BackExit bull, chased by Chinese bear
The market has always had a touching faith in the abilities of the Chinese Communist Party. Maybe it's losing that
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The Winter’s Tale contains Shakespeare’s most famous stage direction: Exit, pursued by a bear. Is that what is about to happen to the bull market, after last week’s blood-letting? And is this particular bear Chinese?
The biggest recent shock to the markets has been the Chinese currency devaluation. It was rather small, as devaluations go, and the yuan is down a mere 2.8% from its pre-devaluation levels. After the initial wobble, the yuan has held steady. The Chinese authorities are spinning it as a one-off event and say they have no intention of letting the currency slide. Nevertheless, it was a nasty surprise to the markets and added to the fears that something is rotten in the state of China.
The market has always had a touching faith in the abilities of the Chinese Communist Party. Not without reason—it did turn the country into an industrial powerhouse within a couple of decades. Its rise has been a great boon to a raft of commodity exporters. The strength of the Chinese market has been a life-saver for many businesses. And the party’s ability to deliver results has led to the belief that it will be able to manage China’s difficult transition from an export-driven and investment-led economy to one more reliant on household consumption without a hard landing.
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