The Chinese have their own way of doing things. The government has to deal with the realities of the Chinese equity markets. Valuations on these markets are not restrained, up or down, by fundamentals. They are driven partially by “animal spirits” related to a gambling mentality and partially by whatever traders believe the government is doing, has done, and/or will or will not do.
Individual Chinese investors who have the capital to invest are directed by government financial and regulatory incentives to one sort of asset or another. Real estate used to be favored, a bubble developed, and the government took steps to encourage public market equity ownership and trading. There are a series of complex, changing regulations the government has put into place since they opened up the equity markets that may or may not restrain contagion at this point in time.
The Han Chinese in particular are known for their propensity for gambling. (I think Macau’s take is bigger than Las Vegas, for example.) The Chinese stock markets are driven by this gambling mentality and by government regulations that have little to do with the sorts of things that worry developed market players (such as corporate profits, mainly). So the cartoon “sort of” gets it right. But the government is less pointing guns at market participants as it is trying to ride a bucking bronco at this point. This volatility shouldn’t roil global markets too much, but who knows how people will react to fear and greed.
The Chinese have their own way of doing things. The government has to deal with the realities of the Chinese equity markets. Valuations on these markets are not restrained, up or down, by fundamentals. They are driven partially by “animal spirits” related to a gambling mentality and partially by whatever traders believe the government is doing, has done, and/or will or will not do.
Individual Chinese investors who have the capital to invest are directed by government financial and regulatory incentives to one sort of asset or another. Real estate used to be favored, a bubble developed, and the government took steps to encourage public market equity ownership and trading. There are a series of complex, changing regulations the government has put into place since they opened up the equity markets that may or may not restrain contagion at this point in time.
The Han Chinese in particular are known for their propensity for gambling. (I think Macau’s take is bigger than Las Vegas, for example.) The Chinese stock markets are driven by this gambling mentality and by government regulations that have little to do with the sorts of things that worry developed market players (such as corporate profits, mainly). So the cartoon “sort of” gets it right. But the government is less pointing guns at market participants as it is trying to ride a bucking bronco at this point. This volatility shouldn’t roil global markets too much, but who knows how people will react to fear and greed.