Over the weekend, the big international economic news was not the vote in Greece, but the moves by the Chinese government to stop the collapse of the Chinese stock market. The government in Beijing got all the brokerages in China to amass a major fund to purchase stock and support the price. It also banned the issuance of any new stock on the exchanges so as to focus the purchasing power for stocks to existing issues. Lastly, and most important, China decided to devote some unknown portion of its sovereign wealth fund to the purchase of Chinese stock. These are major moves which most people would think are enough to stabilize the stock market.
So let's look at how the Chinese did in their efforts. When the Shanghai market opened, the index soared. It was up over 8% in the first few minutes. Right before the end of the trading day, however, that index had given back over two thirds of its gains. It was up just over two percent. Now that is a good result. In normal times, a two percent gain for the day is a major move up. Indeed, with the world markets going down in response to the turmoil in Greece, the two percent rise in Shanghai looks even better. Nevertheless, the idea that support moves like those announce by the Chinese government was able to raise the market only by two percent after it went down by 30% in the three previous weeks is surprising. It is possible that even the Chinese government cannot stop the decline in its stock market.
To be fair, it would not be surprising to see the Chinese market continue to drop. My guess is that there are a great many investors who are using this breather in the price drop to sell. Sooner or later that selling pressure will dry up, but for now, it may just be too big to stop.
So let's look at how the Chinese did in their efforts. When the Shanghai market opened, the index soared. It was up over 8% in the first few minutes. Right before the end of the trading day, however, that index had given back over two thirds of its gains. It was up just over two percent. Now that is a good result. In normal times, a two percent gain for the day is a major move up. Indeed, with the world markets going down in response to the turmoil in Greece, the two percent rise in Shanghai looks even better. Nevertheless, the idea that support moves like those announce by the Chinese government was able to raise the market only by two percent after it went down by 30% in the three previous weeks is surprising. It is possible that even the Chinese government cannot stop the decline in its stock market.
To be fair, it would not be surprising to see the Chinese market continue to drop. My guess is that there are a great many investors who are using this breather in the price drop to sell. Sooner or later that selling pressure will dry up, but for now, it may just be too big to stop.
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