The US Bailout Can't Save the Chinese Stock Market

2008/3/12 15:20:52

The US bailed out its market, and our market sentimentally gapped up big — only to be completely slapped back down, even challenging new lows again. The one-day farce is over.

This ID has repeatedly said many times: the root cause of this decline lies in the problem of predatory capital-raising. At 5500 points, news of Ping An's capital-raising was leaked to a small circle, causing the reversal. At 5200 points, the news was confirmed, and then the massive breakdown began. Before the Ping An news came out, overseas markets had been performing poorly, yet the Chinese market paid no attention and went its own way. What ultimately reversed the market was this predatory capital-raising.

Why? Because this predatory capital-raising is fatal to the capital involved. Push prices up, then capital-raising comes — who would bother exerting effort under such conditions? Then, funds continuously fled from large-cap stocks: some withdrew entirely, while those that stayed shifted to mid- and low-priced stocks, where at least there's some control over capital-raising.

The prescription this ID gave long ago to solve this problem is a clear regulation on refinancing that gives the market a definitive expectation. Unfortunately, our regulators have remained inactive, and this inaction has dealt a tremendous blow to market confidence.

The issue now is no longer just about predatory capital-raising — it's a crisis of confidence in the regulators themselves.

This ID has already described the worst-case scenario: if no moves are made to restore market confidence before the ChiNext board launches, massive capital will flee to the ChiNext, where at least there are no short-term worries about predatory capital-raising, and the current main board will become a dead city.

Now, an immediate short-term problem is before us: those funds that still held expectations for the Two Sessions — once the meetings conclude without delivering what they need, will they sell off again? And Ping An's issue remains like a ticking time bomb ready to detonate at any moment.

For the medium-term, the biggest problem has been stated repeatedly: who gives us a reason to go up? Without a definitive resolution to predatory capital-raising, nobody will charge forward sitting on a bomb.

If the regulators had even 1% of the efficiency they showed during the 530 Incident, this simple problem would have been solved long ago. From January to now in March, the index has dropped over 1000 points — what on earth have they been doing?

Natural correction isn't scary. What's scary is the loss of market confidence caused entirely by deliberate inaction.

As for the technical picture, it was explained very clearly yesterday. Today's trend hasn't departed from yesterday's 1-minute hub, and whether after this hub we get a 1-minute c-segment to then form a 5-minute hub, or it directly expands into a 5-minute hub, makes no substantive difference.

The biggest problem is: if this 5-minute hub is the first hub of a 5-minute decline, the short-term pressure ahead will be extremely intense.

Of course, that's the worst case. Whether it plays out this way — let the market decide for itself.

Signing off for now. See you later.