Markets hit by China commodity default

A report that Chinese state-owned companies will be allowed to walk away from loss-making commodity derivative trades provoked anger and dismay among investment bankers on Monday as they feared it may set a damaging precedent.

The State-owned Assets Supervision and Administration Commission, the regulator and nominal shareholder for state-owned enterprises (SOEs), told six foreign banks that SOEs reserved the right to default on contracts, Caijing magazine quoted an unnamed industry source as saying in an article published on Saturday.

While the details of the report could not be confirmed, it was Monday's hot topic in financial circles from Shanghai to Singapore as commodity marketers feared that companies holding underwater price hedges could simply renege on the deals, costing banks millions of dollars in profit.

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NYT: China: Shanghai Shares Tumble 6.75%

Shanghai Shares Tumble 6.75%

By MARK McDONALD

HONG KONG — The Shanghai composite index plunged 6.75 percent on Monday to close out August with a drop of 21.8 percent, the worst performance for the month among the world’s major exchanges.

Monday’s fall, coupled with a drop of nearly 3 percent last Friday, has made for “a huge, huge decline,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets in Hong Kong.

The overall index was down 192.94 points on Monday to finish at 2,667.75, the lowest closing figure in more than three months. Shares on the Shanghai exchange had rocketed more than 90 percent this year until they began to fall back about three weeks ago.

“It has brought the index into bear market territory,” Mr. Kowalczyk said. “There’s mounting concern over liquidity in the market. This is a big development.”

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Article: China Promises Not To Prick The Bubble

No matter how softly the Chinese government may try to say that they won't prick the market bubble, their message is obvious.

This weekend both Premier Wen Jiabao and some senior policy makers came out and made it clear that they won't do anything that could slow down the roaring market.

Business Insider