Home Economics Is China Trying To (Slowly) Burst Another Stock Market Bubble?

Is China Trying To (Slowly) Burst Another Stock Market Bubble?


The pressure point in Asian stock markets this week has been the decline in Chinese equities (the biggest weekly drop in 4 months).

Despite a stellar performance of the economy the outlook for the Shanghai Composite Index isn’t promising as the government is taking advantage of better growth to spur deleveraging.

For a market relying more on liquidity than fundamentals, China’s worsening monetary conditions index suggests tough times ahead…


As a reminder, the Shanghai Composite Index, notorious for its wild swings over the past two years, has gone 86 trading days without a loss of more than 1% on a closing basis, the longest stretch since the market’s infancy in 1992.

 The last 4 days have highlighted the unusual effect in Chinese stocks.. each time the Shanghai Composite dropped over 1% (red dotted line) it was miraculously lifted to ensure it closed with a loss less than 1%…


As Bloomberg reports, authorities favor a steady stock market because it helps companies fund investment and repay debt by issuing new shares, which could help boost economic growth, according to Yin Ming, a vice president at Baptized Capital in Shanghai.

“The national team is behind it,” Yin said. “State funds will likely continue to be a market stabilizer.”

So one wonders, is China desperate to delever the speculative fervor in their markets… but do it just 1% at a time? Can the ‘market’ really be that well centrally planned? We will see…

If the 6-month lag in Chines commodities is anything to go by, the breakdown in Chinese stocks is nowhere near over…

Source link