Another 解围

China springs another surprise for its domestic stock market.

via Quartz:

Beijing can invest nearly $100 billion of China’s state pension funds, about a third of the total available for investment, into the country’s volatile stock markets this year, state media reported, bringing a “wave of liquidity” to the moribund markets.

Previously, China’s pension funds, which account for 90% of the country’s social security funds, were only allowed to invest in safer assets like bank deposits and treasuries. The new regulations will also allow investment in bonds, asset-backed securities, index futures, bond futures, and the country’s major infrastructure projects. China’s state pension fund was nearly 4 trillion yuan at the end of last year, according to the ministry of human resources and social security. Half the money is available for investment, and the other half is paid out to retirees.

China has a tendency to make moves like these, which make following the market there and having strong convictions very difficult. Here’s what I said last August, after China’s surprise interest rate / reserve requirement cut:

The Latin phrase Deus Ex Machina, literally “God from the Machine”, comes to us from the dramatic stage of antiquity.

The playwrights of Ancient Greece and Rome would create elaborate conflicts for their characters to endure on stage and then get stuck toward the end when their protagonists had been thoroughly painted into a corner, with no way out of the play’s dilemma.

But then – Smoke! Lights! A rousing chorus!

All of a sudden, a trap door would open up or a platform on a rope would drop down from the eaves. A god, descending from the heavens or Mt Olympus, would appear in full regalia – flowing white robes, a garland of leaves atop his head. The deity would wave his staff or her wand and the problem would go away. The play’s beloved characters were saved by divine intervention yet again. The crowd would roar its approval.

Everyone loves a happy ending, even if it literally required a god from the machine to spring out of nowhere and save a hopeless plot impasse.

In China, they don’t use the term Deus Ex Machina, but they do have their own version. It’s 解围, pronounced Jiěwéi. Translated into English, it means “rescue from a siege” or “help out of an awkward predicament.”

The point is to be very careful about intermarket analysis and trying to tie the trends in Chinese stocks, bonds and currencies to any kind of economic or investing insight. It’s a very hands-on atmosphere and prone to surprises above and beyond what you see in other country markets.

Sources:

China’s state pension funds can now invest big in the country’s volatile stock markets (Quartz)

解围 (TRB)