Plunge Protection Team Sticks Finger in Dike, But Margin Dam Is Breaking

Shanghai and ChiNext are tumbling again on Tuesday, but the big state-owned banks are flat or even up 4.7% in the case of Agricultural Bank of China (as of this moment).

The first six characters of this headline is the Chinese for "plunge protection team."

iFeng: 国家队跌停板扫货维稳 中信证券总部144亿买入108只股

Here's a story about margin. Compare the 144亿 in buying by CITIC from the article above, to the 1362亿 of margin selling on Monday. CITIC is only one member of the plunge protection team, but they were the largest buyer on Monday. Possibly also buying their own stock: CITIC Bank is up 4.0% right now.

QQ Finance: 两融资金11天出逃4962亿 (496 Billion Yuan of Margin Flees Over 11 Days)

Margin reductions by day:

6月19日一57亿

6月23日一142亿

6月24日一402亿

6月25日一248亿

6月26日一560亿

6月29日一417亿

6月30日一394亿

7月01日一141亿

7月02日一509亿

7月03日一730亿

7月06日一1362亿

Over 100 billion yuan in margin entered the market for the entire month of November, and for the entire month of January as well. In 4 days in July, more than 200 billion in margin exited.

Australian Business Review: How Chinese stocks fell to earth

The surge of such margin finance had been a key driver behind the rally. Outstanding margin loans reached a record 2.27 trillion yuan as of June 18, before dropping to 1.91 trillion yuan as of Friday, July 3. It stood at 1.03 trillion yuan at the start of this year.

Fears of widespread margin calls led to further selling, including a 7.4 per cent fall on June 26. China’s more-volatile small-company market in Shenzhen had fallen 20 per cent from its peak, marking the threshold for a bear market, and Shanghai was down by 19 per cent since hitting its high. Already, the selling since June 12 had wiped out $US1.25 trillion in market capitalisation, an amount roughly equal to the size of Mexico’s economy.

A good illustration of the Chinese plunge protection team at work as margin selling swamps their efforts.