WSJ does about-face on China market

[unhappycamper]

http://atimes.com/2015/07/wall-street-journal-does-about-face-on-china-market/

WSJ does about-face on China market
Asia Unhedged on July 13, 2015

We know it’s a bit immodest to pat ourselves on the back for being ahead of the pack, but when the Wall Street Journal totally reverses itself to our way of thinking, we think someone has to mention it.

In the midst of the Chinese stock market rout last week, as the government instituted measures to stop the slide, the Wall Street Journal said, “The moves only heightened what is turning into an epidemic of anxiety among Chinese investors and a crisis of confidence in their leaders.”

“The more the government intervenes, the more scared I am,” Li Jun, who runs a fishing and restaurant business in the eastern city of Nanjing, told WSJ.

Then on Monday, after a three-day bounce, we open the Journal to read, “Many global investors are hanging on to China’s stock-market roller coaster. … While Chinese mom-and-pop investors have dumped shares en masse, big institutional investors based in the U.S. have been more sanguine. The reason: Even as China slows, its economic growth continues to outpace the rest of the world.”

[bemildred]

1. China's stock market heresy

Americans believe in free markets almost as fervently as they do in God. Faith in Adam Smith cuts across religions and denominations. That is why it is so hard for many of us to accept as reasonable the Chinese government's massive intervention over the last 10 days to arrest the collapse of its stock markets. The whole endeavor — canceling IPOs, creating a fund to soak up unwanted shares, ordering institutional investors and major shareholders not to sell, suspending trading of some firms, attacking shorting stocks — is utter heresy and couldn't possibly succeed.

Chapter One of "The Book of Free Markets" states that it is impossible to fight the laws of supply and demand. Chinese stock prices jumped over the last year as a result of repeated stimuli, accelerated by margin trading. Markets must eventually reach equilibrium, meaning the bubble had to burst.

Chapter Two allows for intervention only when the economy's basic foundations are threatened, and since China's stock markets account for just 3% of newly raised capital and the economy is still growing at over 6%, this market correction did not qualify.

The concluding chapter tells us that propping up the market may provide temporary paper earnings but reinforces risky behavior by investors, who can expect to get bailed out in the future when their bets go bad.

http://www.latimes.com/opinion/op-ed/la-oe-0714-kennedy-china-market-20150714-story.html#navtype=outfit