This Hasn’t Happened In A Quarter Century: Chinese Equity Market Edition

Time was, you couldn’t trust the SHCOMP (let alone the Shenzhen) not to open limit-down or, looked at differently, “belly up” on a given day.

But that was “then.” And by “then” I mean summer 2015, when suddenly, a castle in the sky built on cumulus margin debt clouds collapsed in spectacular fashion. The labyrinthine network of backdoor margin lending channels suddenly unwound, leading to all kinds of chaos and a truly ridiculous bailout attempt on the part of Beijing that would end up costing trillions of yuan and landing multiple people (including a journalist or three) in prison.

Oh what a difference a couple of years makes.

Consider the following out this morning from Bloomberg who notes that for the last 4 months, the SHCOMP has been doing its best S&P 500 impression in terms of being teflon to drawdowns:

In a Chinese stock market where superstition and government intervention often count for more than economic fundamentals, unusual trading patterns are par for the course.

But even by China’s standards, the latest market anomaly to grab the attention of local investors stands out.

SHCOMP

The Shanghai Composite Index, notorious for its wild swings over the past two years, has gone 85 trading days without a loss of more than 1 percent on a closing basis, the longest stretch since the market’s infancy in 1992. On 13 days during the streak, the index recovered from intraday declines exceeding 1 percent to close above that threshold. The phenomenon has been especially stark recently, with the gauge erasing about half of its 1.6 percent drop in the final 90 minutes of trading on Wednesday.

So what’s behind the stability?

Is it simply a product of low global vol or is the PBoC’s infamous “national team” hard at work behind the scenes?

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