The last 4 days have highlighted the unusual effect in Chinese stocks.. each time the Shanghai Composite dropped over 1% (red dotted line) it was miraculously lifted to ensure it closed with a loss less than 1%…
As Bloomberg reports, authorities favor a steady stock market because it helps companies fund investment and repay debt by issuing new shares, which could help boost economic growth, according to Yin Ming, a vice president at Baptized Capital in Shanghai.
“The national team is behind it,” Yin said. “State funds will likely continue to be a market stabilizer.”
For some investors, it’s a sign that state-directed funds are putting a floor under daily market swings – a development that presents short-term buying opportunities when the Shanghai Composite dips more than 1% during intraday trading – but when this happens in the US its completely normal and defended as animal spirits that mean “stocks just want to go higher.”
The iShares MSCI China Index Fund (NASDAQ:MCHI) was unchanged in premarket trading Friday. Year-to-date, MCHI has gained 15.21%, versus a 5.28% rise in the benchmark S&P 500 index during the same period.
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