As I mentioned last week, the People’s Bank of China (PBOC) would likely find a way to stop the rapid-fire crashing of Chinese equities on the Shanghai SSE Composite. I might have anticipated media suppression. I might even have expected efforts such as the forced acquisition of shares by brokerages. Yet the banning of short-selling – alongside the banning of regular selling for six months by those who own more than a 5% stake – may provide plunge protection in ways that have never been tried in more developed countries. If Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR) stays above and holds above its 200-day moving average, one might as well dismiss China’s debt-fueled excesses for the time being. We would be witnessing one more instance where trusting the central banks/21st century governments provided opportunity for profit.
To be clear, I am not recommending these ETFs for portfolios. I would never choose PGAL over a broader European holding like Vanguard Europe Pacific (VEA) or iShares MSCI EAFE (HEFA). And ASHR is a speculative play on successful government manipulation alone. I bring the aforementioned ETFs up in discussion as a means for monitoring the collective confidence of market participants; that is, central banks may inflate stock prices, decrease borrowing costs and/or depreciate currencies, but someday, market participants may lose the faith.