If you caught my Trading Day piece last night, I explained that after the close of the local market, where the unicorns were prancing in verdant fields, the Chinese share market – the Shanghai Composite (SSEC) plummeted nearly 3%, closing down 2.6% (in comparison with the ASX200 which closed up over 1%). Here’s the intraday chart:
Heres why, as reported in Bloomberg:
Chinese Premier Wen Jiabao, set to leave office next year after a decade in power, said his nation must adopt political change to support an economic transformation that has produced rapid development at the cost of a widening wealth gap.
“Without successful political reform, it’s impossible to carry out economic reform,” Wen, 69, told reporters in Beijing yesterday in a three-hour press conference closing the legislature’s annual gathering. “There’s even the possibility of losing what we’ve achieved.”
….
In the briefing, Wen embraced greater private capital in China’s financial system, warned against relaxing controls on property prices, called for deeper Sino-U.S. trade and investment ties and said officials will allow greater two-way movement in the yuan’s exchange rate.
Chinese stocks slumped on concern that prolonging the government’s crackdown on real-estate speculation will deepen a slowdown in the world’s second-biggest economy.
It was no surprise that mainly property stocks were behind the falls, and as Zarathustra noted this morning loan growth remains weak in the Middle Kindgom, so it appears this “talking down” of the market is already having an effect. Whether the Party can steer or muddle the worlds second largest economy through what could be the worlds second largest property bubble remains to be seen, but there is a lot of faith out there:
Yale University Professor Stephen Roach, a former non-executive chairman for Morgan Stanley in Asia, who said on March 8 that concerns China will enter a hard landing are “vastly overblown.”
“I don’t think the banking system will collapse and the property bubble will burst,” Roach said at a conference in Shanghai. “These are all exaggerations.”