China's seeming success in stopping a precipitous A-shares sell-off raises the question of whether a visible official hand could become a hallmark of a proverbial equity market with Chinese characteristics.
Most market veterans think not. They contend China's leadership will continue to push the country's enormous economy in a more market-oriented direction.
And some say the impetus to do so will come, in part, from the opportunity costs of its recent intervention.
The government went “all-in” as the A-shares market dropped more than 30% in the space of four weeks — giving back roughly a fifth of its 150% surge over the prior eight months, noted Robert F. Baur, Des Moines, Iowa-based chief global economist with Principal Global Investors, in a July 15 report.
Steps taken to short-circuit selling pressure included suspending IPOs, banning large shareholders from selling, directing state-owned entities to buy stock, threatening to punish “rumor-mongers” and easing margin requirements, even though heavy margin borrowing by retail investors had helped turbocharge the market's rally starting in late 2014, wrote Mr. Baur.
As of July 24, the Shanghai Stock Exchange composite index has stabilized, closing at 4,070.91, up 16% from its closing low on July 8 but still 21% below its June 12 peak of 5,166.35.”
In his report, Mr. Baur predicted the direct intervention of the past month would stand in the way of some of the government's high-level goals, which include an expeditious inclusion of A shares in major benchmark indexes — “likely ... delayed” — and the ability to use rising stock prices to help restructure debt-laden state-owned enterprises — “not gonna happen,” he wrote.