Whatās Going On Here?Chinese stocks experienced their biggest single-day jump in more than a year on Monday ā and the Super Mario-style momentum gave markets around the world a boost as well. What Does This Mean?The five-star performance seems to have been stoked by the Chinese government: a front-page spread in the state-sanctioned equivalent of the Wall Street Journal said a healthily rising stock market was key to the nationās economic strength. That was followed by a surge in small-time Chinese āretail investorsā setting up brokerage accounts and seeking to take advantage of the governmentās tacit endorsement of stock-buying.
Usually individual investors, even when they club together, donāt have much of an impact on markets. But larger state-backed buyers are also known to snap up stocks on the governmentās say so. Their combined influence helped a key Chinese share index to rise almost 6% to a five-year high on Monday, while Hong Kong stocks leaped 4% into ābull marketā territory. And the positive vibes sent markets around the globe up too, with the MSCI World Index hitting its highest level since early June. Why Should I Care?For markets: Buyer of first resort.
The Chinese governmentās article suggested investors would enjoy āthe wealth effect of the capital marketsā, implying it may take steps to prop up share prices if necessary. Yet such support is by no means just a Chinese phenomenon. The US Federal Reserve has begun to buy corporate bonds ā and by pushing their prices up and yields down, return-hungry investors have been driven towards even expensive-looking stocks.
The bigger picture: World 2-1.
Stock markets aside, this economic gameās got a long way to go before things get back to anything remotely resembling normal. Investment bank Goldman Sachs, for instance, just cut its US economic growth forecast for this quarter, saying consumer spending probably wouldnāt pick up as much as predicted. The president of the European Central Bank, meanwhile, is warning that the eurozone economy will undergo a massively disruptive shift over the next two years. | 