese shares since mid-June, and for some global investors the fear that China's market turmoil will destabilize the real economy is now a bigger risk than the crisis in Greece.
"Also, the ripple effect from the market correction has yet to show up," wrote Bank of America Merrill Lynch analysts in a note. "We expect slower growth, poorer corporate earnings, and a higher risk of a financial crisis."
Commodities markets reflected growing concerns about the broader health of the world's second largest economy, with copper prices falling to a six-year low, Shanghai nickel futures sliding by their 5 percent daily limit, and oil falling toward $56 a barrel, near a three month-low.
More than 500 China-listed firms announced trading halts on the Shanghai and Shenzhen exchanges on Wednesday, taking total suspensions to about 1,300 - 45 percent of the market or roughly $2.4 trillion worth of stock - as companies scuttled to sit out the carnage.
› Major shareholders of Chinese companies pledge not to sell shares during market slump
› Chinese brokers woken from global dreams by market emergency
With so many small-cap companies sheltering on the sidelines, the ChiNext growth board .CHINEXTC, which has seen some of the biggest swings in valuations, fell a modest 0.8 percent.
The plunge in China's previously booming stock markets, which had more than doubled in the year to mid-June, is a major headache for President Xi Jinping and China's top leaders, who are already grappling with slowing growth.
Beijing's interventionist response has also raised questions about its ability to enact the market liberalization steps that are a centerpiece of its economic reform agenda.
China has orchestrated brokerages and fund managers to promise to buy billions of dollars' worth of stocks, helped by a state-backed margin finance company which the central bank pledged on Wednesday to provide sufficient liquidity.
The securities regulator said the Securities Finance Corp had provided 260 billion yuan ($41.8 billion) to 21 brokerages, though that sum is only 40 percent of the amount of leveraged positions that investors have cut since June 18.
Unlike other major stock markets, which are dominated by professional money managers, retail investors account for around 85 percent of China trade, which exacerbates volatility.
"It's uncommon to see so many shares posting consecutive daily limit falls, and the index futures swinging so wildly," said Wang Feng, CEO and founder of hedge fund firm Alpha Squared Capital Co and a former Wall Street trader.
"It's a stampede. And the problem of the market is that all the players move in the same direction, and are too emotional."
A surprise interest-rate cut by the central bank at the end of June, relaxations in margin trading and other "stability measures" have done little to calm investors.
The barrage of official commentary and new support measures continued throughout Wednesday's trading session, without visible effect.
Deng Ge, a spokesman for the China Securities Regulatory Commission, said in remarks posted on its official channel on Weibo, China's version of Twitter, that there had been a big increase in "irrational selling" of stocks.
Government agencies also announced that insurers would be allowed to by more blue chips and urged major shareholders and top executives to buy their own shares.
But the market sell-off has extended beyond the mainland, with Chinese stocks on U.S. exchanges falling as much as 6.1 percent on Tuesday, according to the Bank of New York Mellon index of such securities .BKCN.
Hong Kong's Hang Seng Index .HSI fell 5.8 percent, with shares of Chinese brokerages taking a heavy beating.
"Investors are extremely unimpressed with their sudden conscription into national service, and you can see that in their share prices," said Matthew Smith, a strategist who covers the China financials sector for Macquarie.
China contagion poses risk to HKEx growth strategy
As contagion from China's stock market rout spreads to Hong Kong, the local bourse's long-touted strategy to help China liberalize its markets is looking increasingly like a double-edged sword.
Chinese stocks dived again on Wednesday, despite a series of interventions by Beijing to try to prop up the mainland markets, which have lost more than 30 percent in value since mid-June.
Initially resilient, Hong Kong's Hang Seng index .HSI has also taken a beating, tumbling around 16 percent from its peak in April and wiping out all its gains for the year.
Hong Kong Exchanges & Clearing's (0388.HK) own share price has fallen around 34 percent since it peaked in late May.
HKEx, which holds a monopoly in stock trading in the city, enjoys a special status as China's preferred partner to help open up its capital markets - a position long considered a unique advantage.
But the dramatic reversal in HKEx's fortunes after a record-breaking rally earlier this year fueled by the launch of a landmark "Stock Connect" trading link with Shanghai, suggests HKEx's exposure to China's reform agenda has its downside.
“The stock exchange has benefited immensely from the many connect schemes that have taken place over the last year.
Now they find themselves at the center of this sell-off primarily because of concern of a sharp drop in volumes and the likelihood of further China market reform schemes being put on ice," said one investor in HKEx stock.
This week, Goldman Sachs and Mizuho Securities downgraded the stock, citing an expected slide in trading volumes. Turnover in Hong Kong, a key determinant of revenues, has declined from the peaks of nearly HK$300 billion ($39 billion) per day when Stock Connect trading exploded in April to nearer HK$200 billion as of Tuesday.
"The volumes overshot, and expectations overshot, and now they are coming down to earth,” said James Antos, an analyst at Mizuho.
HKEx said the opening up of China's capital markets still represented Hong Kong's "biggest opportunity".
"Our vision is to become the leading international exchange for China and a leading exchange for international investors. We are leveraging our China connectivity to become a truly global marketplace," it said in a statement.
HKEx management has talked up a series of other China-related projects, including a Shenzhen Connect, bond connect, commodities connect, and related futures products.
These projects now look very uncertain as the mainland rout puts the brakes on Beijing's reform agenda, with many market insiders speculating the planned autumn launch of Shenzhen Connect may be delayed until next year.
Jonathan Ha, chief executive of Red Pulse, a Shanghai-based markets research firm, said bringing Shenzhen online could potentially lift mainland stocks, but added: "It would also bring the potential of a very public disappointment if there is little to no demand. That, on balance, does not seem worth the risk."
U.S. Stocks Tumble as China Equities Rout Spurs Growth Concern
The Standard & Poor’s 500 Index fell to a four-month low amid concern that China’s equities rout will hurt growth in the world’s second-largest economy, and Federal Reserve minutes indicated officials acknowledged the potential risks from overseas crises.
Raw-materials, banks and semiconductor shares were among the worst performers. Alcoa Inc. slid 5.1 percent during regular trading before reporting results. Bank of America Corp. and Citigroup Inc. sank more than 2.6 percent. Apple Inc. and Yahoo! Inc. slumped at least 2.4 percent while Intel Corp. declined 1.3 percent.
The S&P 500 fell 1.7 percent to 2,046.68 at 4 p.m. in New York, its lowest close since March 11. The Dow Jones Industrial Average lost 261.49 points, or 1.5 percent, to 17,515.42, a five-month low. The Nasdaq Composite Index declined 1.8 percent. About 7.3 billion shares traded hands on U.S. exchanges Wednesday, 14 percent above the three-month average.
“All the attention is on China and Greece right now,” said Ninh Chung, who helps manage $20 billion for corporate accounts at Silicon Valley Bank in San Francisco. “The bigger focus will be China. As we see markets decline I think there will potentially be spillover effects into other markets, just given how large the Chinese economy is.”
The New York Stock Exchange halted trading for 3 1/2 hours because of a computer malfunction, forcing traders to route orders elsewhere. The suspension, lasting from 11:32 a.m. to just after 3 p.m., dropped the largest U.S. share platform out of the network of trading systems that make up the American equity market.
Members of the Federal Open Market Committee “mentioned their uncertainty about whether Greece and its official creditors would reach an agreement and about the likely pace of economic growth abroad, particularly China and other emerging market economies,” according minutes of June 16-17 meeting.
All members but one “indicated that they would need to see more evidence that economic growth was sufficiently strong” before raising interest rates. Fed officials in June forecast they would raise rates twice this year, while lowering their outlook for subsequent increases.
Since then, global markets have been shaken by the rising risk of a Greek exit from the euro and a rout in Chinese stocks.
China’s market plunge has raised concerns about a broader impact on global economic growth. The country has unveiled new market-boosting measures almost every night over the past 10 days as policy makers seek to maintain confidence in the nation’s leadership and prevent a crash from weighing on economic expansion.
President Xi Jinping’s government is ramping up efforts to combat the rout as policy makers seek to maintain confidence in the nation’s leadership and prevent a crash from weighing on the weakest economic expansion since 1990.
Meanwhile, Greece is working against the clock on a package of proposed reforms to convince European leaders headed by German Chancellor Angela Merkel that it can keep the euro. The country has until midnight Thursday in Brussels to present measures to reform its economy and cut spending in exchange for a new European bailout.
Greece’s financial crisis and now China’s equity market slide have diverted attention from U.S. economic data and the path of the Fed’s monetary policy. The S&P 500 is down 4 percent since its May record.
“The convergence of China as well as Greece is putting risk takers on their heels,” said Chad Morganlander, a money manager in Florham Park, New Jersey for Stifel Nicolaus & Co., which oversees about $170 billion.
Earnings will also bring investors more data to consider. After the market closed, Alcoa, the largest U.S. aluminum producer, reported second-quarter earnings that missed analysts’ estimates after aluminum prices fell amid surging exports from China.
Shares rose 0.5 percent in after-hours trading as of 4:59 p.m.
Results from Johnson & Johnson, JPMorgan Chase & Co. and Intel Corp. are all due next week. Profit at S&P 500 companies contracted 6.5 percent in the second quarter, analysts’ estimates compiled by Bloomberg show.
“I think what’s really important for earnings season is not so much what happened in the second quarter, but what the guidance looks like,” said John Canally, chief economy strategist at LPL Financial Corp. in Boston. “Is there impact from disruptions in China? Is there impact from the European economy? We’re going to be watching those two things really closely.”
The Chicago Board Options Exchange Volatility Index added 22 percent to 19.66, its highest since January. The gauge, known as the VIX, rose 20 percent last week, the most in five months.
All of the S&P 500’s main groups declined, with nine of the industries down more than 1 percent. Phone companies, consumer discretionary, raw-materials and energy all dropped at least 1.8 percent.
Alcoa posted its worst slide since March to lead declines in materials shares before unofficially kicking off the earnings season. Miner Freeport-McMoRan Inc. lost 4.4 percent, falling more than 3 percent for a third day, to a six-year low.
General Motors Co. fell 5.1 percent to its lowest this year, while Ford Motor Co. lost 3.2 percent, also to a 2015 low. Auto-parts maker Delphi Automotive Plc slumped 6.9 percent, its biggest drop in more than three years.
Semiconductors extended their losing streak to a third day, with Qorvo Inc. and Skyworks Solutions Inc. down at least 4.8 percent to pace declines. The Philadelphia Stock Exchange Semiconductor Index fell 2.6 percent, down 12 percent from a June peak.
United Continental Holdings Inc. lost 2.7 percent after a router malfunction caused a computer fault that disrupted travel for thousands of the airline’s fliers. The Dow Jones Transportation Average fell 2.2 percent, the most since Jan. 30, to its lowest since October.
Energy shares in the S&P 500 dropped with oil as crude fell on speculation a supply glut will linger at the same time investors shun risky assets amid the Greek crisis and Chinese stock selloff. Chevron Corp. decreased 1.8 percent, while Transocean Ltd. and Phillips 66 declined at least 3.6 percent.
Wynn Resorts Ltd. fell 6.5 percent, and Yum Brands Inc. lost 3.1 percent to a two-month low. Both companies derived more than 50 percent of their revenue from China during fiscal 2014, according to data compiled by Bloomberg.
The iShares China Large-Cap exchange-traded fund, which tracks the FTSE China 50 Index, sank 7.2 percent to its lowest since November, and its biggest drop in since Jan. 2009.