Monday, July 27, 2015

China Stock Market Crashes Again

Chinese mainland shares are in the process of mean reversion towards its 200 day moving
average. The Shanghai Composite went as far as 55% above its 200 MA into June of this
year. That was an extremely overbought condition, similar to the peak in 2007.
Credits: ShortSideOfLong
South China Morning Post (Jul 27, 2015) - Monday ended with the SCI300 index of 300 leading Shanghai and Shenzhen stocks off by 8.6% and the SSECI (Shanghai Composite) down 8.5%. That is their biggest one day fall since 2007. The abrupt drop, during the afternoon trading session on the Shanghai stock exchange, appears to signal worried investor sentiment, despite the past month of massive government efforts to prop up the equity markets. Traders said that there was no specific news that triggered the sell-off, and said that the government organized rally had been too quick and too steep to be sustainable. 

The Chinese stock markets have been a roller coaster ride for many investors. A huge rally began in October last year and propelled the market upwards by over 150%. Late June saw a brutal 30% correction, which sparked panic and the suspension of trading in most Chinese shares. That caused the Chinese government to loosen liquidity, cajole some companies into buying back their shares, and cancel many IPOs. It even announced a target, for the indexes to reach 4,500 before support measures would be withdrawn. Amazingly, Monday’s crash still leaves the mainland markets up over the past three weeks. Since the markets’ recent low on July 8, they had climbed by 18% till Friday (July 24).