Chinese Government Intervention To Support Market

The long-awaited Chinese government intervention finally occurred yesterday with dramatic but uncertain long-term impact. Chinese-related exchange-traded funds like FXI jumped 10% yesterday morning and finished strong to end the day up about 14%.

The steps to prop up the Chinese stock market were released by Beijing on Thursday after a 70% fall in stock prices since last October. Many suspect thts government buying started earlier in the week as the Shanghai index breached the important psychological barrier of 2,000.

The stamp duty on stock purchases will be scrapped and government money will be used to buy shares to support the market. The country’s sovereign wealth fund invested in listed companies, including the state-owned Industrial and Commercial Bank of China, Bank of China and China Construction Bank.

Chinese bank shares have fallen steeply in response to the global financial crisis, helping drive the Shanghai Composite index to a 22-month low of 1,896 on Thursday. The market peaked last October at 6,092.

Patti Waldmeir, reporting from Shanghai for the FT, wonders if there will be a strong follow through or if this merely pump priming to give the market a shot in the arm. It will be interesting to see how the Chinese ETFs do today.

Comments

[Urbane Gori...:]

How much of the rebound was China's intervention (which has been discussed for about a week now.... ) and how much is just a response to the Paulsen affect???? jegan

2008 Sep 19 09:18 PM

[Alex Stanczyk:]

Pretty interesting stuff. I wonder how long China can afford to continue buying US Treasuries.

When they stop, it could get real ugly, real fast.

www.rapidtrends.com/bl.../

2008 Sep 20 01:42 PM

[chinesezodi...:]

So I just read this tidbit; it's 9/22 today: "The Wall Street Journal reports that Senator Christopher Dodd's bailout draft could give the government shares of financial companies. "
You know, with the eyes of a few months ago, heck even a few days ago, I would have said to this SA article "well it's no surprise; government intervention is a matter of course in China, it's what their system is based on".
But what is going on in this country? Now my government is buying shares of publicly traded companies? I might be wrong, but I don't think that was done even in the Depression.

Where does this end, now that it's started?

2008 Sep 22 11:46 AM