Equity markets, of course, are notorious for sending false signals. That is certainly true of bear markets, which Nobel laureate economist Paul Samuelson famously predicted “nine of the last five [US] recessions.” It was also the case with Japan’s infamous dead-cat bounces: the Nikkei 225 rallied four times by an average of 34% on its way to a cumulative decline of 66% between December 1989 and September 1998. Nevertheless, the Chinese are clinging to recent stock-market gains as proof that the latest stimulus plan will prompt a robust economic recovery.
I saw nothing but denial in my recent post-US-election tour of Asia, with stops in Hong Kong, Shenzhen, Beijing, and Singapore. Taking a cue from surging global equity markets, Asians are making every effort to wish away problems at home and abroad.
Nowhere is this more evident than in China. President Xi Jinping has long stressed his preference for the “good stories of China.” Amid the most serious Chinese economic slowdown since the 1970s, government attempts to put a positive spin on the country’s outlook have intensified. An improvement in equity-market sentiment — by Oct 8, the CSI 300 was 35% above its low on Sept 13 — was the first talking point in all my discussions. Never mind that this rebound, which has since partly reversed, is purely the product of state intervention.
