International Law

China?s Stock Bubble: Sounds Good To Me

By Stan

Everybody already knows about this, but it is interesting to see the issue discussed in the mainstream press:

[S]ome players suspect that Beijing has been giving markets an invisible helping hand, with the intention of minimizing investor panic over the upcoming share supply.

Furthermore, the Shanghai index?s 57% rise since the start of this year has been fueling concerns that the rally may run out of steam soon.

Beijing is known to have acted in the markets in the past.

Back in September, it hiked its stakes in three of China?s four biggest lenders through the investment arm of its sovereign wealth fund, to demonstrate its support for the markets; the Shanghai index had fallen 69% from its all-time high of 13 months earlier. The move worked, with the index rising 9.5% the day after the measure was announced.

What?s more, Beijing is aware that speculation alone that it is artificially boosting the market is likely to help the confidence of local investors, an indication of the important role policy cues play in China?s still-nascent markets. It might cause some unease among foreign investors, though. [WSJ Blog]

I would have to disagree with the final point, though. Foreign investors love a nice asset bubble. The entire global financial services industry, not to mention a huge number of associated lawyers and accountants and other service providers, have made ginormous sums of money from successive asset bubbles.

To mix a couple metaphors, the bubbles have come home to roost in the EU and U.S., so if another one is inflating over here, this is exactly where these guys want to dump their money. Get those short-term gains, enjoy that yummy bonus money, and everybody’s happy (for a little while, anyway).

© Stan for China Hearsay, 2009. | Permalink | No comment | Add to del.icio.us

Full post as published by China Hearsay on June 19, 2009 (boomark / email).