Chinese Brokerage Servers Crash Amid Stock Buying Frenzy

In a repeat of its 2015 stock bubble, mainland China markets have soared in 2019 having gotten a green light by Beijing which is set to reflate yet another asset bubble. The reason for that, as per the editor in chief of China’s nationalist Global Times is that Beijing has borrowed a page out of Donald Trump’s playbook, and hopes to use the stock market as a barometer for overall economic and trade talk sentiment (as it can’t use the actual economy which is rapidly sliding into contraction).

China and the US are obviously trying to reach an agreement. Memoranda of Understanding are no longer mentioned. An agreement does give people more sense of certainty. Look at the stock markets of the two countries, public also favors an agreement more.

— Hu Xijin 胡锡进 (@HuXijin_GT) February 25, 2019

The latest round of speculative euphoria, which most recently was observed in the crypto space, so far culminated with a furious buying spree on Monday, when the Shanghai Composite exploded 5.6% higher, its biggest one day gain since a brief bear market rally in the summer of 2015, just after China’s equity bubble had burst.

According to Nomura, although the optimistic expectation of economic/stock market support measures by Chinese authorities has risen, Chinese equity market sentiment has already passed the “optimism-zone” and reached “euphoric” levels, a “massive rally” which the Japanese bank believes has been led by speculative flows.

Note: The equity sentiment index is calculated by the Nomura Macro and Quant Strategy teams, based on a series of relevant market data. Source: Bloomberg, Nomura

And nowhere is this euphoria more obvious than in the latest change in the Shanghai Exchange’s daily margin balance which shot up by 2.3%…

… the most since November 2015, and a confirmation that thousands are again flooding into the market (and trading on margin) the result being a whopping 1 trillion yuan worth of shares traded on Chinese exchanges on Monday, the highest since November 2015.

So as the Chinese population is once again flooding into the market again, with Beijing having backstopped local stocks if only for the time being, problems have emerged and according to China’s Securities Times, multiple Chinese brokerages’ saw their trading systems crash under a deluge of traffic and surge in activity on Tuesday morning leaving investors unable to place orders. A spokesman from Ping An Securities told the Chinese publication that trading volumes in Shanghai and Shenzhen exploded, pressuring its mobile trading application, with trading resuming only after the firm took emergency action to expand capacity.

While there is no doubt that this latest incipient Chinese stock bubble will again end in tears, it won’t be before – just like in 2015 – it drags in millions. According to Bloomberg, new stock investors rose 53% on the week, hitting 316,100 in week ended Feb. 22. Just like the 2017 crypto bubble boom/bust, expect millions more to get suckered in before the trapdoor opens and the current stock bubble bursts again. Until then, expect many more happy traders.