How to Manipulate Stocks: Chinese Authorities Step in to Stop the Rout

For proper effect, the directives were purposefully leaked to the media.

The Shanghai Composite Index plunged 10.2% last week, the largest 

weekly drop in two years, and was down 11.4% since January 26. But

it wasn't just last week that things became unglued. The Shenzhen 

Composite Index had plunged 14% since January 24, only about half 

of it last week.

The Spring Festival holiday is coming up this week, and there were 

fears that traders want to unload additional positions ahead of it. There

are other factors lined up against the stock market, including China's 

off-and-on-again crackdown on leverage. So it was time for authorities

to step in and set things right.

Over the weekend the China Securities Regulatory Commission (CSRC)

and other regulators have sent directives to:
Major stockholders, telling them to acquire more shares of companies

listed in mainland China in which they already own large stakes.
Mutual fund firms, telling them to curtail share sales to avoid becoming

net sellers.

Brokerages, telling them to provide to the CSRC trading summaries

from last week along with trading plans and previews for the current week.

For proper effect, so that all players in the market would know that the

Chinese authorities are going to stop the selloff and turn it around, and thus

to encourage more buying by other players, these directives were 

purposefully leaked to the media, including Bloomberg, which reported

it this morning. This served as confirmation what everyone had been

hoping for: That the authorities would not let the market fall prey to market forces.

The directives went out this weekend, but late last week there was already

some heavy lifting going on behind the scenes that wasn't properly leaked.

Bloomberg counted over 110 companies listed in Shanghai and Shenzhen

that had announced that their major shareholders had increased their stakes

in them starting on Friday.

Bloomberg also reported that the Shanghai Stock Exchange had announced

on Friday that it had issued warnings and limited intraday trading to prevent

large sales that might affect market stability.

After all this had gotten out by Monday morning, it was now time to keep

small investors from selling and to encourage them to buy more. The

Shanghai Securities News reported on Monday, according to Bloomberg,

that the China Securities Investment Services Center, which serves smaller

investors, said that major shareholders can boost investor confidence by

purchasing stocks.

Authorities are once again yanking on the levers to keep the market from

backsliding into some sort of price discovery. And it worked. The markets

in China were up on Monday, with the Shanghai Composite rising 0.8%

and the Shenzhen Composite surging 2.6%, which set the tone in Asia.

All major Asian markets showed gains, except in Japan where markets 

were closed due to the National Founding Day, one of the 16 market 

holidays of the year. So they missed out.

And it is calming the waters in the US. Well done. But then, why even

have markets? Why can't Chinese authorities just set the price of each

stock and make it go up at regular intervals, at a rate deemed to be

appropriate by authorities? It would offer true risk-free investing in stocks.

It could become a national wealth builder. The entire world would invest

in such a scheme. Think of the possibilities! And it would be a lot more

efficient than this haphazard guessing-and-manipulation game.

How can the media be so gullible?