Policy-pumped stock bubbles typically implode at shocking speed to the decimation of participants. China’s round trip nightmare is not over yet and offers lessons for deluded confidence in other debt pumped developed markets. See: Troubling lessons in China’s crumbling stock market.
It is easy to dismiss China’s stock market as nothing but an old-fashioned speculative bubble. But the government’s direct involvement in pumping it up, and its failure to keep it aloft, should have investors concerned about China’s ability to control even more consequential markets.
Chinese stocks crumbled another 6% Friday, despite the government throwing everything but the kitchen sink at engineering a rebound. In fact, it did throw in some kitchen sinks, telling investors they can now use apartments as collateral on margin loans.
Other measures over the past week include an interest-rate cut, a loosening of bank-lending and margin-lending conditions, rule changes allowing pension funds to own stocks and even, according to some reports, state buying of stocks.
So far anyway, what’s resulted is a market that has lost more than a quarter of its value in 13 trading days.
In the end, extraordinary efforts geared to push prices far above fundamental reason end in extraordinary losses, pretty much always. Its only a matter of time. China is learning this lesson now (and counting), other bubbling asset markets around the world are set up to do likewise.