ASIA BREAKING: POBC STOCK MARKET BUYING SPREE HITS DIMINISHING RETURNS

sHANGSTEAM1915Can Beijing afford to keep its stock market above 2000? When will its focus return to real economic investment and geopolitics?

Above is the daily chart for the Shanghai overnight (times in GMT). Day 3 of the Central Bank’s ‘covert’ support programme. Two things are obvious:

  1. With no support, the index drops like a stone – further and faster than the previous 2 days, once more challenging 3000
  2. The pre-and-post-lunch support moves it forward 150 points….but the up-feeling dissipates in the afternoon.

In short, left to itself this index would choke. And it’s not hard to hypothesise how long before it hits the sewers without support. Here’s the crucial part of the monthly chart:

shangsteammonthIn the circle there is what 3 days of chucking hangars full of Yuan at the market has achieved: a 40 points drop. Today’s outcome shows a clear reduction in ‘holding effectiveness’. At that rate, the Shanghai composite will hit 2900 by September 17th.

Remove the support, and even without factoring in the panic setting, by September 24th at the very latest, it will be at 2000.

On China’s B-share SSE index, the picture is even clearer:

SEEsteam1915Morning plummet, support added, post-lunch session gives all the gains back.

How deep are Beijing’s pockets? How long before somebody with a calmer head says, “Why are we paying extortionate rent on a house of cards, when we could change the game? This is America’s game, America’s ball….and they jerry-built the house. Screw the markets: let’s focus on our economic future”.

As I’ve mentioned before, no change in policy means Wall Street and Washington win. It is this simple: if China lets the Yuan devalue further, the US debt they own gets bigger, but exports won’t increase in line because the Western demand just isn’t there. Whereas if Beijing strengthens the Yuan and raises rates, the export effect could easily be negligible….and although the US debt gets smaller in theory, in practice money in search of a turn would head for Beijing and servicing the US debt would rapidly become unaffordable.

It all depends on who (if anyone) is thinking hard about this at a geopolitical level in the Politburo. But if an alternative Brics régime of currency, energy cost and real widely-shared wealth is going to develop, then China needs to take the hit and get cracking. It’s made a good start in starting to arrest some of the more sociopathic shadow-banking fraternity: now it has to decide how much it wants the US put in a box.

I still have a friendly no-money bet with Fred Walton that China will put up rates by October 1st. I wanted contrarian odds at 7-1 in my favour, but he wouldn’t buy that one, so its a zero-sum game for now. We’ll see.

Yesterday at The Slog: Star Man Woman interned by Chinese State police

and

Fischer of the Fed plays Quantitative Teasing with Beijing

5 thoughts on “ASIA BREAKING: POBC STOCK MARKET BUYING SPREE HITS DIMINISHING RETURNS

  1. It is true for all nations, play the dollar game you are subject to dollar rules.

    Would yuan rules be any better or different? No.

    What we need is a global reserve currency though that is controlled by all nations and you get a % of any QE based on your population head count. Why? Because a fight between dollar or yuan rules permeates this continual retaliatory currency war.

    All of the known thieves = central banks are at it and not one of them is acting in the best interests of their populations but for a group that is so tiny in global terms … think 0.000001% or as likely even less.

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  2. how about getting rid of the notion of a reserve currency?

    Also, its nice to see China being blamed for the woes of the West, who would have thunk it.

    Just need a war with Russia/China to keep the sheep thinking that da shit is all because of jonny foreigner, them pesky Russians.

    I dont think the transition to anything better will happen without there being a fully bloodied civil war here and abroad.

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  3. China is playing with fire, in more ways than one if it does raise rates, who knows? We will have to wait and see. It’s certainly a
    “You’re either with us, or against us” moment eh?

    Like

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