Some of the headlines in Chinese media were amusing Wednesday.
In the wake of a brutal selloff that devastated the previously “hot” EdTech sector and further undermined the bull case for virtually every “must-own” Chinese mega-tech you care to name, Party mouthpieces (so, basically all Chinese media) urged locals to remain calm.
“Investors shouldn’t be overly pessimistic about the stock market,” the China Securities Journal said. It cited “analysts,” but any widely-circulated periodical is just the Party line. “There’s no systemic risk,” the same piece insisted, adding that easy monetary policy should support stocks. Recent turmoil was described as a “technical adjustment.”
I’ve seen some “technical adjustments” in my time, both in the market context and otherwise, and I’m not sure the figure (below) can be plausibly described in such benign terms.
Obviously, the visuals for EdTech shares are far, far worse.
Notably, mainland investors aren’t buying the dip in mega-tech. And that may actually be fine with Beijing if the goal is to send a message. Net selling in Tencent via the connect summed to more than $4 billion in July as of Tuesday (figure below).
If you ask Securities Daily (And why wouldn’t you?), weakness in Chinese equities is “unsustainable.” Stocks will “stabilize,” a Wednesday piece said, albeit “gradually.”
Again, analysts were cited. Because they’re totally free to make unbiased assessments in China. Except for the very real possibility of being subjected to… well, I don’t know exactly, something bad, if they were to accidentally cross the (very blurry) line from “cautious” to “spreading fear.”
Amusingly, Securities Daily went ahead and ventured a guess on when things might stabilize. The timeline for stabilization, if you’re curious, is “quickly.” Shares should “gradually regain lost ground on Wednesday or some time afterward.”
All of that is propaganda. But remember, “plunge protection” in the Chinese context isn’t some kind of sarcastic, oblique reference to policymakers. It’s very real. “A belated appearance by the ‘National Team’ to support markets — as a follow-up to Wednesday’s media blitz –could help,” Bloomberg’s Simon Flint wrote, referencing the hodgepodge of state-backed buyers assembled in 2015 to put a floor under equities in the event of a catastrophic decline.
If you ask David Trainer, CEO of a research firm based in Nashville (just a stone’s throw from Beijing), this isn’t the time to buy. “We do not see a buy-the-dip opportunity,” he told Bloomberg. The same linked article contained a quote from Miller Tabak’s Matt Maley, who’s always ready to serve up a quote if you’re a reporter and you just gotta have one more soundbite. “It’s way too early to be catching the falling knife,” he said.
I love it. I really do. The whole point of the falling knife metaphor is that you don’t ever catch it. The question isn’t whether it’s time to catch a falling knife. The question is whether it’s a falling knife in the first place. If it is, you don’t try to catch it. Just ask that time you were chopping celery with baby oil on your hands and you ended up in the emergency room next to five unvaccinated Arkansans who couldn’t breathe. (I’m really laying it on heavy today.)
Anyway, Nomura’s Charlie McElligott weighed in Wednesday. “Speculative, but I’d be willing to bet that with this current market tremor out of China, it’s reasonable to expect by end-August / early September that we’ll see Chinese +++ liquidity actions taken (either monetary or fiscal easing) to offset [the] slowdown risks of their recent actions to tighten in the property sector.”
Until then, maybe don’t catch the falling knife. And never forget the sage advice served up by the Economic Times last summer, when Beijing was attempting to cool down local shares. “A ‘mad cow’ market often turns into a money ‘meat grinder’,” the Party mouthpiece said.
Sounds like it’s already a meat grinder.