Asia Breaking: Pobc Stock Market Buying Spree Hits Diminishing Returns

Can 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:

In 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:

Morning 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

Filed under: Breaking….China support for Shanghai hits the wall Tagged: Brics alternative, China stocks at 2000 by Sept 24th, No recovery in sight, Play US game or raise rates?, Shanghai still falling