Earlier this week, the People’s Bank of China signaled that it was tightening monetary policy. Many market observers attributed the move as a response to the apparent real estate and asset bubbles forming in China.
But is China that intent on restraining asset bubbles?
At about the same time, the government announced that it moving to allow greater leverage for stock market players:
The government said it had approved, “in principle,” the creation of stock index futures, trading on margin and short selling, investment tools that are commonly used in New York, Chicago, London and many other financial markets, according to Xinhua, China’s state run news agency.
Is this just a case of poor policy coordination? Or something else?
For the intermediate term (3-5 years), I believe that the Chinese growth story remains intact.
Tom Friedman is right: Never short a country with $2 trillion in foreign currency reserves (at least for the time being.)