Lunar 2008 May Be Year of Bear in China Markets

China stock markets will reopen on Wednesday after the one-week Spring Festival holiday. Contrary to hopes that the government will shore up markets ahead of the Olympics Games, analysts are predicting that China may see a “year of the bear” in the markets in “the year of the rat”, as the government takes inflation, instead of the stock markets, as its first priority. Moming Zhou from MarketWatch.com reported the story:

Chinese stock markets have been closed since Feb. 6 as investors welcomed the Lunar New Year of the rat, but when markets reopen Wednesday, analysts fear it might be the year of the bear.

Last Lunar year, the benchmark Shanghai Composite Index plunged more than 20% from its peak, and some expect the government to shore up markets ahead of this summer’s Beijing Olympics. But those who assume the government won’t let the markets fall ahead of the Games may be disappointed.

Chinese investors’ hopes that the government will step in to support sagging stock prices “reminds me of the Greenspan put,” said Robbert van Batenburg, an analyst at global equity broker Louis Capital Markets LP. Batenburg was referring to U.S. investors’ legendary expectations that the Federal Reserve under Chairman Allen Greenspan was always ready to bail out investors by easing interest rates.

But it would be risky to bet that such a “put” is going to come through in China, where the government’s focus is firmly on the domestic economy, especially inflation, Batenburg said.
“Although the appreciation of the stock markets is welcome by the government, it’s not their priority,” Batenburg added. “Their priority is to generate about 10% of economic growth, to absorb the urbanization, and to maintain a benign and peaceful social environment.”

February 11, 2008 5:27 PM
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