China Market Tumble

The China stock market is tumbling by nearly 30% after a year of run-ups of 150%.

This is nothing. Say, if the run-up is from 100 to 250 and if we consider that the run-up had been pure fluff, i.e., "leverage retail investors, egged on by bullish statements by official state media (Bloomberg), then for the index of 250 to return to 100 is 60%. Technically, at 30% down, there is still a lot of fluff.

We are talking in aggregate. If we were to think in spectrum, there may be stocks which have been super-hyped while some may be slow and steady. In the end, in the market, the focus is always on the so-called blue chips, if only we know what they are.

But the official reactions to the market is not something which Malaysians have not seen before.

This is the same old story where the government of a country gets involved in the workings of the stock market, on the illusion that the buoyancy of the stock market is a good indicator that the government of the day is clever.

Their first instinct is to try to intervene in the market, to prevent the market from adjusting to the fundamentals.

In the Malaysian case, they used government funds to prop up the market, prevent people from selling, prevent people from taking their money out of the country (when they had happily welcomed the short-term capital inflows).

No doubt, China may attempt to repeat these little silly tricks. The major consequence will be that the market will become less "real" in the sense of private-sector market determined, and more of a reflection of the delusion of the government of its perceived libido.