“It’s A Domino Effect”: Hong Kong Microcaps Crash Amid Marketwide Margin Call
by Tyler Durden
ZeroHedge.com
Jun 27, 2017
A few weeks ago, we reported that in a bizarre development – and the latest in a long series of red flags involving Chinese and HK stocks – various Chinese small and micro cap companies had asked employees to buy their stock while promising to cover losses” amid rising margin call pressures as the underlying stocks had been drifting lower. As we also noted, China has a broader issue with collateral that could endanger the health of its financial system, such as fraudulent or “ghost” collateral, where pledged products either don’t exist or are already sold or pledged to multiple lenders.
This in turn led BofA strategist David Cui warned that a potential “vicious selling circle” could lead to a replay of China’s mid-2015 market crash. “As the 2015 experience shows, with high leverage, a vicious selling circle can quickly develop,” he said, noting a “moderate” risk of broad-based financial instability. To which we concluded that “at that point either Beijing will have to step in with another bailout, or scenes such as this one which emerged during the 2015 market rout, will become the norm once again.”
Less than three weeks later we got a vivid example of just how dire the impact of a coordinated margin calls on Chinese markets could be, when overnight dozens of Hong Kong microcap stocks plunged amid what started as a rumor that the local exchange will force all “zombie companies”to delist (since denied)…
The Rest…HERE
