Beijing’s policy missteps leave market signals far from clear

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Around US$3.2 trillion of value has been wiped out from Chinese stocks since the market peaked on June 12. Photo: Xinhua

Nick Edwards

Published: 6:30pm, 12 Jul 2015Updated: 10:19pm, 12 Jul 2015

China’s 48 trillion yuan (HK$60 trillion) stock market starts the week at a critical juncture with investors far from clear on the direction that Beijing’s recent policy pronouncements are supposed to be pointing them towards.

A market stability fund with barely enough capital to cover an hour’s worth of trade, a raft of administrative curbs on share sales and police raids on futures traders whose hedging tools are cornerstones of standard capital market risk controls are among the signs to many that Beijing is scrambling to understand the scale of the crisis it potentially faces and is trying anything it can to put a stop to it.

“Beijing has lost control of the markets after numerous mistakes trying to stabilise them,” Paul Markowski of MES/Falconridge Advisers Inc, told the South China Morning Post.

“The country’s latest moves to boost the stock market by loosening risk rules, allowing individuals to mortgage their houses to buy stocks and ordering banks to roll over margin debts is a sign of a policy paradigm gone haywire,” said New York-based Markowski, a long-time external adviser to the country’s financial and monetary authorities.

With the equivalent of around US$3.2 trillion of value wiped out since the market peaked on June 12 in a trajectory that tracks incredibly closely three of the worst stock panics of all time – the 1929 Wall Street crash, Black Monday in 1987 and the bursting of the Nasdaq bubble in 2000 – the government’s uncertain response might be understandable.