Jul 06

China- Toast-To-Market-Manipulation

Peak Desperation: China Bans Selling Of Stocks By Pension Funds (ZeroHedge, July 6, 2015):

What do you do when two policy rate cuts, $19 billion in committed support from a hastily contrived broker consortium, and a promise of central bank funding for the expansion of margin lending all fail to quell extreme volatility in a collapsing equity market?

Well, you can simply ban selling, which is apparently the next step for China.

According to Caijing, the country’s national social security fund is now forbidden from selling (but is welcome to buy). Here’s more, via Caijing (Google translated):

Social Security informed the public fund social security portfolio not only buy sell stock

“Financial” reporter learned that the Social Security Council on Monday (July 6) Call each raised funds, social security portfolio is not allowed to sell their holdings of stock.

Sources said that Social Security Council has just informed all social security portfolio can only buy stocks can not sell the stock; and it is not defined as the net selling, but completely unable to sell the stock.

And a bit more from FT:

Financial magazine Caijing reported on Monday that the National Social Security Fund had told its external fund managers they could buy stocks but were not permitted to sell them.

Central Huijin, a unit of China’s sovereign wealth fund, also said on Sunday it was supporting the market by buying blue-chip exchange traded funds.

As mentioned above, and as discussed at length over the weekend (here and here), China is scrambling to counter an unwind in the country’s various unofficial margin lending channels which have combined to pump between CNY500 billion and CNY1 trillion in borrowed funds into the country’s previously red-hot equity market.

The pension selling ban comes just days after China moved to curtail margin calls in a similary ridiculous attempt to stop the bleeding by simply making selling against the rules.

For their part, Moody’s says the “lack of compulsory liquidiation” in margin accounts is probably a very dangerous idea:

Lack of compulsory liquidation rules in unmet margin call is credit negative for securities cos. because it weakens controls against losses, allows industry to increase risk.

Moody’s expects some cos. to aggressively incentivize clients to buy stocks on margin and allow value of collateral to fall below safe level to avoid damaging customer relationships, putting themselves in riskier position.

The takeaway: this is simply one more example (the insolvent US shale space and HY bond funds being two others) of forestalling the inevitable and in the process allowing already precarious situations to mushroom into speculative bubbles that have the potential to wreak untold havoc when the inevitable unwind finally comes. We’ll close with the following quote (again from Moody’s):
New rules [in China] appear to be attempt to stabilize market, [but] less discipline around liquidating positions and risk taking with securities cos. underwriting leveraged positions will sow seeds for greater market peril.

Tags: , , , , ,

One Response to “Peak Desperation: China Bans Selling Of Stocks By Pension Funds”

  1. Marilyn Gjerdrum Says:

    This is very disturbing. Western financial sites and channels are not saying enough about China…….
    If China is crashing, add in Greece, all the western banks devoid of real money, the losses already sustained by the IMF and the citizens who bought their bonds and securities……all that money is gone. A lot of investors are pretty upset. ECB payment of E3.5B due from Greece July 20th is not likely to be paid. ECB’s behavior towards Greek banks and the harsh haircuts against the depositors are assuring Greece will not have the money or the inclination to pay them, either.
    This will hurt investors all over the Euro, including the UK.

    The problem in the west has been the fact all debt, credit card, mortgages, auto loans, junk bonds, all are sold on Wall Street as financial opportunities. Stock, also debt, in solid companies that might bring an investor some wealth is one thing. Selling junk like mortgages, or debt in a bankrupt country are nothing but a place for corrupt enterprises to sell their debt as opportunities. It used to be illegal.

    If this is going on in China, along with their ghost cities, and other parts of their false economy, the problems they now face will need more than 120 billion Yuen investment from government funds……

    China, Greece, the resulting exposure of the true state of the empty leading banks all over the world is enough to create an economic tsunami. It exposes the the economic frailty of Germany, France and all the Euro countries. The domino effect of the Greek default all over the Euro and eventually, the western economy cannot yet be predicted, but it will be unpleasant.

    This is truly overwhelming.

Leave a Reply