China’s Stock Market Back In Trouble

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Thanks to government support, the Shanghai stock index has rallied for the past few weeks after a month of losses. Today it plummeted again, apparently due to the government withdrawing its support. From the Wall Street Journal:

Authorities may want to “test whether the market has recovered its resilience,” said Fu Xuejun, a strategist at Huarong Securities. “The government wants to use state funds to stabilize the market, not to prop it back to 5000 points overnight.”

Well, I guess that test didn’t work. According to the Journal, Monday’s drop came as a big surprise. “I am positive that we will see state support emerging again in the next two days,” said Jacky Zhang. Maybe so. But if the fundamentals aren’t there, even the Chinese version of government support can’t keep things propped up forever. It’s only a matter of time until we see the market plummeting again.

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