China puts bull market on life support

In the past few days, authorities have redoubled their efforts to prop up China’s stockmarket.

"This being China, bull markets aren't allowed to die without a fight," says PFP Wealth Management'sTim Price on his blog. In the past few days, authorities have redoubled their efforts to prop up China's stockmarket. After an interest-rate cut and a reduction in the banks' reserve requirement ratio allowing them to lend more stocks continued to slide.

In response, China has suspended initial public offerings to reduce the supply of shares and relaxed the rules on margin trading. Investors may now buy stocks using their houses as collateral. "Not to be outdone," adds Price, the Asset Management Association of China has tried to cheer people up with a statement entitled, "Beautiful sunlight always comes after wind and rain". Despite this, the market lost around 25% in just 13 trading days, and only managed a small bounce early this week, then it resumed its slide. The worry is that widespread margin lending, much of which "is off the books, has become a powerful negative force", says Josh Noble in the Financial Times. Downswings can become self-fulfilling as investors have to sell holdings to cover previous losses that were incurred with borrowed cash.

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Andrew Van Sickle
Editor, MoneyWeek

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.