China has lifted a four-month ban on initial public offerings, the latest sign of government confidence in the country’s stock markets.
Beijing could approve as many as 28 companies to go public before the end of the year, according to state media. IPOs had been halted amid a major stock market rout over the summer.
Stocks rallied the first half of the year to incredible highs, before losing trillions in a stunning crash over the summer. But now, they’ve bounced back, and the benchmark Shanghai Composite is up about 12% since January.
Just how long will the positive trend continue? Nomura analyst Michael Kurtz has called it “momentary relief…[that] will prove more of a short-term trade.”
That’s because the main source of investor fear in China — slower growth in the world’s second-largest economy — is a threat that isn’t going away any time soon. China is growing at its slowest pace since the financial crisis, and economists expect a lackluster 6.5% expansion next year, according to a CNNMoney survey.
The Chinese government played a role getting markets to where they are today — bullish propaganda in state media drove people to invest this year, creating a volatile stocks bubble.
After the bubble popped, Beijing arrested individuals accused of rumor mongering and insider trading.
The government is now engaged in a balancing act. It must work to stimulate the economy, while staying true to various reforms it has pledged — in particular, allowing market forces to play a more dominant role in the domestic economy.
