The Greek Sunday austerity vote may be “peanuts” compared to the market news impact out of China.
There is an Interesting graphic comparison by Bloomberg between the historical changes in Wall Street during 1929 and China in 2015. (see the Bloomberg graphic)
Perhaps the Chinese government may be more successful in intervening today then was the limited private game plan during 1929.
Clearly, there does appear to be a significant confidence sell off in today’s market. The parallels look interesting but need to be tested by time in the year to come before we will know. Here are some interesting statistics. The two graphic stock price trends are separated by 86 years and 7,300 miles, but Chinese financiers are turning to the same playbook according to Bloomberg that were used by their American counterparts to fight a crash that’s wiping out stock-market fortunes on an unprecedented scale.
Investors in China are hoping it works out a lot better this time around.
“When five of America’s most-powerful financiers met at the House of Morgan at 23 Wall Street on Oct. 24, 1929, the immediate impact of their plan to pool resources and prop up the market was encouraging: the panic of Black Thursday gave way to a recovery and the New York Times lauded the bankers for putting a floor under share prices.” “The boost to confidence didn’t last long. The 1929 price rout resumed by the following Monday, with the Dow Jones Industrial Average losing 13 percent.
The gauge would go on to drop another 34 percent over the next three weeks, as the attached chart shows.”
How long will the recent support measures in China last? The measures might have a fleeting impact according to Hao Hong, a strategist at Bocom International Holdings Co. in Hong Kong. A group of 21 Chinese brokerages pledged on Saturday to commit 120 billion yuan ($19.3 billion) to a large-cap stock fund, designed to stabilize shares.
This action plan comes on the heels of a three-week rout in the Shanghai Composite Index — the biggest drop since 1992. The brokerage move coincides with a “flurry of other market-boosting measures including a halt to initial public offerings and regulatory moves to discourage short sellers.
IPOs Suspended in China as another intervention game plan
Over the weekend, the China government suspended initial public offerings and the central bank said it would provide liquidity for margin trading.
Stemming the loss pattern? These actions come after the Shanghai Composite has tumbled 29 percent in the past three weeks.
That has already erased a whopping $3.2 trillion of value. Yes, TRILLIONS.
A major concern is that “leveraged traders may be liquidating their previous equity bets”.
“Excluding banks, the Shanghai Composite Index was trading at about 31 times trailing earnings.”
On Wall Street in 1929, it was the great banking houses of J.P. Morgan and Guaranty Trust Company that tried to stem the economic tidal wave.
To read the entire article, go to http://bloom.bg/1fe0PSb
As you have your Monday morning coffee…
Early July 6th and late July 5th news reports indicate that the Hong Kong Exchanges & Clearing Ltd. Had dropped a noticeable 12 percent as of about 1:30 p.m. That would be its biggest decline since October 2008.
A Double Dip recession? Probably.
The Bloomberg Commodity Index fell as much as 1.8 percent to 100.0574, — the biggest intraday loss since May 26th. This gauge is down 4.1 percent this year in tracking declines of base metals and crops.
The MSCI Emerging Markets Index lost 2.5 percent to 940.52 at 1:35 p.m. in Hong Kong. That has wiping out this year’s 2015 advance.
South Korean shares appeared to be headed for the steepest loss since 2012.
Trading houses like Goldman Sachs Group, JPMorgan, Chase & Co. and Bank of America Corp. appear from news reports to have advised their clients to sell shares on the China perceived rallies.
Most reporting in the USA media seems meanwhile to be focuses on the Greece austerity referendum vote rather than these economic events in China.
Clearly, global resource driven railway projects from Mongolia to South Africa and Senegal to Brazil are now even more threatened as to economic feasibility.
Rail Planners may now need to develop Plan C and drop their earlier small Plan B changes as the global economy undergoes another series of “economic body blows”.
It is possible that the market in China may stabilize. But the trend and economic cycles of history are a cause for investor concern. Markets react poorly to circumstances shown in the above reports.
The six year global struggle to come out of the 2007/2008 recession is clearly not yet over. A further three to six year recovery period may be the pattern out towards 2021. Events and data in the coming six to twelve months should tell us all more.