The Shanghai Stock Exchange Composite Index was up nearly 6% today (3,333) and up 21% since late March. In June 2014 we saw the start of an incredible bull market in China (up nearly 160% in one year, peaking at 5,166) shortly after editorials in...
scmp.com/business/marke…
scmp.com/business/marke…
...leading newspapers signaled to investors that the government strongly supported rising stock markets, and the regulators accommodated with leniency on stock margin. That ended in tears in June 2015 with a nearly 50% drop over the next six months once the government...
...reversed its signaling, followed by 3 years of a downward drift in prices. Chinese investors are extremely sensitive to signaling by the government because they expect regulators to accommodate government expectations very forcefully.
Today a series of articles in...
Today a series of articles in...
...state-owned periodicals once again signaled that regulators wanted to see markets rise, and investors clearly took the hint. What is more, margin loans are already at their highest since 2015, according to Bloomberg.
The 2015 stock market collapse and the subsequent...
The 2015 stock market collapse and the subsequent...
...fallout (including massive capital flight) was a disaster for Beijing, and of course there is no way anyone wants to see a rerun of that movie, so I suspect the regulators saw today’s behavior with a touch of fear, but it seems Beijing urgently wants a strong...
...market, probably for two reasons. First, a rising market will make it easier for businesses to deleverage, especially state-owned businesses whose shares trade at prices below book value (e.g. most of the banks). State-owned businesses are not permitted to issue shares...
...below book value for fear that private investors may misappropriate public sector assets, and so cannot raise equity except at much higher prices. Second, Beijing is probably hoping that a sharp rise in the stock market (most of whose shares are owned directly by retail...
...investors) will boost consumption through the wealth effect. These seem to be the same reasons, by the way, for Beijing’s encouraging a strong stock market in 2014.
The problem is that Beijing would like to see a steady rise in the market, not an incredibly violent...
The problem is that Beijing would like to see a steady rise in the market, not an incredibly violent...
...one, but I am not sure such a speculative market can do “steady”. Speculative markets tend to soar on consensus expectations of rising prices, and once those expectations disappear, they quickly deflate. What is more, regulators are loosening monetarily to boost lending to...
...small businesses, and while they insist that banks should not allow this liquidity to flow into asset markets, it is pretty tough to prevent it. We have already seen evidence that looser lending to businesses is showing up in real estate and stock market prices.
We are...
We are...
...probably in the early stages of this bull market – by many standards prices are not especially high and the PBoC will continue to loosen over the rest of this year – and so I expect to see much higher prices over the next few months. I suspect however that the regulators...
...are watching very closely and worriedly, and if prices run up too quickly, will take steps to try to bring it down gently (for example by tightening margin). Unfortunately, in a speculative market driven by consensus on government signaling, “gentle” is probably not an...
...option. This means that we can expect a lot of volatility over the rest of the year as investors over-react to changes in liquidity and in government signaling.
I have just been told that online account openings in China were up 48% in a month. This gives a pretty good idea of what is driving the stock market.
