China's government says it's 'capable and confident' of bringing stocks back to a 'rational track'

Photo: A Chinese beer drinker at the Qingdao festival. Photo: Getty

Having rolled out a cavalcade of measures to underpin the market, the Chinese government has turned to state-run media outlets to reassure investors that it is both capable and confident of stabilising the nation’s stock market.

The People’s Daily, the flagship newspaper of the Communist Party of China, stated yesterday that the government “is capable and confident it can maintain the capital market stable and sound” according to a report from Xinhua.

“It is an urgent task to bring the A share market back to a rational track, as volatility of the market is detrimental to the sound and stable development of the capital market,” said the article.

By “rational track”, given the Chinese government has been the chief orchestrator of the bull market in stocks that saw some indices rise more than 150% in under 12 months, that presumably means higher share prices, based on recent history.

In recent weeks, despite a raft of measures to support the flagging stock market including outright stock purchases from pension funds, brokerages and insurers, mainland Chinese stocks have continued to decline, falling by between 30 to 42% since early June.

On Tuesday, having seen a modest bounce in the previous session, markets resumed their downtrend with the benchmark Shanghai Composite index losing a further 1.3%. The losses across smaller companies were significantly worse.

While the government will likely get its way by the market finding some kind of floor, eventually, as they have found out recently building a stable and sound capital market by encouraging inexperienced investors to use borrowed funds who totally disregard basic fundamentals such as valuations is no easy feat – even for a command economy such as China.

You can read more from Xinhua here.

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