In my recent posts, I have shown you how dangerous the situation around Chinese stocks currently is. The stock market crashed to a five-year low and the risk of a crash has now caught the attention of the Chinese government.

With an interesting idea (typical for communists, by the way): if the stock market fever thermometer indicates problems, then they simply manipulate the thermometer, but they do not address the illness (wrong economic, social, and financial policies). And here’s how it works:

According to the financial agency Bloomberg, Beijing is planning a stabilization fund of nearly $300 billion. The money will be used for direct support purchases of Chinese stocks.

The money comes from overseas funds of Chinese state-owned enterprises. In addition, at least 300 billion yuan will be provided for local funds. The government is also considering other options.

Previously, there were restrictions on the sale of Chinese stocks for Chinese funds. This measure did not bring any results.

And even government support purchases will not bring a lasting recovery. To put it simply, this means that the government in Beijing is using the money of healthy Chinese state-owned enterprises to temporarily stabilize the falling prices of stocks. This allows sellers to have better exit prices.

The state funds will then be stuck with the stocks. But as long as nothing changes in the overall situation (such as through profound structural reforms), the prices will continue to fall after a temporary stabilization because there are no buyers.

Such tactics have not worked in the financial crisis of 2008 and the euro crisis of 2011/12.

As long as global investors stay away from Chinese stocks, there is a risk of continued downward trend because the fundamental conditions have not changed.

In my next post, I will show you how a well-known US investor and former China enthusiast sees the current situation. His assessment is telling!

The post: Smoke and mirrors or a boost for the stock market? appeared first on Investor Verlag.