China Small Caps Crash To Lowest Since 2015 Amid Deleveraging "Selling Panic"

Also pummeled were Macau gaming companies on the Hang Seng Index, with Sands China Ltd. and Galaxy Entertainment Group Ltd. retreating at least 2.1%. The catalyst was a research note by Daiwa Capital Markets analyst Jamie Soo who wrote in a research report that Macau casino operators may come under pressure after one of the city’s largest junket operators warned customers and key staff of "liquidity channel impairment, advised clients to withdraw money from affected bank accounts." Meanwhile, offshore Chinese stocks were largely immune to the selling, and were boosted by China's economic data.

Will the rout continue? For now it is unclear, but as Bloomberg summarized overnight, "for investors, possibly the most important thing that happened in China during the weekend was a closed-door conference on regulation that could set the scene for the financial sector’s next five years. Many details remain unclear. The most concrete decision out of the meeting so far is President Xi Jinping’s announcement of the creation of a cabinet-level committee to coordinate financial oversight - a task currently divided among four regulators including the People’s Bank of China."

As part of this new potential superregulator, Bloomberg lays out five potential things to watch including i) preventing systemic risk as the "eternal theme" of China's financial framework; ii) the PBOC's role; iii) a more conservative attitude toward financial opening-up, iv) ongoing deleveraging in the financial sector could expand into the broader economy, with the debt of state-owned enterprises as the first priority, and v) the statement said China should "firmly take prudent monetary policy," omitting the "neutral" word top policy makers adopted late last year as they kicked off a nationwide deleveraging campaign. Read more here.

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