First some perspective on this weekend’s activities. The most important of the salmagundi of actions is the security regulator’s promise of an initial 120 billion yuan ($19.3 billion) via 21 brokerages to stabilize the market, alongside the People’s Bank of China’s agreement to provide liquidity support for the margin-trading clearinghouse—what David Cui, strategist at Bank of America/Merrill Lynch, says might be its first step toward becoming the ailing market’s buyer of last resort.
The government also vowed to make sure the Shanghai Composite hits 4,500. The scope of this gambit is breathtaking, says Anne Stevenson-Yang, founder of J Capital Research. She notes that analysts comparing China’s current rescue efforts to Troubled Asset Relieve Program, the US government’s 2008 bank bailout package, miss the fact that TARP rescued operating companies, not a stock index. “[TARP] focused on the viability of operating companies, not the optics that a speculative derivative of the economy represented.”
“There is no way to characterize these measures other than as a ‘double or nothing’ wager,” Stevenson-Yang writes in a note today.
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