The Politburo isn’t a body that’s fond of instability and “panic” is anathema to what Chinese officials hope to foster in financial markets. In fact, those who remember the 2015 crash know that past a certain point, Beijing will simply halt the market and start arresting people if shit gets too far out of hand.
Well, shit’s getting out of hand again.
One of the mitigating factors this time around is – or at least should be – the idea that housewives and the infamous banana stand guy aren’t trading on margin. And look, that was a real fucking thing, so spare me your comparisons to other bloggers. You don’t have to be a batshit crazy, permabear to know why these pictures are funny:
Ok, so you’d think that the deleveraging push to squeeze the country’s labyrinthine shadow banking complex would have done away with some of the half dozen backdoor margin lending channels that allowed things to get out of control in 2015, but according to what Bloomberg describes as “a study” by the National Institution for Finance & Development, “leveraged purchases of shares have reached levels last seen in 2015.”
Here, according to the think tank (and BBG has verified this with NIFD) is what’s likely to happen:
We think China is currently very likely to see a financial panic. Preventing its occurrence and spread should be the top priority for our financial and macroeconomic regulators over the next few years.
And NIFD goes further to make a series of recommendations that amount to this: “INTERVENTION!” Here’s Bloomberg:
China should stand ready to roll out a mix of fiscal and financial-sector measures in the event of a systemic crisis, according to NIFD, which was established in 2005 as a national-level think tank backed by the Chinese Academy of Social Sciences. Authorities should also be willing to step in with full financial support if a major default roils markets, rather than taking piecemeal steps, NIFD said.
Yes, “a mix of fiscal and financial-sector measures”, with the latter almost certainly amounting to the fabled national team buying up shares and the former amounting to more stimulus. Of course more stimulus isn’t exactly consistent with deleveraging and that’s been the problem now for years – it’s a tight rope walk.
Getting back to the margin issue, NIFD appears to think that people have simply found other means of leveraging themselves to the hilt. To wit:
We failed to clean up the leveraged funds after the 2015 market rout; they have staged a comeback in a new guise.
That “new guise” has reportedly led to a rebuilding of some CNY5 trillion in leveraged equity purchases.
“Gotta get dis money bitchez!!”