We know, dear readers, we know how silly it is to place too much importance on a number as ethereal as the Shanghai stock exchange composite index. But we remain transfixed by what we choose to see as a battle between the market and “the national team” over the magic mark of 3000. The Team won last week, lost this week.
In an interesting juxtaposition, the Wall Street Journal published a story saying that some foreign investors were quietly coming back into Chinese stocks, on the very day the market fell 4% within about one hour, for reasons that nobody seemed able to explain. Wethinks those investors were reconsidering their positions by close of biz that day with visions of deju vu resurfacing all over again, along, no doubt, with some further gnashing of teeth and recriminations in Beijing over who the hell it was who decided that the credibility of the system was to be linked absolutely to such a random number week after week, day after day.
We still remember fondly Nicholas Taleb’s wonderful book, Fooled By Randomness, published about a decade ago, which urged investors and analysts not to get too involved in detail in order to maintain a clearer view of trends and have a better chance of spotting black swans before they trample you to death. Being Taleb disciples, we hardly bother to look into sectors or companies on this most thoroughly manipulated market, and focus solely on the movements of the index through the lens of the market/National team assumption.
One question, then, that has been exercising our brains in recent times has been just what sum of money has been spent by the “National Team” since last July in order to defend that index number. We have, alas, neither the resources nor the contacts that would allow was to perform such a calculation. But it has to be that the National Team and its myriad tentacles has spent many hundreds of billions of US dollars worth of the people’s cash in this market alone over the past nine months or so. To protect that number.
It could be argued that it is money well spent, because the stock market is also the people’s. But we confess we are weak when it comes to political theory. Over the past week or so, we have been reading, in an effort to understand China better, the classic Capitalism, Socialism and Democracy by Joseph Schumpeter, which should explain it all. Schumpeter certainly indicates he has no doubt he has absolutely nailed the nature and fate of the systems named in the book’s title. But we find it so hard to get past the line where he says that socialism is obviously the superior in the system and that liberal capitalism is inevitably doomed. It isn’t the view so much as the certainty which we find difficult to stomach.
Any bets on which way the Shanghai stock index is going next week? Apart from Schumpeter, if he was still alive, and Donald Trump, who knows everything, we’ll just have to wait and see.