Saving the market or not

chenyongtxt

Since October,2007,Chinese stock market has been stepping into a bear market,with the Shanghai Compound Index slumping from 6000 point to below 3000 point, a 50% range.Moreover, most of the investors suffered comparatively much greater losses; their principle shrinked 60% or even 70%. Under this condition, many economists made urgent appeals that the government should take some action to “save the market”. And their reason is quite practical and simple: for the benefits of investors. The so called “saving the market” is to issue some favourable policies so that the market can reverse.

“policy market” is the nickname of Chinese stock market, which implies that Chinese government prefers to administratively interfere the market frquently, thus the market was partly influenced by government policies. Therefore, when the index accruesa bit faster, investors begin to worry that the government may inhibit the market; wille when the index begins to decline, all the investors will anticipate the government to “save the market”.

Is “saving the market”efficient? It si and it isn’t both. In the short run, it indeed stimulates the market and makes the index reverse a bit or even soare for a short period. However, the market has its own regularity and the policies can not change the long-term trendency. Later on when the effect of policy exhausted, the index will continue to fall until the market itself “fells”this round of bear market has come to an end. What’s more, if the government use policies too frquently, the market will even get to immunity to policies.

Considering the principle is appropriate for both favorable policies in bear market and unfavorable policies in bull market, the profermence of the index during May 30th, 2007 and July 30th, 2007 can strongly approve my view. In the evening of May 29th,  2007, regarding that the index soared too fast during the last five monthes, the ministry of finance raised the stamp tax rate by 0.1%, which directly gave rise to the great drop of index in May 30th, 2007, and since then, the index vibrated around 3500 point for about two months. However, then the index surged to 6000 within 3 months.

So, the reason why many investors apppealed the government to “save the market” is obvious: due to their 30% or 40% loss, they can minimize their loss when the favourable policies come out and  the market temporarily reverses.

admin

what's your view? it's not as obvious as you said.

the language is not bad.