Chinese stocks sell-off after margin lending curbs

Monday, January 19, 2015

Chinese stocks plummeted overnight as the Shanghai Composite and CSI 300 both lost 7.7%, falling the most in six years. The sell-off was prompted by a fresh regulatory move by Beijing which saw margin lending pared back with the country’s top three brokerage houses banned from opening new margin accounts, which have up until recently facilitated the recent market rally in mainland Chinese stocks. Details emerging at the end of last week outlined that twelve brokers were in violation of margin trading rules with Citic Securities, Haitong Securities and Guotai Junan Securities banned from opening new retail accounts for the next three months. 30 day historical volatility in the Shanghai Composite rose to its highest level in five years as investors reduced equity holdings, concerned that policymakers in Beijing view the recent rally as overbought and are attempting to moderate the growth outlook.

The yen posted gains against the dollar during overnight trading, briefly touching levels below 117.00 as the rout in Chinese stocks saw a surge in demand for the safe haven. The currency traded as firm as 115.86 against the dollar on Friday before steady gains in the greenback on better than expected economic data saw the yen give back some of the week’s gains, trading back up around 117.77 towards the close. The yen has made significant gains against the euro in recent sessions with the EUR/JPY cross rate trading at a three month high, around 134.71 at one point after demand for safety saw the yen strengthen from 145.58 at the start of the month.

Spot gold prices extended their rally on Friday with prices trading above $1,280/oz for the first time since 2nd September last year with activity early this morning seeing a slight pull back on short term profit taking but with levels still holding on to last week’s substantial gains, trading around $1,275/oz this morning. The surge in prices since the start of the month, adding as much as 8.5%, has been sparked by heightened risk aversion on geopolitical tensions and macroeconomic shocks. With the ECB due to meet later this week to potentially discuss issuing further stimulus and Greece heading to the polling booths this weekend for the snap elections on the 25th we could see further upside for spot gold prices on increased haven demand.

Shanghai Composite and CSI 300 face intense selling pressure

SHCOMP Index Shanghai Stock Exc 2015 01 19 07 32 44

JPY strenghtens against EUR to a three month high

EURJPY Curncy EUR JPY X RATE 2015 01 19 07 38 32

Gold prices rally on haven demand

XAU Curncy Gold Spot Oz 2015 01 19 07 45 09

Events for today

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JP

Nov

Industrial Production

0900

EZ

Nov

ECB Current Account

1000

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Topics: USD, China, Gold, EUR, JPY
More from: Kash Kamal