Sunday, September 6, 2015

“Unprecedented” Statement of Stock Market Support from Central Bank

How far do stocks in China still have to fall? I figure stocks should retreat to the level of last August, which for the Shanghai Composite Index is around 2,200, before anyone would have any real confidence in them. With the index at 3,160 at latest report, it is still a long way down. The central bank sees it differently, making a statement during international meetings this weekend that the stock market rout is nearly over. It is unusual enough for a central bank to take such a specific position on stock prices, though not so strange for an official to make a general statement of confidence in a market. What is strange is seeing a central bank voicing such specific support for such artificially elevated prices. It may be that the central bank believes it has a way of supporting stock prices, something new that goes beyond everything we’ve seen already.

I’ve found a range of views on this. Here are two that seem representative, starting with James Mayger at Bloomberg, who sees signs of China’s frustration with its stock market:

Gordon G. Chang at Forbes sees the statement as either bold or foolish — it is perhaps too soon to say which.

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