After a blistering run that drew comparisons to the beginnings of the 2015 bubble in the country’s equity market, Chinese stocks fell for the first time in nine sessions Friday.
Just five days after state media encouraged local investors to help foster a “healthy” bull market, the state-run Economic Times suggested things are getting out of hand already.
“Be wary of ‘mad cow’ when promoting the rational prosperity of A shares”, a featured article reads. It warns on the perils of adopting too much leverage, and differentiates between good cows and bad cows. To wit (translated):
In the words of market participants, what regulators want is a ‘slow cow’ and a ‘healthy cow.” When the off-site funding is mixed, ‘slow cow’ can easily become a “crazy cow”, which is obviously intolerable.
Yes, a “crazy cow” is “obviously intolerable”, which is why two state funds tipped their intention to sell shares, prompting a selloff.
Specifically, China’s national pension fund and a state-backed semiconductor fund tasked with bolstering the domestic chip industry, announced divestitures, rattling sentiment.
Foreign-based funds were net sellers for the first time in July, shedding the most exposure in months. This week saw the second largest inflow in history into China according to EPFR data compiled by BofA.
The CSI 300 fell nearly 2% Friday, its first daily loss in nine sessions. Large-caps dropped almost 3% on the day.
Other signs that Beijing is concerned were evident. For example, Caixin said regulators “asked” mutual fund companies to put a ceiling on the size of new products.
Mainland shares tacked on more than $1 trillion in market value over the course of the recent surge.
Retail investors interviewed by the western media described feeling “invincible” and suggested gains were inevitable by virtue of the state’s blessing. Outstanding margin debt on the Shanghai and Shenzhen stock exchanges rose 2.5% to 1.26 trillion yuan through mid-week, according to Bloomberg’s data. Margin debt was up every session since the recent rally began.
During Monday’s truly absurd proceedings, Chinese shares added nearly a half-trillion in market cap in a single session.
“The signal could not be clearer — stocks have just become too hot for the regulators’ liking”, one fund manager told Bloomberg on Friday.
It’s truly hilarious that it took just five sessions for Beijing to go from whipping the nation’s notoriously excitable retail crowd into a frenzy to attempting a controlled demolition to avert a repeat of 2015.
“Since July this year, the volume of A shares has skyrocketed, and investors exclaimed ‘a bull market is coming!”, the Economic Times said Friday, before explaining to China’s delirious masses that “the ‘mad cow’ market often turns into a wealth ‘meat grinder’, and may even spread stock market risks to other areas”.