4 Reasons Why Now is NOT the Time to Invest in China’s Stock Markets – The Chinese Government is neither Omnipotent nor on Your Side
China’s Government Can’t Hold its Stock Market Afloat…
There is a pervasive belief in China that the government can control the stock market. Given the government’s influence in many other aspects of life in China, this is not a surprise. However, belief in their omnipotence is a little short-sighted.
China’s government obviously cannot keep the stock market inflated beyond natural levels once investor sentiment turns sour, unless they are willing to throw massive amounts of money into a sinking market. Look at the turn of this millennium for proof – it’s unlikely the government purposely let the markets fall that far and for that long.
but can Pop the Bubble
While China’s government cannot keep the market afloat, they can easily pop a growing bubble. While there are many who would like to introduce measures to try and keep things from getting too insane (and if recent times have not been crazy in China’s stock market, I don’t know what crazy is), they are more likely to make too big or too little of an adjustment than get things just right.
In their good faith effort to moderate the market, the Chinese government may instead end up killing investor sentiment and with it the good fortunes of millions upon millions of Chinese investors. Last time it tried something, the market dropped precipitously almost immediately. Right now China’s government would rather watch from the sidelines than meddle in the market, but if the bubble gets too big, it’s almost certain that the government will step in to pop it.
Which means China’s government is not on the side of little guy investors — and you can be sure they are not on your side.