The Crash Isn't Only About Leverage, Insider Selling and Hot Money Also Exit

The Economic Observer considers last week's "large scale detonation."

After all, the market is the market, investors who ridicule months of cumulative rising profits were swallowed in an instant. More deterrent is that while the bull mad dance off with highly leveraged capital in the stock market fell in the encounter, "meat grinder" bear the brunt. Leverage is an important reason for disillusionment of the crash, but not the only reason. Before and after the crash, the sensitive to the touch hot money has begun to flee.

Another issue is new leadership. The New Silk Road "one road one belt" and Internet+ stocks were ravaged by the bears, who will take the baton from the bulls?

Stocks fell 20% in two weeks and on Friday, 70% of the market was limit down. This has investors with only 3:1 leverage nervous and adding money to their account and investors with 5:2 leverage are even running into trouble with some firms. This has a major impact, with one Ping An analysts arguing that it only takes 10% of the market to panic and offset the other 90% of the market.

Hot money was also taking flight.

According to wind data show that from the beginning of June 8 three weeks, every day A-share funds are showing a net outflow trend, as of June 26, Shanghai and Shenzhen cumulative net outflow amounted to 921.8 billion yuan, at the same time, From June 19 began an unprecedented margin regard a net financial outflow in four consecutive trading days, the cumulative net outflow of 84.793 billion yuan, affected by the two financial balances are shrinking from the 18th on the peak 2.273035 trillion yuan 25th to 2.188222 trillion yuan.

Insiders are also selling. At the end of 2014, insiders at 552 companies had 220 billion yuan in holdings, but this number was only 118 billion yuan as of June 26. The most famous example is LeTV.

Reuters: China company insiders skim the cream off frothy stock market

In May company insiders - senior executives or their relatives - sold a combined 1.68 billion shares, a tripling from April, and much more than in each of the previous months of this year, according to data compiled by Reuters.

Share sales by senior managers are sometimes taken as a worrying sign by investors, as they can indicate people who know a company best think its stock price is too high.

...Between June 1 and June 3, Jia Yueting, Chairman and president of Leshi (300104.SZ), sold 35 million shares in the internet firm he founded, making 2.5 billion yuan ($402.85 million).

Leshi said on May 25 that Jia plans in total to sell up to 148 million shares over the next six months or 8 percent of the company, though he will remain the biggest shareholder after that with a 36.85 percent holding.

Back to the EO article, new accounts are also slowing (apparently there is still data out there...)

At the other end leave the capital, the number of investors new admission was beginning to become less, as of June 19, when the A-share week to 991,900 the number of new investors, has been shrinking for the fourth consecutive week, the business department aspects of account advice is also gradually become less, a Beijing brokerage sales department on June 25 only six or seven customers opened accounts, a month ago, the average daily number of accounts have as many as twenty or thirty households.

What comes next? A Shanghai bull, ChiNext bear is unlikely, but investors may shift from small caps to large cap values:

Minsheng Securities chief strategist Li Shaojun told the Economic Observer reported, after the adjustment, the market appears "GEM board of cattle bear" the probability is very low, generating the expected rise in the emerging industry of a bull market, growth stocks are still bullish home. But the biggest possibility is that style more balanced situation, some investors might shift to the appropriate part of the adjustment represented a large financial underestimate the value of blue-chip, thereby changing the status had led a relatively small vote, making the overall market style more balance.

EO: 惊魂626：逾2000支个股跌停，平仓事件成规模引爆