What's up at the Shanghai stock exchange

Shanghai stock market today

After a huge drop of more than 20 percent, the Shanghai stock market started its journey to the 5,000 index bench mark in upward direction again. Bloomberg:

The Shanghai Composite Index fell 19 percent so far in November, the most since February 1995, when Bloomberg started keeping records of the benchmark.

Earlier this year many people made fun about my in general positive outlook on the direction of the Shanghai index. Obvious, I have not learned anything, since I remain optimistic - together with the influential Caijing magazine - about the direction the stock market will take next year.

There have been no structural changes in the way the economy is operating. A scary moment was when the financial authorities decided to freeze all loans in a last and desperate effort to let the economic growth not get fully out of hand after all other measures had failed. If applied in a successful and rigid way, that could have sent shock waves through the economy.
But even the way the financial authorities offered "guidance" to the banks, already showed we were not heading for an emergency stop former prime minister Zhu Rongji applied in the 1990s, also not without a lot of political pressure.
While inflation has become an issue, it can in no way be compared with the roaring inflation of the 1990s. The plan economy has been dismantled to a much larger degree than compared to the 1990s.
In short: buying now stock from the better companies or mutual funds might be a good idea.
On the stock market, just like in everyday politics in China, the push and pull between a larger number of forces defines the direction of the country and the economy; the central authorities - if they are on one line - are only one of those forces.
Just as in politics, outside observers expect this to be a top-down command economy, while the reality is much more complicated. It is not unlike what is going to happen with the upcoming labor contract law: those rules are seen at best as some kind of guidance, while much of the interpretation and even enforcement is done - or not done - on a local level. What can be interesting is the involvement of new power brokers or parties. For example, it is still very unclear how the courts - typically rather hapless in civil cases - are going the react in the new situation.
Oops, apologies. I started with the stocks and ended up with the labor law again. Anyway: many of those pattern have similarities.

Update: The market ended today well over the 5,000 bench mark again, gaining over four percent.