Cervantes

Hoy es el día más hermoso de nuestra vida, querido Sancho; los obstáculos más grandes, nuestras propias indecisiones; nuestro enemigo más fuerte, el miedo al poderoso y a nosotros mismos; la cosa más fácil, equivocarnos; la más destructiva, la mentira y el egoísmo; la peor derrota, el desaliento; los defectos más peligrosos, la soberbia y el rencor; las sensaciones más gratas, la buena conciencia, el esfuerzo para ser mejores sin ser perfectos, y sobretodo, la disposición para hacer el bien y combatir la injusticia dondequiera que esté.

MIGUEL DE CERVANTES
Don Quijote de la Mancha.

27 de agosto de 2015

China Intervened Today to Shore Up Stocks Ahead of Military Parade

China’s government resumed its intervention in the stock market on Thursday and has been cutting holdings of U.S. Treasuries this month to support the yuan, according to people familiar with the matter.
Authorities want to stabilize equities before a Sept. 3 military parade celebrating the 70th anniversary of the World War II victory over Japan, said two of the people, who asked not to be identified because the move wasn’t publicly announced. Treasury sales allow policy makers to raise dollars needed to bolster the yuan after a shock devaluation two weeks ago, according to different people familiar with the matter.
China revived its equity purchases after the government’s absence from the market earlier this week contributed to the biggest two-day selloff since 1996. Under a new exchange-rate regime announced Aug. 11, the central bank relies on intervention to manage the yuan instead of its daily fixing. China’s surprise policy shifts have jolted markets worldwide as investors struggle to gauge their impact on the world’s second-largest economy.
“The Chinese are not being very consistent in their communication to the markets,” said Andrew Sullivan, head of sales trading at Haitong International Securities Group Ltd. in Hong Kong. Investors are “frustrated by the flip flop.”

IMF Endorsement

China’s November 2013 pledge to let markets play a decisive role in the economy is being put to the test after a record-long boom in the Shanghai Composite Index turned into a bust.
The country’s interventionist response to the equity tumble last month spurred foreign investors to withdraw funds at a record pace and prompted the International Monetary Fund to urge Chinese officials to eventually unwind the measures. China is seeking an IMF endorsement of the yuan as a reserve currency, a goal that some analysts have said is being used by reformist policy makers to reduce the state’s role in markets.
The Shanghai Composite swung from a loss of 0.7 percent to a 5.3 percent gain in the last hour of trading on Thursday, ending a rout that erased more than $5 trillion of value since mid-June. The government bought large-company stocks, according to one of the people.
China had halted its stock-market intervention in the first two days of this week as policy makers debated the merits of an unprecedented rescue package, according to people familiar with the situation. The China Securities Regulatory Commission didn’t immediately respond to a faxed request for comment.

Chaotic Market

“The stock market is getting chaotic and difficult to invest in amid speculation about whether the government is intervening,” said Wu Kan, a Shanghai-based fund manager at JK Life Insurance. A gauge of 50-day volatility on the Shanghai Composite surged to its highest level since 1997 this week.
The intervention to prop up shares is part of a broader effort to ensure nothing detracts from the parade, an event the government will use to demonstrate its rising military and political might. The ruling Communist Party has also closed thousands of factories to curb pollution and ordered some vehicles off the road.
The parade has been planned for months and will provide President Xi Jinping his first opportunity to publicly present himself to the world as China’s commander in chief. Such events, usually held on major anniversaries of the country’s founding, serve as a key ritual in establishing the Communist Party chief’s supreme authority over the country.

State Media

What happens in China’s stock market has had a growing influence on public perceptions of the leadership’s economic management since millions of Chinese traders opened stock accounts over the past year. Encouraged by a series of articles in state-run media that endorsed equity investment, more than 90 million individual investors now have stock accounts, a constituency that’s bigger than the Communist Party.
The Shanghai Composite has tumbled 40 percent from its mid-June peak as margin traders closed out bullish bets and concern deepened that valuations are unjustified by the weak economic outlook. China’s financial markets will be shut on Sept. 3 and 4 for national holidays marking the end of the war.
China’s channels for cutting Treasury holdings include direct sales, as well as through agents in Belgium and Switzerland, said one of the people, who asked not to be identified as the information isn’t public. China has communicated with U.S. authorities about the sales, said another person. They didn’t reveal the size of the disposals.

Reserve Assets

Sales of dollar assets have contributed to a $315 billion drop in China’s foreign-exchange reserves over the last 12 months. The $3.65 trillion stockpile will fall by some $40 billion a month in the remainder of 2015 because of the intervention, according to the median estimate in a Bloomberg survey.
The latest available Treasury data and estimates by strategists suggest that China controls $1.48 trillion of U.S. government debt, according to data compiled by Bloomberg. That includes about $200 billion held through Belgium, which Nomura Holdings Inc. says is home to Chinese custodial accounts.
The PBOC has sold at least $106 billion of reserve assets in the last two weeks, including Treasuries, according to an estimate from Societe Generale SA.
The yuan rose 0.08 percent to 6.4053 per dollar on Thursday in Shanghai, trimming this month’s decline to 3.1 percent. Daily fluctuations have averaged less than 0.1 percent in the past two weeks as the PBOC intervened to bring stability following the Aug. 11 devaluation.
Two-year Treasuries erased an earlier advance, with their yield little changed at 0.68 percent as of 7:10 a.m. in New York. It fell as much as two basis points. The 10-year yield declined one basis points to 2.16 percent, near its average for the past month.
China selling Treasuries is “not a surprise, but possibly something which people haven’t fully priced in,” said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP. “It would change the outlook on Treasuries quite a bit if you started to price in a fairly large liquidation of their reserves over the next six months or so as they manage the yuan to whatever level they have in mind.”

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