Phisix 7,600, Falling Peso and The $483 Billion Xi Jinping Put

In this issue

Phisix 7,600, Falling Peso and The $483 Billion Xi Jinping Put

China’s Stock Market Crisis: The $483 Billion Xi Jinping Put

-Doubling Down on the  Fading Effects of Earlier Measures

Phisix: Bulls Recapture 7,600 as Peso Falls and as Signs of Liquidity Stress Deepens

-Liquidity and the PSEi

-Phisix 7,600: Divergences Re-emerge

-More Signs of Liquidity Issues: Flattening Yield Curve and Falling Peso

-Falling Currency: Indonesia’s Economic Troubles as Paradigm

-SMC Vulnerable To A Weak Peso

-Bubble Mentality: Survey Reveals 30% of Philippine Residents Believe in Unicorns (Developed Economy Status)

NOTICE: 

I am having a very difficult time publishing this post. And I have given up trying. 

Anyway I have created a Google document link from where you may access my article. 

Pls click on this 

or cut and paste below to your url 

https://docs.google.com/document/d/1jSvDjSG_6kYdMK_pxyPAqzxPI-0xxYBv66TqUBX6O1c/pub

China’s Stock Market Crisis: The $483 Billion Xi Jinping Put

I recently predicted that the degree of urgency of China’s stock market crash would prompt the Chinese government via its central bank, the People’s Bank of China (PBoC), to conduct their version of Abenomics^[1].

The Chinese government through her central bank, the People’s Bank of China (PBoC) may take a page out of Bank of Japan’s Abenomics to conduct direct (or indirect) stock market interventions via a QE.

This seems to have been fulfilled last week.

The initial effects of the Chinese government’s motley assembled measures of credit easing, credit infusion, information control and censorship, price and capital controls to rescue the embattled Chinese stock market seem to have faded last week. The three day 12+% buying rampage suddenly transformed into a two session of nearly 5% in losses.

Since selling have now become stringently regulated, Chinese authorities seem to think that stocks can only go up eternally. Hence the two day losses incited the political leadership to announce a fantastic stock market support program backed by the PBoC.

From the Bloomberg^[2] (bold mine): China has created what amounts to a state-run margin trader with $483 billion of firepower, its latest effort to end a stock-market rout thatthreatens to drag down economic growth and erode confidence in President Xi Jinping’s government. China Securities Finance Corp. can access as much as 3 trillion yuan of borrowed funds from sources including the central bank and commercial lenders, according to people familiar with the matter. The money may be used to buy shares and provide liquidity to brokerages, the people said, asking not to be named because the information wasn’t public. While it’s unclear how much CSF will ultimately deploy into China’s $6.6 trillion equity market, the financing is up to 25 times bigger than the support fund started by Chinese brokerages earlier this month.

And part of this massive stock market backstop emanates from a combined Rmb1.3tn ($209bn) of banking loans from 17 banks that includes the 5 largest state owned banks— Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China and Bank of Communications —which has provided more than Rmb100bn, according to the Financial Times.

China’s $483 billion of stock market support through China Securities Finance Corp. doesn’t seem to even include buybacks and other equity rescue activities by state owned enterprises and from other non-brokerage perhaps local government owned entities.

While different in form or technicalities in implementation, the Chinese government’s half a trillion stock market subsidies almost compares with the 80 trillion yen (US$ 670 billion) stock market support by the Bank of Japan.

Combined with the debt for bond swap now totaling 2 trillion yuan ($ 322 billion), aside from various stimulus measures instituted in 2014 ($ 81 billion in bank injections, $24.6 bonds for railways,$16 billion loans to small enterprises and to agriculture and $300 billion for low income housing under the pledged supplementary lending program and more), the Chinese government’s bailouts appear to have already vastly exceeded the 4 trillion yuan ($586 billion) stimulus of 2008.

And such massive debt financed stock market and economy comes as “Outstanding loans for companies and households stood at a record 207 percent of gross domestic product at the end of June, up from 125 percent in 2008” according to the Bloomberg

And as systemic debt continues to swell, the US credit rating agency S&P issued a warning last week on the prospects of rising defaults on Chinese corporate bonds (as well as US bonds). China’s corporate debt represents 160% of GDP.

Experts who diminish the impact of China stock market imbroglio say that only 90 million of gamblers and a few thousands of listed companies have been involved, yet why the half a trillion billion stock market bailout?

Doubling Down on the  Fading Effects of Earlier Measures

Could it be perhaps that the Chinese government shuddered when they realized that crashing stocks has showed signs of filtering into the property sector where stock market losses have prompted many to liquidate and or even cancel recent property purchases? 

So far the side effects from the stock market crash on the real economy have been mainly about sentiment. But what if sentiment segues into issues of liquidity, equity valuations and debt?

What happens when markets realize that the government’s price controls and interventions may also lead to conflict over valuations?  For instance, how will banks and their clients agree on how and what to value billions of equity derivatives especially for those issues that have been suspended?  

What if the injunction for major investors to sell and or a clampdown on short selling would translate to the need to raise cash? Given that stock market exit has become a politically restricted activity, what should stop people from diverting their selling activities from the stock market into other non-stock market household or corporate assets such as properties and or even commodities?

this post is truncated. Pls click on this link