The biggest rally since March 2009. The Shanghai Comp closed higher by just under 6% for the day. The Shenzhen index was higher by an even more impressive 6.4%. Rally hats all around the People's Republic of China. Government bureaucrats are sitting in their plush offices celebrating with round after round of Glenfiddich JSR Reserve 1955, applauding the "historic" day in their stock markets.
What a total sham. Half the stocks listed on the exchange (Shanghai Comp) are not trading, as they have been suspended indefinitely from trading. Many of the remaining 1400 or so that were allowed to trade closed up their daily 10% limit.
Today's rally was manufactured by additional measures taken by the Chinese government, which included the mandated buying of not only blue chips but also the other 1400 stocks that were allowed to trade, and if that were not enough to prop the market even further, the buying of mutual fund shares was also directed.
Additionally, the Chinese state margin lender banned shareholders with large stakes in publically listed companies from selling even one share for the next SIX months. Wow! Have you even heard anything remotely of the sort? The government mandating when to sell or not to sell shares one owns.
Finally, the government stated that short selling and short sellers would be investigated by the police, so as to prevent profiteers from "manipulating" the markets in China. Now, if that's not a clear case of the pot calling the kettle black, I don't know what is. The government is the most blatant manipulator ever seen in the history of financial markets, and they, with a straight face, are saying that short sellers are the manipulators. What a total and complete farce.
Now here comes the key decision for you and me. Would we ever want to invest directly in a market like the Chinese government has manufactured? That's not a free market, but instead one under total and obvious control of the communist government.
Yes, I know I have been guilty of giving them credit and calling them a "quasi-communist government" or a "managed economy regime." I was wrong in thinking that the Chinese were and are seriously trying to change their ways and step into the "free" world.
All in all, this sorry mess has exposed China in all its starkness for the world to see: a communist country, no matter how much they declare their love for free markets and how many rooftops they climb to shout that they are different from traditional communists.
As far as the answer to the question on investing in China, I will stick to the Chinese ADRs that trade on our exchanges (almost every single one of them do not trade in China), and run as far away as I can from investing directly in Chinese-listed companies.