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Stock dumping to follow the dumpling festival?

As Chinese equity markets took a break in trading yesterday to celebrate the annual Dumpling Festival, the online chatter on most local trading forums lamented whether we might witness the great stock dumping ‘carnage’ there, when markets reopen today. The sell-down on most major indices in China last Friday suggests that the breakneck equities rally this past year is starting to fracture, and a more aggressive meltdown to prices could easily gain momentum. Central to last week’s sell down was the reported pull back in share margin financing. This was presumably initiated by credit departments of local brokers, concerned by over-exposure to vulnerable names there, long overvalued. As a result, where there’s a lack of fuel, the ‘fire’ could easily be extinguished. Chinese indices, having lost roughly 13% (CSI 300) since the high in early June, can easily afford to pull back another 13% from here without putting too much of a dent on the returns of over 100% registered in the past 52 weeks. The problem for the majority of traders there, however, is that it has been a ‘top-heavy’ stock market rally. This is to say that most players, especially novice participants, only jumped on the bandwagon late in the game, often contributing to record volumes in daily activity, just recently at higher levels. As to what the ‘smart money’ - presumably institutions and fund managers - may do here, it would be silly not to expect some selling from these quarters as managers of Chinese equities have the unique privilege of reporting an almost 30% year-to-date performance, beating most other major markets by far. This outstanding stat will certainly come in handy as fund managers there prepare their quarterly reports soon!
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