China’s Nasdaq Crashes

China’s Nasdaq Crashes

The normalization of initial public offerings (IPOs) in China could help raise the financing efficiency of companies and direct more capital into the real economy, experts have said.

Since an IPO suspension between July and November 2015, the country’s securities regulator has progressively sought to normalize IPOs.

That’s from Xinhua, and anyone holding shares on the tech-heavy Shenzhen wishes they hadn’t printed it.

“Xinhua’s comments on IPO normalization are leading to rising concerns over new share supplies, and that led to the selloff,” Guo Feng, a Shanghai-based general manager at Northeast Securities told Bloomberg.

What selloff, you ask? This selloff:


(Chart: Bloomberg)

Apparently, investors are concerned that new issues will eventually have a crowding out effect on the market, reducing liquidity for existing shares. “About 60 stocks fell by the daily 10% limit on the Shenzhen Composite Index,” Bloomberg goes on to note, adding that “turnover totaled 259.2 billion yuan ($37.6 billion), the highest in more than a month.”

Shanghai shares also collapsed, albeit briefly, falling as much as 2.2% in minutes and rebounding on what certainly felt like buying by the state-sponsored plunge protection team.


Meanwhile, money market rates in China rose sharply (again) proving (again) that we’re nowhere near out of the woods when it comes to worries about the machinations of the PBoC. Here are the bullets via Bloomberg:

  • One-year interest-rate swaps rise 11bps to 3.26%, biggest increase since Dec. 19
  • China’s interbank overnight rate advances 8bps to 2.17%; 7- day repo rate up 16bps at 2.49%; one-month Shibor up 1bp at 3.6852%
  • “Fears of more funding squeeze continue to plague the market,” Stephen Innes, Singapore-based senior trader at Oanda, writes in note; “There’s simply less appetite for the short yuan trade at this juncture.”
  • The PBOC will in the coming months likely raise interbank yuan funding costs to curb one-way bets on depreciation, while keeping medium- and long-term rates at affordable levels to support the economy, Scotiabank’s FX strategist Gao Qi writes in Jan. 16 note

Note the bolded/underlined passage. It’s the same story every day. Beijing needs to releverage and deleverage at the same time.

Good luck with that.

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