Chinese Govt Prepares Groundwork for New Stock Market Bubble

Here we go again. Real estate is slowing and the government is unleashing several policies designed to secretly "stabilize" the stock market. Monday's dip in the market, taking ChiNext to a new post-peak intraday low, spurred the policy burst according to market participants.

China did this before, froim 2014-2015. Real estate slowed in 2014 and the stock market peaked in June 2015. The overall conditions in the economy are similar in 2017: slowing growth, slowing credit growth, slowing real estate and even a weakening yuan. A big difference is the ChiNext bottomed in late 2012 and was already up more than 100 percent when the government started cheerleading. This time around, the government first has to stop the bear market.

But this is not finished, spree followed. SFC yesterday afternoon press conference said, the IPO audit scope is more stringent , the suppression of listed companies over financing, mergers and acquisitions to strengthen supervision , to crack down on "Fudge" type M & A speculation, the effective protection of investors, especially small investors' legitimate rights and interests , industry sources said, in the event of "black Monday", the Commission apparently began secretly stabilizing the stock market.

"Black Monday" refers to the 3.6 percent Monday drop in the ChiNext, which took out the post-peak intraday low.

The policies are as follows:

1. Traders believe the central bank unleashed savage power this week in order to rescue the market, flooding the market with temporary liquidity.

Yesterday afternoon, the market came the news, in order to save the market, the central mother resorted to force the middle of nowhere, in addition to more than two hundred million yuan this year's flooding, but also use the "temporary liquidity facilities' operations to provide liquidity support to the market . Analysts said yesterday's rebound may be related to this news.

The ChiNext bounced 2 percent on Friday.

2. A tightening of IPO standards

The industry believes that in this conference, the SFC on the recent market hot too fast on the IPO, audit fairness, refinancing arbitrage and holdings of major shareholders questioned, have given a clear response to the refinancing and reduction reasonable guide and regulate the behavior of attitude, which is dark stable stock market, whether it is China a-shares or capital market reforms will bring real good. First, IPO audit more stringent, strict entry into the capital market

Zhang Xiaojun pointed out that the recent CSRC issued a notice on 2017, revised and improved issuance audit performance avoidance system. The revised system, strict and refinement involving relatives Challenge System, IPO audit scope is more stringent , including spouses, children and so on. Refinancing application enterprises, relatives of more than 5% of the audit staff, but also to avoid.

Under current rules, relatives with 5 percent of company stock can serve on the government audit staff?

3. Protect minority shareholder rights

Zhang Xiaojun said that the refinancing of listed companies, the reduction of major shareholders, merger and reorganization system, related to the capital market service entity economic function, but also related to the listed company's shareholding structure and corporate governance, but also to investors, especially small and medium investors The protection of legitimate rights and interests. SFC will conscientiously implement the Party Central Committee and State Council decisions and arrangements, adhere to the general tone of the work while maintaining stability, improve relevant systems; further promote supervision according to law, strict supervision, the overall supervision, to maintain the market "Three" order, effective protection of investors, especially small investors' legitimate rights and interests .

Since 2016, the SFC will strengthen the supervision of listed companies refinancing, strictly examine and strictly regulate the fund-raising investment, a number of listed companies quit hard to withdraw the refinancing application, reduce the amount of refinancing.

Next, the Commission will take measures to restrict the financing of listed companies frequently or single financing amount is too large, listed companies to raise funds and improve the use of on-site inspection system, and urge the sponsor of the trial in the refinancing project for review .

4. Crackdown on dodgy M&A activity, as part of an effort to revive investor confidence.

Zhang Xiaojun said at the press conference, the current M & A order of listed companies is not yet standardized, there are speculative speculation ills, and "Fudge", "follow the trend" and blind cross-border restructuring of the problem.

The next step will strengthen the supervision of mergers and acquisitions, to crack down on "Fudge" type M & A speculation, continued to improve the relevant institutional rules to guide funds to invest more in favor of the integration of industrial upgrading direction, better play the positive role of mergers and acquisitions.

5. PBoC slashes RRR, allowing for 600 billion yuan of credit expansion

According to the new financial news, the directional down, the workers and peasants in the five lines will be divided into batches, the period is 28 days, not the choice to return to normal. The market is expected to release more than 600 billion yuan of funds to cope with the temporary liquidity problems during the Spring Festival.

16:00 more than the central bank announced that the cash delivered centralized security requirements before the Spring Festival, to promote liquidity in the banking system and currency market operated smoothly through the "temporary liquidity facilities' operations to deliver cash in a high proportion of several large commercial banks provide temporary liquidity support, operating period 28 days, the cost of capital with the same period of open market operations rate is substantially the same . This operation can be more effective through the market mechanism to achieve the transmission of liquidity.

Gold solid income that this is the first time in the history of the use of directional timing RRR, according to estimates, about 600 billion of funds can be released . Four factors of the statutory deposit reserve each factor on the impact of liquidity is not small, especially this year early this year makes these factors at the same time superimposed on several factors at the same time , Leading to a large liquidity gap in banks. Overall, the current monetary authorities put the amount of money is still abundant, but the period is short, there is no net invested MLF and other longer-term funds, such funds expires in February increased pressure .

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That's not all. Traders expect futures margins will be cut 25 to 50 percent:

According to the new wealth, after several rounds of rumors, before deregulation policy of stock index futures, or Spring Festival will be officially landed . From the margin to the transaction fee to the number of positions will be adjusted. People familiar with the matter said that since January 25, 2017 (Wednesday) the settlement date, the CSI 300 and SSE 50 stock index futures contracts non-hedging positions in the trading margin from the current contract value of 40% to 20% CSI 500 stock index futures contracts of non-hedging positions in the trading margin standards, the current value of 40% of the contract adjusted to 30%.

East Money: 股指期货松绑传闻再起 中金所重申确切消息以交易所为准

Update: This was also a policy shift last week.Shenzhen exchange reviews rules to push innovation

The Shenzhen Stock Exchange said it would study plans to change the rules on its ChiNext market for small companies, as the startup venue heads for its lowest level since 2015.

The bourse said the move is to better service innovation and entrepreneurship, according to a statement posted on its website on Monday. It didn't provide further details. Among other key tasks for the year, the exchange said it will push ahead with a trial for options on exchange-traded funds, and try to boost risk controls and supervision of the smaller market.

The stock market cannot generate enough credit growth to boost the economy, but a stock market bubble would distract from a slowdown in overall credit and the broader economy——as it did until the bubble burst in June 2015. This time around it will take more money to lift prices off their lows though, and the government starts off fighting the market instead of riding the bull. It's easy to "manipulate" the market when it's already moving in your favor. As the government learned post-peak in 2015, when the market moves against you, even extreme measures will fail in the face of social mood.