Call it what it is: Chinese government rigging the markets

Posted 7/8/15

Imagine the Dow plummeting some 30 percent in just one month.

In English, this would be called a “crash.”

In China, with The Shanghai Composite Index down over 30 percent and shedding some $3.5 trillion in asset value in less than a month, it’s called a “correction.”

Dominated by unsophisticated retail...

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Call it what it is: Chinese government rigging the markets

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TRENDS THIS WEEK
Call it what it is: Chinese government rigging the markets


By GERALD CELENTE
Publisher, Trends Journal

KINGSTON, NY, 8 July 2015 — Imagine the Dow plummeting some 30 percent in just one month.

In English, this would be called a “crash.”

In China, with The Shanghai Composite Index down over 30 percent and the mainland markets shedding some $3.5 trillion in asset value in less than a month, it’s called a “correction.”

Dominated by unsophisticated retail investors who own more than 80 percent of the shares, who buy on margin and have driven the Shanghai up a roaring 150 percent in a year, the players and conditions of Chinese equity market 2015 parallel those of the US stock market crash of 1929.

With the Shanghai and tech-heavy Shenzhen equity-market downturn coinciding with the weakest economic growth in a quarter century, the Chinese government has overtly taken measures to keep the longest bull market running and its sagging economy growing. For example, besides lowering stock-transaction fees, the central bank has cut interest rates four times since November and eased regulations to make it easier for banks to expand credit by lowering reserve requirement ratios — all to “inject liquidity in the market.”

Following the Shanghai and Shenzhen indices falling 5.8 and 5.4 percent respectively on July 3, China’s Global Times’ headline spelled out the motive of increased government intervention: “China to stave off bear run – brokerage firms to pump $19.3 billion into A-shares.” In addition to imposing restrictions against short selling and directing pension funds to buy stocks to “stabilize the stock market and restore investor confidence amid the recent plunge,” the government issued orders to suspend some 28 public offerings, because, “new IPOs usually siphon off money from existing stocks,” the Times reported.

“China pumps liquidity into markets in fresh attempt to halt share sell-off,” blared the Financial Times’ front-page headline. “Beijing Plans Massive Jolt of Liquidity to Rescue Stocks,” read The Wall Street Journal story that took second place to Greece’s referendum that rejected creditors’ bailout terms.

More appropriately, the headlines should have read, “Chinese government rigs the markets.”

No longer do equity markets reflect solid investment principles, hard facts and basic fundamentals. Why is it the government’s role to “stave off bear run” rather than letting equity markets take their natural course? Just as the United States intervened with its “too big to fail” policies to bail out troubled banks, China’s stock-market-propping policies are anathema to capitalism.

Whether in China, the US, UK, throughout the eurozone or around the world, while government intervention may help prop up failing markets and restore confidence, such measures will prove at best temporary and at worst destructive — by keeping alive a corrupted system that was ready to die. 
 
Indeed, despite the wide range of emergency measures taken by the government to stabilize the capital markets, the Shanghai and Shenzhen indices continue to dive. To stop the massive selling wave, about 1,300 companies, almost half of China’s main shares, have halted trading. A "panic sentiment" is sweeping across the mainland stock markets, warned China’s securities regulator.

©MMXV The Trends Research Institute®