Yesterday we presented our cynical perspective on the latest Chinese intervention in its stock market, whose sole intention was to prop up the stock market, and create the illusion that the economy is stronger (following in the Chairman's footsteps, it appears that now the SHCOMP is the best proxy for economic prosperity) now that bank speculation of a Chinese hard landing has grown significantly louder (see here and here). Today, it is Jim Chanos' turn to jump on the, pardon the pun, cynical bandwagon, who, as Bloomberg reports "said a rally spurred by government purchases of the shares hasn’t changed his bearish outlook. The MSCI China Financials Index surged 6 percent today after state-run Central Huijin Investment Ltd. started buying shares in the four biggest Chinese lenders. The gauge of banks, insurers and developers had tumbled as much as 43 percent in 2011 through Oct. 4, sending its price-to-earnings ratio to a record low of 5.6 on concern that slowing economic growth will spur bad debts after a three-year credit boom. “The fact that people are even talking about the government stepping in to shore up the banks, when two months ago people thought there was nothing wrong with the Chinese banks, should tell you just how seriously this situation is deteriorating,” Chanos, founder of New York-based hedge fund Kynikos Associates, said in a Bloomberg Television interview." Needless to say this is glaringly obvious, which is why it will have no adverse impact and the only thing the markets will care about is how many trillions in additional government liquidity/purchases will come down the line to prop up the illusion that is the global economy.
More from Bloomberg;
Chanos, who told Bloomberg News last month he was selling short shares in “virtually all of the large banks in China,” said today that the country’s property market is in the “first parts of a very serious pullback.” China’s home transactions fell during last week’s public holidays after residential prices posted their first monthly decline in a year, according to Soufun Holdings Ltd. (SFUN), China’s biggest real estate website owner.
“The property market is what investors ought to be watching, because that drives everything in China,” Chanos said.
Huijin started buying shares of Industrial & Commercial Bank of China (601398) Ltd., China Construction Bank Corp. (939), Agricultural Bank of China Ltd. (601288) and Bank of China Ltd. (3988) yesterday, according to a statement on the the investment company’s website. Huijin, set up to hold the government’s stakes in the banks, said it will continue with “related market operations,” without providing details on how much it will buy.
The unit of China’s sovereign wealth fund spurred a temporary rally in Chinese banks in September 2008 as it bought shares to shore up investor confidence after Lehman Brothers Holdings Inc. collapsed.
For those who may have forgotten, this is the second time China has involved in such a manner.Needless to say the intervention did not work.
The MSCI China Financials index surged 18 percent in two days after the official Xinhua News Agency said on Sept. 18, 2008, that Huijin would buy shares. The gauge erased those gains in the pursuant five weeks, falling as much as 47 percent as the global financial crisis worsened.
So while China can attempt to mask the symptomes, the underlying cause has likely already hit its inflection point:
The decline in property sales volume last week, traditionally a peak period for Chinese developers, may mark a turning point for a property market that had defied the government’s recent efforts to contain surging home values, according to Credit Suisse Group AG.
China’s central bank has raised its benchmark lending rate three times this year and lifted lenders’ reserve requirements six times. China’s banking regulator told lenders in July not to extend the maturity of loans to developers and not to grant new credit to help developers repay maturing debt.
And while we already know that intervention half-lives across the developed world are getting shorter and shorter, the decision by Huijin to boldly (again) go where so many other central planners have gone before, will merely provide us with an indicator of just how short the same metric is for the world's primary economic growth dynamo, which unfortunately is getting dimmer by the day.