After scaring millions of freshly created stock market speculators with a 10% ‘correction’ last week, it appears the PBOC’s wealth-effect-creating, fix-the-leverage-overhang-with-temporary-stock-exuberance strategy was put into action with a record-smashing 4.4mm new accounts opened. Since Friday’s lows, CHINEXT – China’s tech-focused index – is up an astounding 16% (the largest ever 2-day swing). The Shenzhen Composite has also soared over 12% to fresh highs but we note the broadest-based Shanghai Composite has yet to make it back to last week’s highs (even though it is up 9% from last week’s lows).
Notice that while the high-beta muppetry of CHINEXT and Shenzhen are soaring to new highs, Shanghai is unable (for now) to make new cycle highs…
So how do we know this is a bubble?
The week that saw the largest drop in Chinese stocks in recent history, saw a stunning 4.4 million new retail accounts opened (over 4x the peak pace of opening in 2007’s bubble).
* * *
One can’t help but wonder if this ‘distraction’ for the masses is the bread-and-circuses to keep control as the debt-fueled Chinese economy collapses right in front of their eyes.