Tuesday, July 7, 2015

Green Market Panic as Equity Disaster Hits Chinese Stock Market

While the focus may be on Greece an even bigger concern for the global economy may be the collapse of the Chinese stock market which has been a significant driver of the cleantech boom. China's stock market is the world’s second-largest outside the US, with a market capitalization of $6.9 trillion. So far Chinese equities have lost $3.2-trillion. 

Shares have declined in value by 30 percent since mid-June. Around 800 Chinese companies (one quarter of A listed companies) have halted trading in an effort to protect themselves from the worst stock market slide in China since 1992. This move has frozen $1.4 trillion in equity or one fifth of China's stock value.

The Chinese CleanTech index is the most comprehensive summary of Chinese cleantech stocks in the world. It focuses on companies whose output positively enhances the communities and ecologies in which they reside. This includes more than 160 companies with a combined market capitalisation of nearly 1.4 trillion Renminbi (US$222 billion).

In alphabetical order the Chinese cleantech industry is comprised of Biogas, Geothermal - Hot dry rocks and conventional, Biofuels, Low Emissions Transport Technologies, Carbon Trading, Solar Thermal and Photovoltaics, Energy Efficiency & Biomaterials, Waste Management & Recycling, Energy Storage & Fuel Cells, Water, Environmental Services, Wave, Tidal & Hydro, Green Buildings, Wind Generation

According to ABN Newswire, in 2014 the China CleanTech Index outperformed all of its benchmarks other than the Shanghai Composite. Over the course of the year China CleanTech Index recorded a gain of 18.8 percent, compared to the NEX loss of 3.2 percent, the CTIUS loss of 8.4 percent, the Shanghai Composite gain of 52.8 percent and the MSCI gain of 2.9 percent.

The twelve month gain was driven by the China Hydro Index (+78.9%), including strong gains by China Yangtze Power and Power Construction Corporation of China (previously Sinohydro Group) and the China Water Index (+28.7%). Over 2014, 12 companies recorded share price gains of more than 75 percent, this includes:

Cofco Biochemical (Anhui) (SHE:300247)
LED International Holdings (LON:LED)
Ledman Optoelectronic
Tianli Environmental Protection Eng (SHE:300156)
Jiangsu Akcome Solar Science and Technology (SHE:002610)
Hong Kong Highpower Technology, Inc. (NASDAQ:HPJ)
Sound Global (HKG:0967)
Zhongshan Public Utilities Group
Power Construction Corporation of China (previously Sinohydro) (SHA:601669)
CleanTech Innovations. (OTCMKTS:CTEK)
Jiangsu Jixin Wind Energy (SHA:601218)
Xiangtan Electric Manufacturing (SHA:600416)

Another ABN Newswire release indicated that in the month of June 2015 the China CleanTech Index recorded a loss of 12.9 percent, falling from 74.7 to 65.0 over the month and losing the gains of the previous two months. The China CleanTech 20 recorded a 8.9 percent loss.

China's banking houses including Citic Securities Co. and and Guotai Junan Securities Co. are looking at the crash of 1929 for mitigation strategies. A group of 21 Chinese brokerages pledged to commit 120 billion yuan (US$19.3 billion) to a large-cap stock fund, designed to stabilize shares.

Other market-boosting measures, including a halt to initial public offerings (four trillion yuan-worth of flotations estimated to be in the pipeline) and regulatory moves to discourage short sellers. Beijing has taken multiple including interest-rate cut (now at a record low), reduced trading fees and a Chinese version of quantitative easing. The central bank has offered support for margin-trade financing and stock purchases by state-run financial firms.

So far these measures do not appear to be working as stocks continue to slide. Analysts are saying it is far too little to make a difference

“There is a panic but no matter how they [the authorities] jump in, this thing just doesn’t stop falling,” said Dong Tao, regional economist at Credit Suisse in Hong Kong. Tao said that there is a real risk that these declines will impact the wider economy. A stock market crash could shave half a percentage point off of China's GDP further slowing China's growth.

The situation was aptly described in a Telegraph headline which read, Rats leaving a sinking ship’ as China’s equity bubble implodes

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