Who took the H out of (?)yperinflation?
The Chinese government has now reached a new level of desperation to halt their stock market’s decline. They just announced that they are banning all major shareholders, corporate executives and directors from selling shares for a period of six months. This comes after the Chinese government banned its National Social Security Pension Fund from selling stocks two days ago, although they are allowed to buy them.
Looking at the Shanghai Stock Exchange IPO from January/February 2015. About half of them have been halted from trading, but of the 10 Shanghai IPOs from January/February that remain trading – they are now down an average of 62.46% from their 2015 peak. On average, they remain up 114.34% from their IPO prices. At their 2015 highs, they were up an average of 491.91%.
The total market capitalization of Chinese stocks is now down to $7.547 trillion from a June 12th peak of $11.479 trillion. China’s market cap/GDP ratio has declined from an “extremely overvalued” 109.72% to the current “overvalued” 71.85% vs. its long-term median of 47.48%.
Chinese equities have lost $3.932 trillion in market cap over the last 17 trading days – equal to the combined GDP of Germany, Greece, and Hong Kong. On the way up, it took 48 trading days for Chinese equities to gain $3.932 trillion in market cap. They are now crashing 2.82X faster than they gained.
Back in June the Shanghai’s margin debt over the trailing 12 month period had increased by a 2.63X larger percentage than the Shanghai’s market cap – causing the margin debt/market cap ratio to rise from 1.72% on June 12, 2014 to 3.53% on June 12, 2015.
Since then, Shanghai margin debt has been declining at roughly the same rate as the Shanghai’s market cap. The margin debt/market cap ratio remains at an artificially high 3.46% – nearly double its two year median of 1.78%.
The Shanghai Composite will not be at its bottom until the margin debt/market cap ratio returns to 1.78%. Look for the Shanghai to lose another 25%-35% of its value while its margin debt declines by another 50%-70%.