China: Can cheong again? Bear mkt trap?

In China on 11/07/2015 at 4:43 am

Thursday’s and Fridays’ “rebound” in Chinese shares means nothing. Prohibiting selling, forcing buying, and halting more that half of counters from trading can work wonders: for a time.

Here’s some interesting stuff from Thurday’s NYT’s Dealbook

Chinese stock markets halted their slump on Thursday, with the main Shanghai index closing 5.8 percent higher and the Shenzhen market gaining 3.8 percent. “But even as shares rose, there were warnings that mainland markets have further to fall,” Paul Mozur writes in The New York Times, citing high valuations of small companies. Also, as David Barboza of The New York Times notes, at least a third of the companies listed on the major stock exchanges in China have had trading in their shares suspended as of Wednesday.

Though both major exchanges are down 30 percent to 40 percent in six weeks, they are still about 75 percent higher compared with a year earlier, Mr. Barboza writes. The Chinese government would do well to remember that “the stock market is not the economy, and the economy is not the stock market,” Neil Irwin writes in The Upshot. All of the government’s efforts to prop up the stock markets are misguided, Mr. Irwin contends, because officials are ignoring evidence that Chinese stocks wereovervalued at their mid-June levels, skyrocketing in the preceding year “without much fundamental improvement in earnings or growth in the Chinese economy to justify it.” He adds: “When a government intervenes to try to prevent markets from adjusting to sensible levels, it can meanpouring money down a sinkhole and merely delaying an inevitable correction.”

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