Dear readers, we come to you this week with a hypothesis that is, shall we say, a little unorthodox to say the least. Don’t go spreading this around, but, well … we think China’s stock market rally might be over.
We know, we know! Madness, you must be thinking, to go short on such a magnificent financial phenomenon. But frankly we’ve been picking up on a few key clues this past week that we suspect could suggest, hypothetically, that it may be time to consider the possibility of exiting the market. Maybe.
Of course after last week’s little Friday dip you heard a trader here or there say even the newly lowered prices of most stocks were “unsustainable,” or “vastly too high,” or “frankly something of an insult to any fully functioning intellect.” But then the central bank cut both lending and deposit rates and slashed certain reserve requirements over the weekend, and like everyone else we felt certain that this would fix things right quick.
But dear readers, we don’t know if you’ve been paying attention, but stocks actually dropped the next day. We know, we were shocked as well! Now, we know what you’re going to say: It’s just a hiccup, a pothole along the road upward to even higher valuations. And we thought so, too. After all, we soon learned that regulators were mulling a freeze on IPOs to stabilize stocks. Quite rightly, we thought. That should calm down these market jitters.
And lo, it came to pass! Once again China’s stocks resumed their upward trajectory (after briefly plunging below the 4,000 point mark) to close higher by a handsome 5.5%. That’s the ticket, we thought, calling our broker with orders to plow the entirety of our savings into whatever stocks were at hand. He did point out that it was completely unclear why stocks had surged, and suggested we might take this opportunity to try shorting a stock or two. But we’d heard earlier that same day that the only option available was shorting the whole market, and we weren’t about to take such a foolhardy risk. Short China’s stocks? Where had he been these past six months?
But dear readers, we’re afraid stocks may have entered something of a … what was it called? Oh yes, a “bear market.” (We apologize, it’s just been so long since we last heard the term used.) Yes, we know top shareholders have begun buying back their own stocks to “demonstrate their confidence,” and regulators have ingeniously moved to free up more leverage in the form of securitizing leverage itself—a brilliant bit of financing, we must say.
But we fear the party could soon be over. Yes, it’s true that transaction fees on trades will be cut starting next month. But we fear no amount of savvy share swapping will save the money lost in the process. Instead, we suggest you take the safe rout: Invest in property, which rose last month at its fastest rate in well over a year. Ah, real estate. Now there’s a market that will never go bust.
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