On the Nature of Things | Forum

China’s roller-coaster stocks will again be under the spotlight after the central bank cut benchmark interest rates to a record low at the weekend, a move interpreted by analysts as an attempt to temper last week’s market meltdown.

The Shanghai Composite sank 7.4 per cent on Friday, wiping hundreds of billions of dollars off the total market capitalisation of the index. The market has reversed 18.8 per cent from its June 12 high, although it is still up almost 30 per cent in the year to date.

The People’s Bank of China appeared to respond on Saturday, when it cut the one-year lending rate by 25 basis points to 4.85 per cent - its fourth cut since November - and lowered the amount of reserves certain banks are required to hold by 50 basis points.

Typhoon wrote:Why Liquidity-Starved Markets Fear the Worst

Talk to almost any banker, investor or hedge-fund manager today and one topic is likely to dominate the conversation. It isn’t Greece, or the U.S. economy, or China, let alone the U.K.’s referendum on European Union membership. It is the lack of liquidity in the markets and what this might mean for the world economy—and their businesses.

Market veterans say they have never experienced conditions like it. Banks have become so reluctant to make markets that it has become hard to execute large trades even in the vast foreign-exchange and government-bond markets without moving prices, raising fears investors will take unexpectedly large losses when they try to sell.

So while every international affairs pundit and their mother are focused on the travails of an economy the size of Louisiana, the second-largest economy is experiencing a teeny-weentsy stock market meltdown.

Despite vast changes in China and other parts of Asia, there has only been incremental progress in large parts of the developing world. Just 16 per cent of the world’s population lives on incomes that would take them safely above the US poverty line.

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“The global middle class is smaller than we think, it is less well off than we think, and it is more regionally concentrated than we think,”

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Typhoon wrote:FT | China rout staunched but for how long?

To be fair, in the West, massive QE has helped markets attain post-2008 highs.

A well-known fund manager who foresaw the Japanese crash, the dotcom bubble and the global financial crisis has predicted that markets will be “ripe for a major decline” some time in 2016, potentially triggering government bankruptcies.

Jeremy Grantham , founder and chief investment strategist of GMO, a $118bn investment house based in Boston, expects the stock market to continue to march higher in the coming year, eventually sucking in retail investors and setting up a serious decline around the time of the US elections in late 2016.

The famously bearish and often prescient money manager said this could trigger a “very different” type of crisis, because many governments had become considerably more indebted and much of the liabilities had shifted to the balance sheets of central banks.

Given that central banks were able to create money to recapitalise themselves, this “could be a crisis we could weather”, Mr Grantham said. “If not, then we’re talking the 1930s, where you have a chain-link of government defaults.”

Typhoon wrote:FT | PBoC cuts renminbi fix by most on record

“They’re just destroying us,” the real estate tycoon turned Republican presidential candidate said in a CNN interview Tuesday. “They keep devaluing their currency until they get it right. They’re doing a big cut in the yuan, and that’s going to be devastating for us.”

Typhoon wrote:FT | PBoC cuts renminbi fix by most on record

Mr. Perfect wrote:Trump is now the go to us commentator as opposed to say Democrat obama or Clinton.

Mr. Perfect wrote:

Typhoon wrote:FT | PBoC cuts renminbi fix by most on record

I know someone who says the infrastructure is amazing, so probably nothing to see here.

noddy wrote:this round of chinese 'correction' is definitely interesting, its smashing the hell out of my country.

its almost enough to fire up the doomer pron fan in me

almost, but not enough.

Typhoon wrote:WSJ | China to Set Up Fund to Curb Stock Selloff

The old-school idea that the markets are a mechanism for price discovery is globally dead.

Mr. Perfect wrote:

Typhoon wrote:WSJ | China to Set Up Fund to Curb Stock Selloff

The old-school idea that the markets are a mechanism for price discovery is globally dead.

Boy were you wrong about that.