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Thread: Market turmoil and economic downturn in China

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    Market turmoil and economic downturn in China

    Shanghai composite index today:

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    -8.49% decline, biggest one day decline in 8 years. This on top of distress seen in PMI data. Evidently the government is concerned. Heavy handed efforts have been used to try (and fail) to stop the stock market retreat since June, and the RMB was suddenly devalued last week with perhaps more to come.

    What's next for China and Chinese markets? Is China finally in the midst of a crash?

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    http://www.cnbc.com/2015/08/24/marke...ve-charts.html

    Five charts that prove this selloff is serious
    Catherine Boyle | @cboylecnbc

    Stock markets around the world seem to be already in confirmed selloff territory or very close to it.

    Here, we take a look at some key charts which demonstrate why this pessimistic mood looks set to continue.

    Shanghai Composite Index over 3 months

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    Was this where it all began? China's benchmark index is one of the worst-hit of the major global equity markets. While the roots of the current selloff may be deep, much of the pile-in panic seems to have been sparked by fears that China's economy, the second-largest in the world, is not going to deliver the growth figures once hoped for.

    The Chinese central bank's devaluation of the yuan earlier this month, as it suggested that the country needed to boost its exports, caused some of the more serious concerns to crystallize. While it was aimed at stabilization, the performance of the country's main stock market index since then suggests this has not yet been achieved.
    US dollar index last week
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    This chart illustrates how other major currencies are weighted against the U.S. dollar – and can be used as a forward indicator of U.S. trade with other countries.

    The slump in other currencies against the U.S. dollar is motivated both by fears of a currency war, where countries become locked in a competition to devalue their currencies in an effort to boost exports, and about whether the U.S. Federal Reserve will start raising interest rates in September, as many expected.

    Apple’s share price last week
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    As owning an iPhone or iPad has become a sign of affluence, Apple shares have become the benchmark not only for the technology sector, but also for confidence in the global economy.

    The technology giant's size is regularly talked of breathlessly and compared to the gross domestic product of small countries. The plunge in its share price last week didn't follow a product warning or other scare – it appears to be mainly a crisis of confidence that people around the world, particularly in China, will continue buying yet more upgrades of the company's pricey -- but pretty -- products.

    Oil price over the past three months
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    Gulp. The price of oil is vulnerable to many different factors, lots of them complicated geopolitical issues like the conflict in the Middle East or Ukraine. The recent selloff appears to be motivated by the most over-arching of all: concerns about the global economy – and particularly China -- not growing as fast as expected, and therefore needing less oil.
    Market volatility over the past month
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    There was a huge spike in market volatility, as measured by the VIX index, last week. August is now on track to be the most volatile month for equity markets in 25 years – more volatile than after apparently sciesmic events like the collapse of Lehman Brothers or the bursting of the tech stocks bubble.

    What's behind this? Partly it's that August is a relatively low-volume month, with plenty of traders away from their desk. But perhaps more importantly, it's the atmosphere of fear and panic about a number of factors: China's economy; currency wars and the price of oil among them.

    - By CNBC's Catherine Boyle
    Last edited by citanon; 24 Aug 15, at 09:23.

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    http://www.bloomberg.com/news/articl...week-s-retreat

    China’s Stocks Sink Most Since 2007 as State Intervention Fails
    Bloomberg News

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    China’s stocks plunged the most since 2007 as government support measures failed to allay investor concern that a slowdown in the world’s second-largest economy is deepening.

    The Shanghai Composite Index tumbled 8.5 percent to 3,209.91 at the close to erase its gains for the year. The Hang Seng China Enterprises Index of Chinese stocks in Hong Kong fell 5.8 percent to its lowest level since March 2014. Futures on the CSI 300 Index declined by the 10 percent daily limit.

    Worsening economic data and signs of capital outflows are undermining unprecedented government attempts to shore up the country’s $6 trillion stock market. While China said over the weekend it will allow pension funds to buy shares for the first time, a speculated cut in bank reserve ratios failed to materialize.

    “This is a real disaster and it seems nothing can stop it,” said Chen Gang, Shanghai-based chief investment officer at Heqitongyi Asset Management Co. “If we don’t cut holdings ourselves, the fund faces risk of forced closure. Many newly started private funds suffered that recently. I hope we can survive.”

    More than 800 stocks fell by the daily 10 percent limit on the Shanghai Composite, including China Shenhua Energy Co. and China Shipbuilding Industry Co. The gauge has tumbled 38 percent from its June 12 peak to wipe out more than $4 trillion of value.

    The Hang Seng Index sank 5.2 percent in Hong Kong. The gauge’s relative strength index declined to 15.1, the lowest since the aftermath of the October 1987 stock market crash. A level below 30 signals to some traders losses are overdone. Taiwan’s Taiex index slid as much as 7.5 percent, before paring losses to 4.8 percent.
    Stock Valuations

    Economic growth slowed to 6.6 percent in July, according to Bloomberg’s monthly GDP tracker. China’s first major economic indicator for August signaled a further deterioration as a private manufacturing index fell to the lowest level in six years.

    “China’s economy is pretty ugly and some sectors have bubbles,” said Wu Kan, a Shanghai-based fund manager at JK Life Insurance Co., who’s keeping his holdings unchanged. “Selling pressure around global markets is also weighing on local sentiment. The Shanghai Composite may fall to around the 3,000-point level.”

    Stocks on mainland bourses traded at a median 61 times reported earnings on Friday, according to data compiled by Bloomberg. That’s the most among the 10 largest markets and more than three times the 19 multiple for the Standard & Poor’s 500 Index.
    Stock Outflows

    Yuan positions at the central bank and financial institutions fell by the most on record last month, a sign capital outflows have picked up. Chinese equity funds were the biggest contributors to more than $4 billion of outflows in Asia excluding Japan in the week to Aug. 19, EPFR Global said. Margin traders reduced holdings of shares purchased with borrowed money for a fourth day on Aug. 21.

    Industrial and Commercial Bank of China Ltd., the second largest, fell the most since Jan. 19 with a 9.7 percent slump. Agricultural Bank of China Ltd. slid 9.3 percent. PetroChina Co., long considered a favorite holding of state-linked rescue funds, tumbled 4.9 percent.

    The State Council, or cabinet, on Sunday announced it will allow pension funds to invest as much as 30 percent of their total net assets in stocks. Pension funds had net assets of 3.5 trillion yuan ($547 billion) by the end of 2014, Xinhua News Agency reported.

    The move is the latest attempt by the government to support the equity market, after arming a state agency with more than $400 billion, banning selling by major shareholders and telling state-owned companies to buy stocks.

    “The news on pension funds over the weekend was positive, but not having the expected required-reserve ratio cut or any other larger measure seems to have disappointed investors,” said Gerry Alfonso, a Shanghai-based trader at Shenwan Hongyuan Group Co. “But it is questionable whether even with one the market would have rebounded.”

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    Global Moderator Defense Professional JAD_333's Avatar
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    Yeah, I've taken a haircut on my Apple shares, but still in the green. This morning was absolutely crazy. $11 swing in the morning from the downside to the upside. CEO Tim Cook sent an email to Cramer saying iPhone6 sales in China were strong even up through yesterday. I wonder if all this is panic, a correction or a true reflection of the way the global economy is going. Negative reports out of China are certainly a factor. It shows how much China has become an integral part of the global economy. Used to be when the US hiccuped the global economy slid, now other players are affecting it. A lot buying opportunities coming up.
    To be Truly ignorant, Man requires an Education - Plato

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    Global Moderator Defense Professional JAD_333's Avatar
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    This might also interest you:

    China is slowing down, but this is mostly due to a "Law of Large Numbers" impact on growth as a percent change from the previous year. In absolute terms, China's growth trajectory is unchanged. As such, Apple is in no way jeopardized by a China "slowdown."
    Reuters Rattles Investors

    Reuters started the slide on Friday with Sharp China factory slowdown in August raises global growth fears. The centerpiece of the article was the Caixin General Manufacturing report issued by markiteconomics.com of the results of a Purchasing Managers Index survey in China for the month of August. Reuters summarized:

    It was the worst reading since March 2009, in the depths of the global financial crisis, and the sixth straight one below the 50-point level, which separates growth in activity from contraction on a monthly basis.

    What Reuters said was factually correct, but also misleading. To see this, let's look at the chart of the PMI index and Production Output Index excerpted from the report below:




    As the reader can see, since the beginning of 2012, the two indices have been under the 50 point mark, indicating industrial contraction, about as often as not. The August readings were only slightly worse than the worst points since 2009. The short-term fluctuation of the August numbers is not significantly worse than similar fluctuations since 2011.

    There may be something inherently pessimistic about the surveys since one might infer from the plots that manufacturing had all but stagnated since 2011. However, data from the National Bureau of Statistics of China (NBSC) via tradingeconomics.com indicates that manufacturing has continued to grow in the past few years, although at a lower rate in terms of a percentage change compared to the previous year.




    This trend is present in China's GDP annual growth rate, also from the NBSC.



    Succumbing to the Law of Large Numbers

    Do the declines in percentage growth in manufacturing and GDP indicate that China's economy is stagnating, or worse, heading into a recession? They really don't. What we have here appears to be legitimate case of the Law of Large Numbers. In the past, I've argued that the so called Law of Large Numbers didn't apply very strongly to individual companies. One of the key arguments of the Law is that a company can't continue to post the same y/y percent growth, or it will outgrow the economy as a whole.

    Most companies, even very large companies such as Apple, aren't at risk of outgrowing the economy. However, I'm certainly persuaded that very large national economies, such as China's, could see growth curtailed relative to the global economy.

    The more trivial interpretation of the Law is that year-over-year percent growth gets smaller for a given level of absolute growth, as the company (or nation) grows larger. This is pretty much what has been happening in China's GDP growth.



    The above discussion is not to argue that China's economic growth isn't slowing down in real terms. It is, but this has been occurring for the past few years. While the media may greet the PMI survey with feigned surprise, this seems to be for effect. The media thrives on sensationalism.

    http://seekingalpha.com/article/3461...4dcc7&uprof=45
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    Quote Originally Posted by JAD_333 View Post
    Yeah, I've taken a haircut on my Apple shares, but still in the green. This morning was absolutely crazy. $11 swing in the morning from the downside to the upside. CEO Tim Cook sent an email to Cramer saying iPhone6 sales in China were strong even up through yesterday. I wonder if all this is panic, a correction or a true reflection of the way the global economy is going. Negative reports out of China are certainly a factor. It shows how much China has become an integral part of the global economy. Used to be when the US hiccuped the global economy slid, now other players are affecting it. A lot buying opportunities coming up.
    I seem to recall smartphone sales were strong and growing even near (maybe not at) the darkest depths of the financial crisis. It seems to be one of those "affordable luxuries" that people treat themselves to no matter what happens to the economy.

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    Quote Originally Posted by JAD_333 View Post
    JAD, I think this is one of those cases where the numbers might be lying because they are being manipulated by the government. The GDP numbers, for all practical purposes, are artificial. The central government assigns GDP growth targets, and the local officials do what ever they can to meet them. In the past decade this has meant real estate development and infrastructure spending, but now Chinese muni debt loads are some of the highest in history and the Chinese real estate market is in obvious bubble territory (which everyone in China acknowledges). The real estate bubble is not popping but slowly deflating because there are no other safe avenues of investment in China. The muni finances have not collapsed only because they are concealed in secrecy. Nevertheless and both infrastructure and real estate investment have slowed dramatically. This is not reflected in GDP because I suspect there is now quite a bit of actual fudging going on. Since these two legs have been supporting Chinese manufacturers, you are likely to see further slides in the PMI either in number or in greater frequency and duration of negative sentiment. I suspect that China is in a slow motion, stealth crash, that is now coming to the surface. Echos of 1990s Japan are rife.

    The panicky government reaction to the stock market turbulence (and its irrational promotion of the "reform bull" leading up to the crash) is another sign that things are not going well.

    Another sign? Fleeing rats: http://www.forbes.com/sites/gordonch...-china-assets/

    Slowing electricity consumption: http://www.zerohedge.com/news/2015-0...-pace-30-years

    Plunging exports: http://www.forbes.com/sites/panosmou...r-commodities/

    Lastly, if the law of large numbers was at play, shouldn't volatility decrease rather than increase?



    Shanghai Composite had been propped up over the last month by government buying. The propping up efforts failed a lot more quickly in the stock market and in a more conveniently visible way, but the governments' efforts in the real economy are also failing. Sentiments on the ground in China, on social media and
    Last edited by citanon; 24 Aug 15, at 20:38.

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    Quote Originally Posted by citanon View Post
    I seem to recall smartphone sales were strong and growing even near (maybe not at) the darkest depths of the financial crisis. It seems to be one of those "affordable luxuries" that people treat themselves to no matter what happens to the economy.
    Yes, and they will be strong for next few years given the build-out in 4G, especially in China. But smartphones come in lots of flavors, but in only two main operating systems, Apple iOS and Android, and iOS is the better overall and by far the most profitable. But that is another subject.
    To be Truly ignorant, Man requires an Education - Plato

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    OT: I'm having a weird problem where I can't edit my previous post (#7) anymore. Wanted to remove that sentence fragment at the end there by it gives an error page.

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    Quote Originally Posted by citanon View Post
    JAD, I think this is one of those cases where the numbers might be lying because they are being manipulated by the government. The GDP numbers, for all practical purposes, are artificial. The central government assigns GDP growth targets, and the local officials do what ever they can to meet them. In the past decade this has meant real estate development and infrastructure spending, but now Chinese muni debt loads are some of the highest in history and the Chinese real estate market is in obvious bubble territory (which everyone in China acknowledges). The real estate bubble is not popping but slowly deflating because there are no other safe avenues of investment in China. The muni finances have not collapsed only because they are concealed in secrecy. Nevertheless and both infrastructure and real estate investment have slowed dramatically. This is not reflected in GDP because I suspect there is now quite a bit of actual fudging going on. Since these two legs have been supporting Chinese manufacturers, you are likely to see further slides in the PMI either in number or in greater frequency and duration of negative sentiment. I suspect that China is in a slow motion, stealth crash, that is now coming to the surface. Echos of 1990s Japan are rife.

    The panicky government reaction to the stock market turbulence (and its irrational promotion of the "reform bull" leading up to the crash) is another sign that things are not going well.

    Another sign? Fleeing rats: http://www.forbes.com/sites/gordonch...-china-assets/

    Slowing electricity consumption: http://www.zerohedge.com/news/2015-0...-pace-30-years

    Plunging exports: http://www.forbes.com/sites/panosmou...r-commodities/

    Lastly, if the law of large numbers was at play, shouldn't volatility decrease rather than increase?



    Shanghai Composite had been propped up over the last month by government buying. The propping up efforts failed a lot more quickly in the stock market and in a more conveniently visible way, but the governments' efforts in the real economy are also failing. Sentiments on the ground in China, on social media and
    Cit:

    I agree that Chinese gov't numbers are not reliable, and never have been. So they must have been funky on the upside too. The problem is, that when they stop exaggerating no one gets it. One thing is for sure, China;s numbers are not increasing at an increasing rate. That author's use of the Law of Large Numbers was somewhat misleading. His point was that growth can proceed even when percentage growth decreases.

    Commenting on the articles you posted, the first one called the Chinese real estate mogul a Chinese Warren Buffett. Actually he's the opposite of Buffett. He's selling into a falling market, whereas Buffet would be buying, and furthermore, Buffett rarely sells his holdings when times are bad. Of course, that doesn't mean the Chinese real estate market isn't a basket case, which it seems to be. I think China will grow into its excess real estate. But until then it will be a buyer's market, which isn't all that bad for consumers. That part of China's GDP concerns me less than the manufacturing sector. We'll see where the latter is heading after the currency devaluation has had time to work its "magic".

    The article about decreasing electric usage is interesting, but decreasing usage may or may not be the result of a slowdown. The analysts have some work to do to make the correlation between the two. There are other explanations, such as increased efficiency.

    Plunging exports? Here again percentages can create a more dire picture than the reality. What are needed are hard numbers, not percentages. China could not keep growing exponentially, so the percentages were destines to flatten. I am not saying there hasn't been a decrease in absolute tonnage shipped. Perhaps domestic consumption, which is on the rise, should be factored in.

    This is a good time to go fishing and let the analysts fight it out.
    To be Truly ignorant, Man requires an Education - Plato

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    Quote Originally Posted by citanon View Post
    OT: I'm having a weird problem where I can't edit my previous post (#7) anymore. Wanted to remove that sentence fragment at the end there by it gives an error page.
    one of those things Top is working on with Rochen...
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    Quote Originally Posted by JAD_333 View Post
    one of those things Top is working on with Rochen...
    Edit post was working for me.

    EDIT: It still does.

    EDIT 2: Still works.

    EDIT 3: Keeps going...

    EDIT 4: ...and...

    EDIT 5: ...going...

    EDIT 6: ... something is messed up, but not here.

    (The edits were to help the admins)
    Last edited by Doktor; 25 Aug 15, at 11:45.
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    Quote Originally Posted by Doktor View Post
    Edit post was working for me.

    EDIT: It still does.
    I edited 2x, it failed on the 3rd time.

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    Shanghai composite fell today %7.63 down to 2965, falling into negative territory for the year.

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    Global Moderator Defense Professional JAD_333's Avatar
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    Cit:

    The US and European markets no longer being consider the fall in the Chinese markets as serious as they have over the last few days.

    There's a saying, "The markets are not the economy".

    In any case, today the US markets are rebounding significantly.
    To be Truly ignorant, Man requires an Education - Plato

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