Lighten up Chicken Little …

September 15, 2015 12:35 PM (UTC+8)

 

Whenever the western press gets bored with stock market events in China something always happens to get their Chicken Little meters ticking again.

Things got a bit snoozy over the last couple of weeks as government measures restored some stability to stock prices. But China’s benchmark CSI300 index .CSI300 of the biggest listed stocks in Shanghai and Shenzhen closed down nearly 4% on Tuesday, while the Shanghai Composite Index .SSEC dropped 3.55% to close at 3,004, just above the psychologically important 3,000 level. Stocks are down 6% so far this week.

chicken-little222The latest commentary out of New York and London conjures up images of Chinese regulators jumping off cliffs as their market-calming efforts go unheeded, and Beijing frantically hunts for fresh sources of cash to kick-start the economy and spend its way out of the crisis.

“Chinese authorities have seized up to 1 trillion yuan ($157 billion) from local governments who failed to use their budget allocations, sources said, as Beijing looks for ways to spend its way out of an economic slowdown,” Reuters reported yesterday.

Shades of 2008 when the US also flipped open its stimulus wallet to repair the damage inflicted by a Made-in-America (global) subprime crisis. But Asia Unhedged notes the big difference here is that China has the money to burn and its economy (even as it slows) will be growing at a 6%-7% clip that will be the envy of the world. When state news agency Xinhua reported last week that China was mulling spending 1 trillion yuan ($188 billion) over the next three years to spur economic growth, few observers doubted that it could come up with the money.

True, many Chinese investors are hesitant to re-enter the market because they fear a slowing economy will take the fire out of future stock advances. But eventually a bottom will be found. It may be that the Shanghai Composite Index will have to go down to 2,500 before significant buying returns. But it will happen. This is because the long-term outlook for Chinese growth is still upbeat. The government also has more fiscal and monetary options at its disposal.

 

 

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