>>> Lannett to acquire Kremers Urban Pharmaceuticals for $1.23 bln; expects the

--> LCI +18% After Hours

Lannett to acquire Kremers Urban Pharmaceuticals for $1.23 bln; expects the deal to be accretive to adjusted EPS in FY16 in the mid-high single digits and 20-25% in FY17

The co announced that it has signed a definitive agreement to purchase Kremers Urban Pharmaceuticals Inc., the U.S. specialty generic pharmaceuticals subsidiary of global biopharmaceuticals company UCB S.A., for $1.23 billion, plus potential contingency payments. Lannett believes the acquisition will be accretive to adjusted EPS in fiscal 2016 in the mid- to high-single digits and 20% to 25% in fiscal 2017. Lannett expects to receive a significant tax benefit with a value in excess of $100 million.
  • Lannett expects to fund the transaction with a combination of a fully committed term loan and cash on hand.
  • The transaction, subject to regulatory approval and other customary closing conditions, is expected to close in the fourth quarter of calendar 2015 and has been unanimously approved by the Boards of Directors of Lannett and UCB.

(CS) Spanish BAnks : Change of Analyst - few adjustments...Turning more cautious

We cut our 2015-17E earnings by 10-15% as we incorporate Q2 trends and
reflect what we see as a much more challenging revenue environment due to
(i) declining carry trade/trading income contributions, (ii) the removal of
mortgage floors, and (iii) intensified underlying NII pressures (owing to
insufficient loan growth momentum, accelerating loan spread compression and,
in our view, front book spreads on deposits having bottomed). Our new
numbers stand 10-15% below consensus.

We now forecast below-CoE RoTBV levels in 2017E (7-10% vs. 8-12%
previously), and see the likely political instability in Spain in 2H15 further
underpinning our negative stance.
On capital, and albeit expecting FL CET1 levels to fall within the European
average (11-13% in 2017E), we question the quality, with increasing concerns
regarding the validity of the DTA guarantees (190-570bps).

■ We downgrade Banco Sabadell to Underperform from Outperform (new
TP €1.7/sh), with the bank heavily impacted by the removal of floors and
declining trading/Treasury contributions (17-25% earnings cuts) – and with
solvency levels (11.8% in 2017E) heavily supported by DTAs.

■ We upgrade Bankia to Neutral (new TP €1.0/sh), which stands as the
biggest capital generator (160bps vs. 50-80bps for peers), though with
RoTBV prospects capped at 7.5-8% by the Treasury revenue loss.

■ Banco Popular (Underperform, new TP €3.0/sh) remains our least
preferred Spanish bank, with comparatively lower RoTBVs (7% in 2017E
vs. 8-9%) and solvency levels (11% vs. 11.8-12.9% for peers).

■ CaixaBank (Neutral, new TP €3.8/sh) is our preferred option, with
superior RoTBVs (9.6% vs. 7-8% in 2017E), optimal solvency (11.8% by
2017E) and a competitive dividend policy (4-5% yield in 2016-17E).
On a relative basis, within Southern Europe, we prefer ISP and UBI in Italy
(both Outperform).

>>> Asian Update Nikkei+1.38% Hang Seng closed Shanghaï closed

Asian Mid-session Update: AUD pressured again by slump in retail sales; IMF issues warning on China spillover risks


***Economic Data***
- (AU) AUSTRALIA JULY TRADE BALANCE: -A$2.5B V -A$3.2BE; 15TH STRAIGHT DEFICIT
- (AU) AUSTRALIA JULY RETAIL SALES M/M: -0.1% V +0.4%E; First decline in 14 months
- (AU) AUSTRALIA AUG AIG PERF OF SERVICES INDEX: 55.6 V 54.1 PRIOR; 3rd month of expansion
- (BR) BRAZIL CENTRAL BANK (BDB) LEAVES SELIC TARGET RATE UNCHANGED AT 14.25%, AS EXPECTED
- (JP) JAPAN AUG NIKKEI SERVICES PMI: 53.7 V 51.2 PRIOR; COMPOSITE PMI 52.9 V 51.5 PRIOR
- (KR) SOUTH KOREA Q2 FINAL GDP Q/Q: 0.3% V 0.3% PRELIM; Y/Y: 2.2% V 2.2% PRELIM
- (NZ) New Zealand Q2 Value of All Buildings Q/Q: 1.6% v 0.5%e

***Index Snapshot (as of 02:30 GMT)***
- Nikkei225 +1.2%, S&P/ASX -0.5%, Kospi +0.4%, Shanghai Composite closed, Hang Seng closed, Sept S&P500 +0.1% at 1,948

***Commodities/Fixed Income***
- Dec gold -0.1% at $1,132/oz, Oct crude oil -1.1% at $45.74/brl, Dec copper -0.2% at $2.32/lb
- (JP) Japan investors bought net ¥900.3B in foreign bonds v sold ¥277.2B in prior week; Foreign investors sold net ¥630.3B in Japan stocks v sold ¥462.8B in prior week

***Market Focal Points/FX***
- Volatility is compressed by the market holidays in Shanghai and Hong Kong, just as investors worldwide are awaiting updates from the ECB on Thursday morning and US non farm payrolls on Friday. The latter should either solidify the case for September Fed liftoff or bolster expectations of a climb down by the more hawkish members of the FOMC amid global market turmoil. In the Asia afternoon trade, main regional indices and S&P futures are little changed.

- In FX, key USD majors are also trapped in narrow ranges, with EUR/USD in a 20pip band above $1.12 and USD/JPY up only some 30pips to session-best 120.60 in spite of broad rally on Wall St. AUD is most volatile with a 60pip drop from the highs toward overnight 6-year lows around the $0.70 handle. Australia retail sale fell m/m for the first time in 14 months, while trade balance came in negative for the 15th straight month, albeit more narrow than expected. Exports to China, along with shipments of iron ore and coal were down marginally. On the plus side, Australia PM Abbott announced he still intends to put China FTA up for legislation before the end of this year.

- Excerpts leaked from tomorrow's interview with US Treasury Sec Lew revealed a predictably tougher rhetoric on China for its latest devaluation of Yuan, taking Beijing to task on the ramifications of its FX actions. Concurrently, US financial press report citing sources close to the IMF suggested the FX reform by the PBoC could make the IMF more inclined to include it in the SDR basket. Recall on Aug 19th, IMF board announced it would extend SDR rights basket through Sept of 2016, deferring on the decision for including Yuan until the end of this year. Also of note on the IMF, its report to G20 warned that China slowdown could be larger than expected and is among primary risks to global growth outlook. IMF also called for a "mutual" (coordinated) policy action to raise growth and mitigate risks, specifically asking for assistance from surplus economies such as Germany.

- BOJ's high-profile dissenter Kiuchi continued to question the effectiveness of open ended QQE. Consistently expressing a more hawkish view and voting for a taper of asset purchases, Kiuchi said the economy is recovering moderately, exports are picking up, and consumption will remain firm. Kiuchi also said policymakers should be more forward looking on medium and longer-term risks rather than short-term price developments and economy.

***Equities***
US equities / ADRs:
- LCI: Acquires Kremers Urban Pharmaceuticals for $1.23B; accretive to adjusted EPS in FY16 in the mid- to high-single digits and 20% to 25% in FY17; +19.8% afterhours
- EXPE: Expands partnership with AAL; +0.1% afterhours
- VRNT: Reports Q2 $0.70 v $0.68e, R$297.1M v $290Me; -6.9% afterhours
- FIVE: Reports Q2 $0.13 v $0.13e, R$182.8M v $184Me; -8.5% afterhours

Notable movers by sector:
- Consumer discretionary: Myer Holdings MYR.AU -21.7% (institutional offer); Harvey Norman HVN.AU -2.3% (acquisition)
- Industrials: Nidec Corp 6594.JP +3.0% (acquisitions); Mazda Motor 7261.JP +1.1% (Aug US sales)
- Technology: Toshiba Corporation 6502.JP +3.3% (speculation on earnings, divestment); Hon Hai 2317.TW -3.1% (speculation of investment in India); Acer 2353.TW +3.2% (speculation to raise notebook prices)

>>> US After Hours Summary: SEAC +4.5%, OOMA +2.2%, FIVE -9.5%,

After Hours Summary: SEAC +4.5%, OOMA +2.2%, FIVE -9.5%, VRNT -6.4% following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings: SEAC +4.5%, OOMA +2.2%, OXM +0.1%

Companies trading higher in after hours in reaction to news: GERN +20.7% (announced publication of two papers in The New England Journal of Medicine that highlight the potential of imetelstat in hematologic malignancies), LCI +18.2% (to acquire Kremers Urban Pharmaceuticals for $1.23 bln; expects the deal to be accretive to adjusted EPS in FY16 in the mid-high single digits and 20-25% in FY17), ISR +6.2% (extended its international distribution agreement with Karlheinz Goehl-Medizintechnik Goehl), CERN +2.3% (formed strategic alliance with Glens Falls Hospital to connect the health system onto one electronic health record), TSLA +1.5% (CEO Elon Musk tweeted that Model 3 production will begin in ~2 years and will cost $35k), ATRO +0.9% (selected to supply the Passenger Service Units, on a new family of long-range Boeing (BA) 777X aircraft), NUE +0.8% (announced $900 mln share repurchase program)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings: FIVE -9.5%, VRNT -6.4%, MIND -5.4%, CTLT -4.9%, PLNT -2.7%, ABM -1.3%, CFI -0.1%

Companies trading lower in after hours in reaction to news: RLI -2.2% (announced that President and COO Michael Stone will retire, effective Dec. 31, 2015; EVP Craig Kliethermes to assume that role at the beginning of 2016), DV -2.1% (disclosed that on August 28, 2015, it received a request for documents and information regarding published employment outcomes and earnings of DeVry University graduates from the Federal Student Aid office of the Department of Education), ETH -1.8% (co intends to raise up to $250 mln of long-term debt financing), HY -0.7% (co expects global lift truck markets expected to decline in H2 2015, with demand levels mixed by region)

>>> US Close Dow+1.82% S&P+1.63% Nasdaq+2.46% Russell+1.48%

Closing Market Summary: Technology Sector Leads Stocks Higher

The stock market snapped its two-day skid on Wednesday with the Nasdaq Composite leading the advance. The tech-heavy index climbed 2.5% while the Dow (+1.8%) and S&P 500 (+1.8%) registered slimmer gains.

Although the market ended the midweek session on a higher note, the advance did not feature the characteristics of a sharp bounce. Instead, stocks traded in sideways fashion before spiking to new highs during the final 30 minutes of the day. Despite today's higher close, the S&P 500 remains lower by 2.0% for the week with all ten sectors showing week-to-date losses.

Today, however, nine sectors posted gains while the utilities space (UNCH) underperformed amid higher Treasury yields. To that point, the 10-yr note slumped in the morning, briefly retraced its loss during the session, and fell back to lows into the close. As a result, the 10-yr yield increased three basis points to 2.19%.

On the upside, the top-weighted technology sector (+2.6%) outperformed throughout the session, which kept the market afloat during the morning pullback that saw the S&P 500 trade within five points of its flat line. Large cap tech names like Apple (AAPL 112.34, +4.62), Facebook (FB 89.89, +2.66), Google (GOOGL 644.91, +15.35), and Microsoft (MSFT 43.36, +1.54) gained between 2.4% and 4.3% while high-beta chipmakers also fared better than the market with the PHLX Semiconductor Index climbing 2.3%.

Elsewhere among influential sectors, health care settled in-line with the market while biotechnology outperformed, contributing to the relative strength in the Nasdaq as iShares Nasdaq Biotechnology ETF (IBB 346.23, +12.89) spiked 3.9%.

Also of note, the heavily-weighted financial sector (+1.5%) began the day among the leaders, but the group slipped behind the broader market during intraday action after finishing yesterday's session well behind the market.

With the exception of the final 30 minutes of the day, the Wednesday action in equities was fairly subdued, but the same could not be said for crude oil as the energy component remained volatile, ending the pit session higher by 1.9% at $46.25/bbl after testing the $43.22/bbl area. WTI crude slumped to lows after the latest inventory report showed a larger than expected build while news that Senate has enough votes to back the Iran nuclear deal also contributed to the brief weakness in oil.

Today's trading volume was well above average, staying true to recent trends. With that in mind, more than a billion shares changed hands at the NYSE floor.

Economic data included, ADP Employment Change, Q2 Productivity/Unit Labor Cost data, Factory Orders, and MBA Mortgage Index:

  • The ADP National Employment Report revealed that employment in the nonfarm private business sector rose by 190K in Augus while the consensus expected an increase of 201K
    • The July reading was revised down to 177,000 from 185,000
  • Productivity data for the second quarter showed an increase of 3.3% (consensus 2.8%), which was better than the 1.3% increase that had been reported in the preliminary reading
    • Unit labor costs for the second quarter were revised lower to reflect a decrease of 1.4% (consensus -0.9%) after they had reportedly increased 0.5% in the preliminary reading
  • Factory orders increased 0.4% in July after increasing an upwardly revised 2.2% (from 1.8%) in June while the Briefing.com consensus expected an increase of 0.9%
    • The relative softness in the factory orders data was the result of declining oil prices weighing down sales at petroleum refineries as refinery orders fell 7.9% in July after increasing 0.8% in June
  • The weekly MBA Mortgage Index spiked 11.3% to follow last week's 0.2% uptick

Tomorrow, the Challenger Job Cuts report for August will be released at 7:30 ET while weekly Initial Claims (consensus 273,000) and July Trade Balance (consensus -$42.70 billion) will both be released at 8:30 ET. The day's data will be topped off with the 10:00 ET release of the ISM Services Index for August (consensus 58.4).

  • Nasdaq Composite +0.3% YTD
  • S&P 500 -5.3% YTD
  • Russell 2000 -4.8% YTD
  • Dow Jones Industrial Average -8.3% YTD

FT : Tiger Global fund lost 7% on China stocks

Tiger Global fund lost 7% on China stocks

Chase Coleman — the most prominent of the “Tiger Cub” hedge fund managers who learned their craft while working for Julian Robertson — suffered a 7.4 per cent loss in the value of his stockpicking fund in August, as Chinese internet stocks bore the brunt of market turmoil.
His Tiger Global Long-Only Opportunities fund was one of a number of hedge funds to incur losses during a month of volatility which has hit equities-focused funds especially hard.

A 22 per cent fall in shares of JD.com, the Shanghai-based ecommerce company, was one of the biggest contributors to Tiger’s weakness in August, according to investors familiar with its portfolio. The Tiger fund is JD.com’s third largest shareholder, with a 6.4 per cent stake.
Hedge funds had bought into JD.com in the second quarter of this year, according to regulatory filings — many switching out of shares in its rival Alibaba — but the JD.com share price is now down 35 per cent since its June peak.
Concerns over the health of the Chinese economy increased volatility across global markets in August, ultimately causing a sell-off far beyond Chinese stocks.
John Paulson’s $11bn suite of event-driven hedge funds, which invest in potential takeover targets, fell in value last month, and its “enhanced” merger arbitrage fund, which uses leverage to juice returns, ended August down around 6 per cent, according to investors familiar with its performance. It had been up 20 per cent for the year until the start of August, but this gain was pared to 13 per cent last week. Tumbling healthcare stocks were the main culprits behind the decline.
Mr Coleman, along with other Tiger Cubs — who all began their careers with Mr Robertson’s Tiger Management — made heavy bets on Chinese internet ventures, where some of the most aggressive investor selling has been concentrated.
According to the most recent regulatory filing, Tiger Global’s other large holdings include Vipshop, a discount retailer headquartered in Guangzhou, which suffered an 8 per cent fall in its share price last month, and Autohome, a vehicle listings website, which was down 20 per cent.
In July, Tiger’s $3.5bn long-only fund was merged with a smaller fund that invested only in internet stocks. Its larger $6.5bn long-short fund also had a tough August, down 4.7 per cent, and is now flat for the year.

Another of the “Tiger Cub” managers which has a sizeable holding in JD.com is Philippe Laffont’s Coatue Management, with a 1.4 per cent stake in the company.
One Robertson protégé who avoided the stock was Lee Ainslie. His Maverick Fund was up nearly 20 per cent until the middle of last month, according to investor materials. It is likely to have given up some gains during the recent sell-off, however, as Maverick holds a 2.4 per cent stake in Chinese search engine Baidu.
Fund managers are mailing their August performance numbers to investors this week, after which it will become clear how the industry as a whole has performed.
Despite complaining about high fees, institutional investors have given more money to hedge funds to manage this year, backing the theory that they will outperform if there is an equity market correction, or if interest rate rises hurt the bond market.
Among the most prominent hedge fund casualties during the recent turmoil is Greenlight Capital, led by shortseller David Einhorn, which is down 14 per cent since the start of the year, having made a 5 per cent loss in August alone.
For more than a year, Mr Einhorn had voiced scepticism over the sustainability of the US equity bull market. He argued in April 2014 that “we are witnessing our second tech bubble in 15 years” and set up bets against a “bubble basket” of fashionable and high-flying technology shares. However, losses on big holdings in Apple and General Motors outweighed gains on short positions in his main fund.

(Janus) Bill Gross : Sept. Outlook ; Size Matter (pdt attached)

Sizing Up the Global Economy
Size matter in the financial markets.
Super-size August movements in global stocks are but one sign that something may be amiss in the global economy itself – China notwithstanding. There’s the timing and the eventual “size” of the Fed’s “tightening” cycle that I have long advocated but which now seems to be destined to be labeled “too little, too late.” The “too late” refers to the fact that they may have missed their window of opportunity in early 2015, and the “too little” speaks to my concept of a new neutral policy rate which should be closer to 2% nominal, but now cannot be approached without spooking markets further and creating self-inflicted “financial instability.” The Fed, however, seems intent on raising FF if only to prove that they can begin the journey to “normalization.” They should, but their September
meeting language must be so careful, that “one and done” represents an increasing possibility – at least for the next six months. The Fed is beginning to recognize that 6 years of zero bound interest rates have negative influences on the real economy – it destroys historical business models essential to capitalism such as pension funds, insurance companies, and the willingness to save money itself. If savings wither then so too does its Siamese Twin – investment – and with it, long term productivity – the decline of which we have seen not just in the U.S. but worldwide.
But this imbalance between savings/investment and consumption is not the only Frankenstein creation that zero percent yields have created. Over the past 6 years and perhaps on average since the beginning of the 21st century, artificially low yields have propelled financial markets and have impacted the real economy in numerous ways which are not well discussed in the financial press nor certainly in Washington, London, Brussels, or Tokyo. I list them below without further elaboration if only because of space constraints. Keeping it short in this case is the right policy

(Economist) Brazil prepares to make a grave fiscal error

Brazil prepares to make a grave fiscal error

The government is in an economic hole—and still digging

PLENTY of countries run deficits. And when recessions occur, loosening the public purse strings makes sense for many of them. But Brazil is not most countries. Its economy is in deep trouble and its fiscal credibility is crumbling fast.

The end of the global commodity boom and a confidence-sapping corruption scandal, following years of economic mismanagement, have extinguished growth in Brazil. GDP is expected to contract by 2.3% this year. Fast-rising joblessness, together with falling real private-sector pay and weak consumption, are squeezing tax receipts. Meanwhile rising inflation, allied to a free-falling currency, means investors demand higher returns on government debt. The result is a budgetary black hole. This year a planned primary surplus (ie, before interest payments) has evaporated. Once interest payments are included the total deficit this year is projected to be 8-9% of GDP.

Faced with the prospect of public finances that are slipping out of control, Brazil’s policymakers have stuck their heads in the sand. The 2016 draft budget sent to Congress this week by the president, Dilma Rousseff, builds in a primary deficit for the first time in the post-hyperinflation era. The very legality of a budget with a primary deficit has been questioned: a fiscal-responsibility law passed in 2000 has long been interpreted as banning spending that outstrips receipts. But whatever the legal debate, the budget is calamitous.

First, Brazil would have to borrow to cover all its interest payments—a risk for a country with by far the highest real interest rates of any sizeable economy, at a time of recession and wider emerging-market jitters. Second, a primary deficit sends a bleak message about Brazilian economic governance. Since the turn of the century Brazil’s government has been guided by three principles: a credible inflation target, a floating currency and primary surpluses ideally large enough to bring public debt down. This “tripod” allowed it to move away from its hyperinflationary past, convinced rating agencies to grant it an investment-grade badge—and underpinned growth that propelled millions out of poverty. All this is now in jeopardy.


Brazil's economic woes, in charts
Ms Rousseff is not the only one to blame. She had hoped to run a primary surplus despite the recession by resurrecting a tax on financial transactions that was abolished in 2007. But her political weakness put paid to that plan. At just 8%, her public-approval rating has hit depths unplumbed by any previous Brazilian president, undermining her authority in Congress. Lawmakers are also angered by her finance minister’s attempts to rein in pork-barrel spending, and alarmed by a wide-ranging investigation into corruption at the state-controlled oil giant, Petrobras. Knowing that the new tax would be unpopular—and hoping to weaken Ms Rousseff further—they made it clear that they would block it.

Congress, Ms Rousseff’s advisers say, must now find a way to pay for the spending it refuses to cut. But it is stuffed with short-termists who are more concerned with lining their pockets than securing Brazil’s future. The opposition is wasting its energy on trying to impeach Ms Rousseff, rather than proposing better economic policies. Unless this impasse is resolved quickly, business and consumer confidence will fall further and foreign investors will pull out. Brazil will be headed for a multi-year slump and a ratings downgrade.

Heaven can wait
So how might Brazil reach a primary surplus? By far the best solution would be to cut public spending, which accounts for more than 40% of GDP, much more than in other middle-income countries. Public pensions swallow a greater share of national income than in Belgium—even though the share of old people in the population is only half as high. The 2016 budget includes plans to raise the minimum wage and many welfare payments by a whopping 10%. But congressional gridlock and a constitution that is chock-full of unaffordable spending commitments mean that only rarely have Brazilian governments managed to trim outgoings—and only under presidents endowed with remarkable political and leadership skills. Ms Rousseff falls far short of that ideal.

That leaves the sticking-plaster. The proposed financial-transaction tax would be, like so many Brazilian taxes, poorly designed and hard on growth. But it would still be better than ramping up spending with no way to pay for it. If not this tax, then some other is needed—and only after that, the business of reforming Brazil’s greedy and profligate government.

(Economist) China is scaring away foreign investors with its efforts to defend s

China is scaring away foreign investors with its efforts to defend shares

THE ups and downs of China’s stockmarket have become plainly, painfully visible to the world. Less transparent, but perhaps more damaging in years to come, has been another kind of rollercoaster. The government has gone from the concerted wooing of international investors to doing just about everything in its power to keep them out. That of course is not China’s intent. Its goal is to stabilise share prices and, to that end, it still welcomes cash from abroad. But the cumulative result of its interventions in recent weeks has been to scare away investors.

China’s stockmarket has never been for the faint of heart. Big, inexplicable swings in share prices are bad enough. The regulatory labyrinth that foreigners have to navigate just to earn the privilege of joining the fray has long been even more forbidding. But over the past year it looked like China was finally getting serious about opening its stockmarket to the world.

A new trading link meant that, in theory, any foreigner with a brokerage account in Hong Kong could invest in mainland stocks. China also addressed a series of foreign investors’ long-standing complaints: it cleared up confusion about its capital-gains tax; made it easier to short individual stocks; and developed index futures, a vital hedging tool. Chinese officials met with institutions in New York, London and Frankfurt, encouraging them to apply for investment quotas. FTSE Group, which creates stock indices for funds to track, launched a transitional benchmark that, for the first time ever, included Chinese domestic shares. China’s stockmarket was clearly still immature, the evidence in its rapidly swelling bubble, but regulators seemed committed to building a healthier, more professional market.

The bursting of the bubble has, in dramatic fashion, undermined this progress. In the first days, the immaturity of China’s policymakers was on display for all to see. Panicked at the sell-off, they used central-bank funds to prop up share prices and ordered state-owned companies to buy back shares. However, it is the use of law as a cudgel, wielded with increasing force in recent days, that has been most alarming to investors.


Stockmarket turmoil in China may not spell economic doom, but it does raise hard questions
On Monday state television aired a confession by Wang Xiaolu, a journalist from a top financial magazine, to having caused “panic and disorder”. His apparent misdeed was to have pointed out that the state’s intervention in the market was not working and to question whether it would come to an end. Police have also gone after executives with Citic Securities, the nation’s top brokerage, eliciting confessions for insider trading in near record time. Then there is the mysterious case of Li Yifei, the head of China for Man Group, a leading hedge fund. Bloomberg reported that she had been taken into custody, though subsequent reports said she had merely been summoned to a multi-day meeting with officials in an undisclosed location.

Investors face a growing slate of impositions. New rules cap the size of their open positions in index futures, a move that makes it harder to hedge against the market’s wild movements. Because investors holding more than 5% of individual stocks are effectively barred from selling, fund managers are wary of buying too much. At the same time, the government is forcing brokerages to put more of their own money into the market. A series of top securities companies announced on Tuesday that they would directly invest as much as 20% of their net assets in stocks, hoping to stabilise prices.

Sure enough, foreign interest in China’s stockmarket is waning. Fund managers who control quotas for institutional investors report that take-up has slowed to a crawl. Use of the trading link with Hong Kong had begun to rebound in late July after the big fall in share prices. But it has dwindled in the wake of the crackdowns. Just 156 billion yuan ($25 billion) out of a possible 300 billion yuan was invested in China at the end of August.

China has never really needed foreign investors in its stockmarket for their money. Their assets in the mainland only amount to about 1% of the value of all shares. But it does need their experience and expertise if it is ever to build a truly functional stockmarket. Highly volatile share prices and a deteriorating economy were already enough to keep many foreigners away. Now the threat of arrests, the elimination of hedging tools and cash-calls in aid of the state have all made the decision that much easier.