It turns out the right time to buy stocks is when the Communist Party tells you to buy them. That’s the message coming out of China this weekend, where the world’s largest Marxist-Leninist political organization is issuing instructions to share traders: buy, buy, buy.
In quick response, 21 stock brokers have announced plans to buy $19.2 billion worth of shares. China’s sovereign wealth fund is also getting in on the act, and the Central Bank has announced measures to prop up the swooning stock market (the major Chinese indices fell by nearly a third in the past three weeks).
But Beijing’s power to induce a market rally by brute force appears to be limited. The WSJ reports:
The Shanghai Composite Index opened 7.8% higher Monday, making it look as if the all-out government mobilization would decisively lift stocks. But the index quickly pared those gains, spending part of the day in negative territory. It ended only 2.4% higher. Investors and analysts said heavy buying of blue-chip stocks like state-owned banks and energy firms late in the session appeared to be the work of state-backed funds. The smaller Shenzhen Composite fell 2.7%. […]
Moreover, stocks in Hong Kong are down 3.2 percent today, in what the WSJ notes is Hang Seng Index’ s “worst one-day performance since 2012.” All together, it seems like investors are responding to the specific measures government is putting into play, but remain wary about overall economic prospects. China’s equity markets, which had soared to unbelievable heights in the past year, may simply be due for a correction, whether Communist Party officials like it or not.
It is too early to tell whether the latest stock market turmoil is a sign of a larger slump with the power to end China’s extraordinary, decades-long economic boom. But it’s getting harder for the country’s economic technocrats to manage its markets, and it looks like President Xi Jinping won’t simply be able to will the challenges away.