China Calling Again
Similar to the blog posting below, I think there will be a lot more rapid pronouncements to tighten liquidity and regulations to prevent a complete bust-up. It is almost inevitable that there will be some form of substantial correction in stock and property markets in the future. All the government can do is to mitigate the impact and trickle down effects. I think it is excellent foresight on their part to start the tightening process even now.
China's Securities Regulatory Commission has now barred listed companies from using share sale proceeds to invest in stocks. Companies are also barred from buying derivatives and convertible bonds with the share sale proceeds. The move will force companies to reinvest wisely to build up business or return them to shareholders as dividends. Companies who are actively investing in stocks may be too dependent on gains from share trading. The contagion effect from a market crash could seriously weaken these companies' balance sheet.
To show how serious they are, China's cabinet has already approved a task force last month to clamp down on illegal share sales and other banned activities. While many retail players and even some institutional investors may not like what the authorities are doing, it is for the betterment of the market and to lessen the effects of boom-bust cycles. It is exactly this feeling of complacency among most investors which requires the government to execute "crisis-management" even now. Let's hope they are not too late.