Yes. We saw another week of losses in the Chinese stock markets for another “biggest loss in 7 years” headline. After last week’s 7 year high to be followed by the biggest 7 year loss, it has undoubtedly got people gasping for their breaths.

Perspective : we are still sitting on 6 year highs and higher levels than where China-skeptics would have started their short-selling, although I am not sure where next week would take us given that ” 70% of Shanghai Composite has hit downward limit 770 of the 1,105 stocks” hit their downside limits on Friday which means that sellers are not done yet.

Bloomberg reports that the state owned media company, Xinhua, has gone quiet in this recent bout of market weakness and Morgan Stanley says there is another 30% to go. [30% would still be in the 3-4 year high area]


Note : We had Ladders this week !

3 China State Council Measures announced this week !

1. The Loan/Deposit (:/D) ratio changed from a legal requirement to a monitoring indicator !
Banks’ credit lending growth is expected to accelerate with the help of the move,” said Xu Gao, chief economist at Everbright Securities Co. in Beijing. “But we need to bear in mind that there is a bigger obstacle, which is sluggish financing demand from the real economy.

2. Lowering Social Security Insurance Requirement For Corporations


  • China will cut average premium rate of work-related injury insurance to 0.75% or lower from as much as 1%
  • Premium rate of maternity insurance to be cut to 0.5% or lower from 1%


3. China Insurance Investment Fund

(Bloomberg) — Fund to invest in shantytown redevelopment and major infrastructure projects, according to a statement from the State Council website, citing a meeting chaired by Premier Li Keqiang.

  • Insurance cos. to contribute to the fund, which will also invest in equities and creditor’s rights or other investment funds both at home and abroad

And from Bank of America.

In addition to removing the LDR cap, the media reported today that the National Development and Reform Commission (NDRC) starts to promote the issuance of project-revenue bonds (to evade the restrictions on issuing LGFV bonds) and ease the rules for issuing enterprise bonds, aiming at dissolving funding difficulties post the announcement of No.43 article. For instance, issuers that meet certain criteria are allowed to pay existing enterprise bonds and other high-cost debt with new borrowings; companies with AA issuer and AA+ debt rating are allowed to use 40% of their bond-sale proceeds as working capital and bank loan payment. These pro-growth measures could improve growth expectations

And finally, the PBOC did their first 7 day reverse repo for the first time in 8 weeks on Thursday !

Some say it is the IPO effect, draining liquidity from the system and lead managers supporting prices which led to the sharp drop in equities on Friday as they withdrew support.

Indeed the money system is seeing strain as we have the first government bond auction to fail in a year on Wednesday.

And not a week without new scandals.

SCMP : An official with China’s securities regulator handed pink slip and to police amidst SSE drop

SEC Freezes Assets of China-Based Trader for Suspicious Trades on Qihoo

How Hanergy founder Li Hejun pledged company shares to borrow money and buy more shares

Like I said last week, “the 30 day hist volatility of the SHCOMP running at 42.72% !, a RED ALERT number that equates to DO NOT TOUCH for folks that understand the meaning of risk.”

And it is a good thing that retail investors are not getting that badly burnt given that it was reported that local investors were having trouble getting credit 2 weeks ago.

Thus, maybe good timing for the local retail investor in China to get back ? The message below is apparently being circulated by local brokerages insinuating that the authorities will be the market’s “push up” bra.

china bra

As for me, I would find little thrill in playing any dead cat bounces or conspiracy theories.

For the keen sighted, note that the SHCOMP has not fallen for more than 2 consecutive weeks in over a year.

shcomp weekly

Bonds are holding well despite the tighter liquidity conditions with issuance aplenty for the week and the currency, unmoving in its strength. Not long before SDR status and perhaps the MSCI equity index after they resolve the South China Sea dispute ?


Leaving with the indicative prices.