Here's a sign China's government could be about to stop meddling in the stock market

Having thrown everything bar the kitchen sink at stocks to prevent further market losses, Chinese authorities may be signalling an end to the desperate attempts to support the nation’s share prices, according to a report from Bloomberg.

The surprising suggestion comes from China’s state-run media on Tuesday in the Economic Information Daily, a subsidiary of the Xinhua news agency, stating that the government should wind down its stock market support program even if prices continued to fall.

The author, identified as Xu Gao, stated that investors shouldn’t lose confidence in the economic growth prospects of China and the globe, adding that the global economic situation wasn’t as fragile as it was two decades ago.

He also offered a reason for the recent plunge in Chinese stocks, something that saw the benchmark Shanghai Composite index lose 8.50% on Monday, its largest one-day decline since February 2007.

“The global stock plunge was more likely caused by emotions rather than fundamental”, said Xu.

While sentiment likely played a role in the recent market rout, along with incredibly expensive market valuations, perhaps its what Xu said next that is the main reason that investors are jumping ship.

“It’s not good for the recovery of the economy to bring back the focus of quantitative easing to the stock market”, he said.

That is, throwing money at the stock market just to keep it elevated is not good for China’s economy, in his opinion.


Indeed, the sentiment expressed by Xu has been replicated in other Chinese media outlets.

Caixin online, a Beijing-based news agency, revealed that China’s stock market regulator, the CSRC, didn’t order relevant departments to work overtime after Monday’s sharp declines according to an unnamed source.

After previous plunges staff worked extended hours, presumably in an attempt to find ways to reverse the market losses. (Think the arrest of short sellers, bans on individuals from selling down holdings and ordering state-run financial institutions to buy the stocks others were selling.)

Caixin described this change in tack as a sign of indifference from the regulator, something that suggests the government may be about to step back from continually intervening in the market.

If that is the case, as the biggest player in the market by some margin of late, it suggests the recent decline in Chinese stocks may have a long way to run yet.

Certainly that’s reflective of the market movements seen today. After falling 20% in the previous four trading sessions, the benchmark Shanghai Composite index has dropped a further 1.33% to 3071 points.

For years the index hovered around the 2000 point level, mired by concerns over earnings growth, bad debts and a slowing Chinese economy.

After all of the speculation is removed from the market, perhaps that’s where it will eventually end up.

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