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Circuit Breaker! China Halts Stock Market Fall 

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Yifan Xie and Shen Hong report: China’s stock market regulator announced last month that come the New Year it would introduce a circuit breaker–a forced pause to trading–if shares fell too precipitously. On the first trading day of the year, officials had to reach for the newly installed system, twice.

 “The U.S. adopted the circuit breaker system in 1988, and it was only triggered once. The history of China’s circuit breaker is one day, and we’ve triggered it twice.”

An index of the 300 biggest stocks listed in Shanghai and Shenzhen plunged Monday, triggering the circuit breaker and leading first to one 15-minute pause in trading and then a second halt, which closed the markets for the remainder of the day 80 minutes earlier than scheduled.

“Excessive interference with trading will affect market efficiency and become counter-productive.”

— Chief economist Lin Caiyi

The markets opened in negative territory and stayed there as a flurry of bad news arrived: a weaker-than-expected gauge of manufacturing activity and a further slide in the value of the country’s currency. Adding to the bearish mood are worries among investors about the lapse this Friday of a six-month ban on selling shares by major shareholders–those holding 5% stakes or larger in a listed company. The ban was imposed in July last year to stem a meltdown in the stock markets, and its end may lead to more selling.

An investor at a brokerage firm in the Chinese city of Heifi on Wednesday. Individual investors who began selling in mid-June helped unleash a downward spiral of more selling. Photo: Reuters

Markets turned critical 12 minutes into the afternoon session, as the CSI 300 Index fell 5%, prompting the 15-minute suspension. Six minutes after trading resumed, at 1:27 p.m.,the hemorrhaging continued. The CSI 300 index dived further, hitting a 7% limit and bringing the trading day to an end.

[Read the full story here, at China Real Time Report – WSJ]

At the close at 1:34 p.m, the Shanghai Composite Index slumped by 6.9% at 3296.66, and the smaller Shenzhen Composite Index shed 8.2% at 2119.90.

Caught off guard by the plunge, traders speculated that the securities regulator was conducting a test of the new circuit breaker mechanism. Read the rest of this entry »

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China Police ‘Summon 11 Over Stock Market Activities’

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Shanghai (AFP) – Chinese police have summoned 11 people including a financial journalist to assist investigations related to illegal stock market activities, state media reported, as the government targets volatility on the exchanges.

The Chinese government launched an unprecedented rescue package as the stock market plummeted 30 percent from mid-June, which included a crackdown on short-selling and funding a state company to buy shares on its behalf.

Authorities have accused a Caijing magazine journalist of allegedly colluding with others to manufacture and spread false information on securities and futures trading, the official Xinhua news agency reported late Tuesday.

The magazine confirmed journalist Wang Xiaolu was subpoenaed by police but defended his actions.

Wang wrote a story in July saying the securities regulator was studying plans for government funds to exit the market. Read the rest of this entry »


Top Hong Kong Stock? Umbrella Maker

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Hong Kong is having another umbrella moment.

First there was the umbrella movement last year when young people took to the streets to defy China’s plan for watered-down democracy. Now there is an umbrella maker that’s stunned the stock market.

“It is a bit crazy. The fundamentals do not justify the current stock price.”

— Hannah Li, strategist at UOB-Kay Hian

Jicheng Umbrella Holdings Ltd.1027.HK +13.29% is an unlikely title holder of Hong Kong’s best performing newly listed stock in 2015. At its initial public offering back in February, it received little interest with bankers pricing it at the low end of an indicated price range. But once it got trading it went through the roof, and at one stage last month it rose nearly 20-fold from its IPO price and is still up 14-fold as of Friday.

“It is a bit crazy,” said Hannah Li, strategist at UOB-Kay Hian. “The fundamentals do not justify the current stock price.”

The rally means the company is worth 9.1 billion Hong Kong dollars ($1.17 billion), and is trading at a price-earnings ratio of 100, far higher than the 11.2 for the average of stocks in the Hang Seng index.

[Read the full text here, at WSJ – China Real Time Report]

Exactly why investors are so keen on an umbrella maker to give it a sky high valuation is puzzling, while its shareholder structure looks even more bizarre. The Securities and Futures Commission, Hong Kong’s market regulator, issued a warning Thursday to investors that just 17 shareholders hold over 99% of the company’s shares (the major shareholder owns 75% of the company). This means a buyer could easily push the stock up substantially as there’s so few owners of the shares.

Ms. Li said while Jicheng’s business is in good shape, the small number of shares held by public shareholders is a major reason for the rally. Read the rest of this entry »


Beijing is Restricting How Often Residents of Neighboring Shenzhen Can Enter Hong Kong

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China Reduces Mainlander Visits to Hong Kong

Isabella Steger writes: Can a tweak to a visa arrangement for mainland Chinese tourists coming to Hong Kong help ease tensions between the two places?

“The change was prompted by a marked increase in public anger in recent months against parallel traders. Protests have broken out in areas of Hong Kong near the border with the mainland, such as Tuen Mun, Sheung Shui and Yuen Long.”

On Monday, Hong Kong chief executive Leung Chun-ying confirmed a long-anticipated move by Beijing to address the influx of mainland visitors to Hong Kong in recent years. The move is aimed specifically at those who come from neighboring Shenzhen to Hong Kong to engage in so-called parallel trading, the practice of buying goods ranging from toiletries to food in Hong Kong to resell at a higher price on the mainland.

“Residents of these towns complain that parallel traders drive up the prices of goods and rents, pushing out small businesses serving locals.” 

According to the new arrangement, Shenzhen residents applying for an individual visitor visa to Hong Kong will only be allowed to enter the city once a week, rather than multiple times. The change is effective Monday. Residents of these towns complain that parallel traders drive up the prices of goods and rents, pushing out small businesses serving locals.

“Since 2009, Shenzhen permanent residents have been allowed to apply for one-year, multiple entry visas to Hong Kong…”

The change was prompted by a marked increase in public anger in recent months against parallel traders. Protests have broken out in areas of Hong Kong near the border with the mainland, such as Tuen Mun, Sheung Shui and Yuen Long. Read the rest of this entry »