It’s the last day of the month and windows have been dressed

Our own markets have made a “remarkable” turnaround into the end of the month thanks to China’s 400-point (14%) move off the bottom last week – but at what cost?  According to the Financial Times, Beijing has already spent $200Bn propping up the equity markets and, despite that, we’re still down 38% from the top and 200 points lower (5.8%) lower than we were when the Government officially stepped in to prop up the markets.  

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“The problem they have now is that they’ve spent as much as $400bn supporting the currency and stock market and they are now worse off than when they started,” said one person with close ties to the PBoC. “I think they got overconfident and underestimated how strong the global reaction would be to the devaluation.”

That other $200Bn of currency intervention is also our problem as the PBOC, in order to play this game, has been selling about $10Bn per day for the last 20 trading days.  That has depressed the Dollar’s value (more Dollar supply on the market) and given us some poor results at recent treasury auctions as China is competing to sell our notes.  

China is supposedly propping up the markets ahead of Thursday’s 70th Anniversary Parade in honor of the “victory of the Chinese people’s war of resistance against Japanese aggression,” which is what they call WWII.  The Chinese government has also officially begun prosecuting 22 cases of “insider trading, market manipulation and “spreading market rumours” as it is now technically illegal to short the Chinese markets.  In Tuesday’s drop alone, 11 people were detained for “illegal securities trading” including 8 managers of Citic Securities, one of China’s largest brokerages and 4 others.  

In a worrying signal for global investors with a presence in China, some officials have argued strongly for a crackdown on “foreign forces”, which they say have intentionally unsettled the market.

“If our own people have collaborated with foreign forces to attack the soft underbelly of the market and bet against the government’s stabilisation measures then they should be suspected of harming national financial security and we must take resolute measures to subdue them,” said an editorial in the state-controlled Securities Daily newspaper last week.

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