Banking & Finance

Shanghai Composite Rockets 3.2% Higher

Douglas A. McIntyre

Despite awful economic news about its own gross domestic product (GDP) prospects, China’s Shanghai Composite rose 3.2% to 2,073. It is worth remembering that it is down 10% over the past six months. In concert with the rise, its sister exchange, the Hang Seng, was up 2.5%. The reasons for the increases are several.

One is that China and other large nations may cheer the decision by the Federal Reserve to continue to ease via bond buying. On the other hand, certain members of the Fed would like that easing to taper down. Ironically, that would be a sign of a strong economy — a cause for a rally all alone.

China likely will do a great deal to repair its own economy, and the balance sheet of its troubled banks — another reason for a market rally. The banking system in China is undercapitalized and unruly, to the extent that a shadow banking presence with uncontrolled interest rates makes the larger financial system unstable. The People’s Republic has indicated it has plans to solve these problems.

Whatever the reasons, or combination of them, the rally is real, and so is the hope that a sputtering Chinese economy may right itself