5 Things Peculiar About China’s Market Meltdown

FUYANG, CHINA - JULY 07: (CHINA OUT) Investors observe the stock market at a stock exchange hall on July 7, 2015 in Fuyang, Anhui Province of China. Chinese shares rebounded to 3,700 points from 3585 points on Tuesday, while by the end of Tuesday's close, the benchmark Shanghai Composite Index dropped 47.72 points, or 1.26 percent, to close at 3728.19 points. The Shenzhen Component Index slid 700.17 points, or 5.80 percent, to 11375.60 points. (Photo by ChinaFotoPress/ChinaFotoPress via Getty Images)

China’s stock market is unusual thanks to government’s heavy-handed approach and the high participation of retail investors. Now as markets plunge and the government scrambles for ways to arrest the fall, things are getting more peculiar.

5 Things Peculiar About China’s Market Meltdown p

  • 1 Halted stocks are the best

 

On Wednesday, some 1,400, or about half of the companies listed in China have been suspended, according to data provider Wind. Trading halts in China can last anywhere from days to years. But Chinese investors cheer when stocks are suspended from trading, as it usually portends restructuring news that is positive for stock prices.

 

  • 2 The government is buying big state owned companies to pump up the market

 

In a move sure to further distort the market, shares of banking stocks are hitting recent highs even as the Shanghai Composite has fallen about 30% from recent highs. The market cap of PetroChina, which soared as much as 29% in the past two weeks, is now close to that of Google’s.

  • 3 Fund managers have to cough up money to buy their own funds

 

As the market tumbles, senior managers at Chinese mutual funds have promised to spend half a million yuan (US$80,500) each to buy their own stock-focused mutual funds, and not to sell for a year.

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  • 4 The securities regulator is expected to save the market

 

It’s hard to imagine the U.S. Securities and Exchange Commission boosting stocks, but that’s what investors expect China’s Securities and Regulatory Commission to do. After the market tanked, CSRC has halted initial public offerings and mobilized funds to buy shares. Chairman Xiao Gang said recently that it has the ability and confidence to defend the stability of the market.

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  • 5 Always blame the foreigners

 

The internet is abuzz with criticism from university professors and professional money managers, blaming foreign capital for shorting Chinese stocks, leading to the market collapse. Foreigners currently have limited access to Chinese markets, and own less than 2% of the market cap. Starting this year, they can short individual Chinese stocks through Shanghai-Hong Kong Stock Connect link, but naked short-selling, or selling shares without owning them, is prohibited. No short-selling has taken place yet.