China outlaws stock pessimism

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It is a a true real estate agent’s dream in China. From the FT:

Beijing has taken steps to keep stocks on China’s two main indices afloat, including direct purchases of large-cap companies, a halt to initial public offerings and a cut to trading fees. But so far its efforts have failed to staunch concerns.

“There is a panic but no matter how they [the authorities] jump in, this thing just doesn’t stop falling,” said Dong Tao, an economist at Credit Suisse.

…The central bank itself has pledged its own balance sheet to support stocks, in what Mr Dong of Credit Suisse described as a Chinese iteration of quantitative easing.

Even China’s censors were not left out of the effort. One local reporter, who did not want to be named, said the government had banned local media from using the terms “equity disaster” and “rescue the market” in their reports on the stock market.

Despite the co-ordinated moves, many believe the reversal of leveraged positions will continue to drag on equities. Citigroup analysts warn that only a quarter of margin-backed trades have been forced out so far, despite 11 straight days of unwinding of positions.

The centrally planned bubble comes ungracefully apart.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.