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March 5, 2007
More on the Chinese Stock Sell-off. Is This a Who Dunnit?
Our last post touched on warnings of market volatility, uttered prior to the sell-off, by high-ranking officials with authority and credibility among Chinese financial policy-makers. To what extent was the sell-off at 3000, immediately upon the return from the Lunar holidays, triggered by official movement? And the evidence for such a claim? None but rumor on the Chinese bulletin boards. And yet, given pervasive Chinese state involvement in all facets of big money, I do not believe it can be discounted.
Just think of the timing -- massive amounts of non-tradable state shares have come on the market over the past two years. [Read prior posts on this subject here and here.] Shouldn't this have dampened share prices across the board in an already weakened market? Instead, shares have rocketed. Now that the process of making those shares marketable has more or less completed, officialdom proclaims to throw the burden of loss upon the "irrational exuberance" of the hair-dresser cum day trader -- just before a major correction. And when shares finally stabilize, the converted shares will retain apparent value so greatly above what the market may have commanded without the general market rise. Oh, gee whiz, I should be ashamed of myself, shouldn't I... Is that a conspiracy theory or what?
Stephen Green, about as accurate and knowledgeable a reader of the Chinese financial tea leaves as one finds, on the rumors of state involvement in price stabilization after the sell-off:
"There were some reports of state buying -- I don't know how reliable those are. But it's also possible people may have decided 9 percent in one day was too much and they are still bullish on stocks," said Stephen Green, senior economist at Standard Chartered Bank in Shanghai. "I don't think anyone really knows where we go from here."
Down, perhaps? As low as 2300? [In Chinese.] How low is this thing "supposed" to go?
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