China's equity market is at an inflection point. If Monday's intervention from Central Huijin to buy shares in the country's four biggest banks proves to mark a bottom for stocks, then the market would be confirmed as a giant bet on the timing and trajectory of government meddling. If, on the other hand, prices keep meandering sideways and downwards from here, it is a sign that the market is maturing.
No amount of coercion from the government can overcome fears over U.S./EU recession, domestic inflation, a property crunch and rising bad loans.
For now, the latter outcome seems more likely. Huijin's open-market purchases of 60 million yuan of Shanghai-listed shares in ICBC, for example, initially sent the 1,368 billion yuan stock up more than 4 per cent on Tuesday, leading the broader market. But by close, the bank's gain had more than halved, while the market was flat.
Investors seemed to be saying: the domestic arm of China Investment Corp, the sovereign wealth fund, can look to enhance the value of its assets all it wants. But the days when the arms of the state can seek to direct the fundamental course of equity prices, by tweaking stamp duty or by freezing new issuance, are over.
The market, after all, has done some growing up. Select institutions now have access to index futures, margin trading and short selling. The expiry of lock-ups means that the tradable market capitalization of A-shares was 82 per cent of the total in August, up from 30 per cent just three years before.
Shanghai's price/book multiple, more than quadruple that of the S&P 500 less than four years ago, is now virtually identical. A successful intervention from Huijin would represent a step backwards to a less enlightened age: one in which fundamentals might scream "buy", yet no one actually does so until the state tells them to.