KeNo's Housing and Economic Portal: Thursday July 16 Housing and Economic stories

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Chinese Trading Suspensions Freeze $1.4 Trillion of Shares Amid Rout - (www.bloomberg.com) Chinese companies have found a guaranteed way to prevent investors from selling their shares: suspend trading. Almost 200 stocks halted trading after the close on Monday, bringing the total number of suspensions to 745, or 26 percent of listed firms on mainland exchanges, according to data compiled by Bloomberg. Most of the halts are by companies listed in Shenzhen, which is dominated by smaller businesses. The suspensions have locked up $1.4 trillion of shares, or 21 percent of China’s market capitalization, and are becoming increasingly popular as equity prices tumble. If not for the halts, a 28 percent plunge in the Shanghai Composite Index from its June 12 peak would probably be even deeper. “Their main objective is to prevent share prices from slumping further amid a selling stampede,” said Chen Jiahe, a strategist at Cinda Securities Co. The rout in Chinese shares has erased at least $3.2 trillion in value, or twice the size of India’s entire stock market. The Shenzhen Composite Index has led declines with a 38 percent plunge since its June 12 peak, as margin traders unwound bullish bets. In the U.S., there are 121 halted companies comprising less than 0.2 percent of market capitalization. In Hong Kong, 186 firms are suspended, representing 4.7 percent of the city’s equity market cap.

IMF: Do this, or face another financial crisis - (www.cnbc.com) The U.S. government needs to implement greater financial reforms under the Dodd-Frank Act in order to address new risks, the International Monetary Fund said Tuesday. "Regulatory reforms remain incomplete and the structure of oversight has scope to be strengthened along a number of dimensions," the IMF said. "The regulatory landscape remains fragmented resulting in gaps, overlaps, and the potential for delayed responses to emerging risks, and should be simplified over time." The IMF added that while the 2010 enactment of the Dodd-Frank Act, which created the Financial Stability Oversight Council, has taken steps to avoid another crisis similar to the one in 2008, it is not equipped to deal with the risks posed by "new pockets of vulnerabilities" which have emerged since. "Risks are elevated in the non-bank sector, where 'run' and 'redemption' risks are increasing as a result of leverage and maturity transformation, and deeply interconnected wholesale funding chains. Insurers have taken on greater market risk and could be faced with negative equity in a downside scenario," the report also said, adding that large banks are even more interconnected than they were in 2010.

Chinese chaos worse than Greece - (www.news.com.au) While the world worries about Greece, there’s an even bigger problem closer to home: China. A stock market crash there has seen $3.2 trillion wiped from the value of Chinese shares in just three weeks, triggering an emergency response from the government and warnings of “monstrous” public disorder. And the effects for Australia could be serious, affecting our key commodity exports and sparking the beginning of a period of recession-like conditions. “State-owned newspapers have used their strongest language yet, telling people ‘not to lose their minds’ and ‘not to bury themselves in horror and anxiety’. [Our] positive measures will take time to produce results,” writes IG Markets. “If China does not find support today, the disorder could be monstrous.” In an extraordinary move, the People’s Bank of China has begun lending money to investors to buy shares in the flailing market. The Wall Street Journal reports this “liquidity assistance” will be provided to the regulator-owned China Securities Finance Corp, which will lend the money to brokerages, which will in turn lend to investors.

Chinese Investors Losing Heart After Stocks Rout, Survey Finds - (www.bloomberg.com) Plunging Chinese equities have damaged the confidence of its main driving force -- the more than 90 million individual investors who make up about 80 percent of the market, according to a survey of households. While they are “relatively optimistic” about the future, they still want to reduce their stakes as their gains vanish, according to a poll by the Survey and Research Center for China Household Finance at Southwestern University of Finance and Economics. Only 40.5 percent of households still had gains in their stock accounts in the week starting June 27, down from 73.8 percent in the period June 15 to June 18, it found. The benchmark stock index has lost more than a quarter of its value since its peak on June 12. The Shanghai Composite Index fell 1.3 percent Tuesday, even as the government rolls out a flurry of stabilizing measures, including a pledge by state-run financial firms to buy shares and a halt to initial public offerings. Even families who don’t hold stocks see share prices declining further, a view that could prevent new money entering the market, according to the report. The poll of 5,000 households nationwide was conducted between June 15 and July 2.

Greek Banks Seen Days From Breakdown as Bailout Talks Resume - (www.bloomberg.com) Greek banks may be facing the end game. The European Central Bank is tightening the credit that’s their only lifeline. Money was pouring out of customer accounts before banks were closed and capital controls imposed a week ago. The prospects of Greece reaching a deal with creditors remain slim after its voters rejected austerity on Sunday. It all adds up to the probability that shareholders, depositors and taxpayers will be tapped to avoid outright failure, according to a person with direct knowledge of discussions on lenders. The crippled financial system poses the greatest threat to Greece remaining in the euro, and the ECB’s cutback in collateral may worsen the banks’ plight. “Greek banks cannot afford any kind of restriction,” Nick Kounis, head of macro and financial markets research at ABN Amro Groep NV, wrote in a note to clients Tuesday. “The Greek banks were projected to run seriously short of liquidity by Friday. So the haircut will bring that even closer.”

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