Wen Will You Take Action (Soon!)

Here they come to save the day, in another announcement from Premier Wen.

Wen pledges efforts to stabilize stock market by -- THE Chinese government will make efforts to promote the stable and sound development of its stock market, Chinese Premier Wen Jiabao said yesterday.

A healthy and sustainable capital market will ultimately be conducive...

It was only time before the Chinese Government stepped in an attempt to save the crippled stock market (again). This is the prayer that many investors have been hoping for. Of course, intentions are good, but hopefully they will make good on their pledge (a promise that they have made a countless number of times).

This news is definitely likely to boost investor confidence once more.

I hope people will still make rational decisions regarding investment though, because at the end of the day, the ball is in their court. The sharp fluctuations that the SSE has been experiencing since the start of the New Year are not healthy.

-GP


Wen did not pledge anything that Beijing hadn't already promised before, which is (ignoring the general positivist notions of a stable market) more transparency to the Shanghai and Shenzhen stock exchanges. I wonder how this would makes sense in a largely overpriced market as transparency is a double edged sword that would reveal how deceiving many A-share companies' accounting books are. Personally, I wouldn't hold my breath until those reforms are actually implemented. The mainland Chinese companies that are listed on the NYSE and the HKSE took several years of restructuring to fulfill General Accepted Accounting Principals and International Financial Reporting Standard's respective accounting standards. To actually make noticeable transparency reforms, it would take years of preparation that Beijing had previous ignored.

For the investors waiting for some kind of monetary bailout, keep holding your breath because Beijing will likely not put up the funds to bail out foolish gambles. It would be extremely irrational for it to do so as there aren't any real infrastructures at steak.

Stock market manipulation is very wide spread in China. If Beijing steps up regulation and prosecution to create a "sustainable market," it would be a positive development.

My feeling is that Wen's statements could could stop the bleeding temporarily, and perhaps cause a bounce of confidence for a couple days; however, they will not tighten the tremendous gap between the actual value and the price of A-share stocks.

-H