As the afternoon session opened overnight in China, stocks were crashing 6-7% (after dropping over 10% and soaring over 15% in the 5 days prior). With record and exponentially growing margin trading one can only imagine the vast majority of new account-holding housewives were stopped out of various positions. Which makes us wonder, just who the mysterious buyer of last resort was that lifted Chinese stocks ever-so-linearly all the way back to unchanged (and in fact green for Shanghai). We suspect you know the answer, and sure enough, just as Bloomberg notes, who cares about China's economy when stocks are rising this much?
Overnight trading in China in all its BTFD glory...
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As London-based head of emerging markets at Deutsche Asset & Wealth Management, Sean Taylor remarked, "the government wants a strong stock market, to privatize more companies and do more IPOs." Rising stock prices not only help Chinese companies reduce debt levels by selling new shares, they also make it easier for the government to boost budget revenue and push forward on privatization plans through stake sales.
But of course, it's a ponzi and as the following six charts underscore, the disconnect between Chinese stocks and the economy has never, ever been greater...
Shanghai Composite performance: The index rose last week to its highest level in seven years, while Bloomberg’s monthly gross domestic product tracker for China is near the lowest since 2009.
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Financial stocks: The CSI 300 Index’s gauge of banks, property developers and brokers climbed to its highest level since January 2008 last week. Data on May 13 showed the M2 measure of broad money supply grew 10.1 percent in April from a year earlier, the smallest expansion on record.
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Commodity producers: The CSI 300 Materials Index capped a 13th month of gains in May, its longest winning streak on record. Fixed asset investment rose in April by the least in almost 15 years.
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Retail stocks: The consumer discretionary index has rallied 75 percent this year to a record. Retail sales grew 10 percent in April, the slowest pace since 2006.
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Room for more stimulus: The central bank has lowered the amount of reserves lenders must hold to 18.5 percent from 20 percent this year. That compares with the average ratio of 12.6 percent since the start of 2000.
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Stock sales: Chinese non-financial companies raised a net 230.4 billion yuan ($37.2 billion) in the first four months of the year, the best start on record, while net sales of corporate bonds totaled 543.8 billion yuan, the lowest for the period since 2012.
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Simply put, this is bread-and-circuses distraction for the masses of Chinese facing the harsh economic reality of a post debt-fueled bubble bursting.
