Rorschach Test Says This Is a Schizophrenic Market: Opening Line

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Gaze into a China stock-market chart for long enough and it may reveal everything about you. Just don’t expect it to tell you anything useful about the market.

The Shanghai Composite Index did a passable impression of a Rorschach ink blot yesterday, with a couple of humps and a series of descending waves by the late-morning nadir, followed by an identical upward pattern thereafter. A late surge spoiled the symmetry, but you can’t have everything.

Subjects in a Rorschach test look at a series of ink blots and are asked to say what they look like. Their answers supposedly reveal personality characteristics and can be used to detect underlying thought disorders -- appropriate perhaps for people trying to make sense of China’s stock-market behavior.

It had looked like the party might really be over this time, at least for a while. The Shanghai Composite plunged 13 percent last week, the most since 2008, amid concern that valuations were unsustainable and as initial public offerings drained cash from the secondary market.

The loudest sign of caution perhaps came from the dog that didn’t bark: China’s state-owned media. China’s government engineered this bull market, with a series of articles in newspapers last year singing the virtues of investing in stocks.

After previous big down days during the bull run, state media have rallied to the cause and sought to bolster investor confidence. This time, not so much. The government-owned China Securities Journal ran a front-page commentary saying there was no need to “overly” panic, though it was far from the full-court press that followed earlier tumbles.

Investors have become “bipolar,” swinging between irrational exuberance and excessive pessimism, Huang Xiangyang wrote in the China Daily. That’s what you could call a prescient comment.

The Shanghai index slumped 4.8 percent by late morning. So far, so logical. Then it charged back, finishing with a 2.2 percent gain, for no immediately obvious reason. The intraday points rebound was the biggest since 2007.

So on we go for the ride for a bit longer. Options traders are believers in the rally. The ChiNext index is still trading at more than 111 times earnings. Thirty-day volatility on the Shanghai Composite, where the earnings multiple is a mere 23, is at its highest since 2009.

Last week’s correction may help the market consolidate into a gradual upward trend, the Securities Journal said, repeating the government’s mantra of a slow steady bull market. Good luck with that.

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It’s a light economic calendar in Asia today, with indicators including Taiwan industrial production, Japan small business confidence and Vietnam inflation.

The Bank of Japan releases the minutes of its May 21-22 meeting at 7:50 a.m. Hong Kong time.

China Gas, Goldin Properties and Far East Consortium are among companies scheduled to report results.

In Europe, economic releases include homes loans data from the British Bankers Association.

Zumtobel is among companies reporting earnings.

The main focus in the U.S. tonight will be on the revised first-quarter GDP numbers.

Monsanto, Bed Bath & Beyond and Lennar are among companies scheduled to announce results.

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- China’s richest man builds bridges to FIFA just as Blatter falls. - Plaza Hotel sale by Indian magnate faces legal challenge from Hong Kong firm. - Momo becomes the 24th U.S.-traded China buyout target. - Chinese gaming firm’s CEO sued by SEC over Qihoo trades. - China, U.S. stress cooperation as annual talks begin. - Alibaba and China’s banks face off in online rivalry. - Philippine bet on Chinese gamblers sours. - Japan’s pension “whale” leaves gap in bond market. - China developers get AAA bond ratings at home and junk offshore. - SingTel chairman defends executive pay. - Toyota supplier sees 15-year wait for self-driving car. - GAM says India is its top Asian investment. - Fitbit plans to enter India next month. - Focus Media’s China listing plan suffers another setback. - Four-decade-old frozen meat smuggled through Hong Kong. - Japan activist pressure is coming from within, hedge fund manager says. - Asia set to become biggest contributor to world GDP. - U.S., Germany and Japan may be next to feel the chill from China’s slower growth. - Russia becomes China’s top oil supplier. - China’s clean energy wildcatters get $9 billion richer. - Asia stalls oil industry’s push to replace coal with gas. - Japan beats China in race for Bangladesh deep-sea port. - Pakistan heatwave kills almost 700 people. - Photos show extent of North Korean drought. - Google Maps recognizes dysfunctional India-Pakistan relations. - Singapore teen Amos Yee remanded to mental health institute. - Police search Toyota offices after executive’s arrest. - North Korea sentences two South Koreans to life in prison on spying charges. - Bali leads Indonesia push to double tourist numbers. - U.K. universities face scrutiny over China ties. - What to do when you accidentally catch a giant shark. - Australia to legalize crocodile hunting.

***

The S&P 500 had a relatively dull day of regular trading, climbing less than 0.1 percent as investors looked for a catalyst a day after M&A fervor in the health insurance industry spurred gains. The benchmark gauge has climbed five of the last six trading periods, leaving it just 0.3 percent from a record.

The big news came just after the close when Netflix announced a 7-for-1 stock split, following a doubling of its share price this year. The company, which has led the entire S&P 500 in 2015 with a 99 percent gain, closed Tuesday at $681.19.

The stock was up 2.4 percent in after-market trading, and it remains to be seen whether the cheaper stock price will attract more retail investors.

During regular hours, AT&T gained 2.5 percent after getting two analyst upgrades, while Green Dot jumped 40 percent after authorizing a stock buyback plan and reaching a new five-year deal with Wal-Mart.

The Dow Jones Industrial Average and Nasdaq Composite Index both increased 0.1 percent.

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So you’ve built a replica Manhattan complete with skyscrapers, roads and riverside park. And it’s empty. What are you going to do? Build more, of course. This is China.

Anywhere else in the world, Tianjin’s new business district would be written off as a white elephant, with developers going bust and creditors scrambling for a few cents on the dollar, as Bloomberg reports today.

China doesn’t do things that way. The northern port city is betting the area’s status as a free-trade zone and an upcoming high-speed rail link to Beijing will help draw companies and workers to the district’s office towers.

Country Garden, one of the nation’s biggest developers, is pressing ahead with a 1,200-room hotel, while the government-backed group that’s building the area’s roads, bridges and other infrastructure is planning its first U.S. dollar-bond sale.

While the size of the planned city -- 10 times the present floor space of London’s Canary Wharf -- may make real estate brokers blanch, there are precedents. This Opening Line arrived in Pudong, the newly developed area on Shanghai’s east bank, in 2004 when vacancy rates were high and construction had all but ground to a halt after the late 1990s financial turmoil.

A year or two later, buildings started to fill up and the cranes reappeared. Now, occupancy rates in the central Lujiazui financial district are 97 percent and rents are among the world’s priciest.

It takes a brave man to bet against the government in China.

***

So England’s pre-Ashes warm-up ended on a high. After edging the one-day series in a rain-affected decider, the hosts said goodbye to New Zealand with a 56-run win in a one-off Twenty20 game. These guests can come again.

The rising sense of English optimism is palpable after the fiasco of the team’s first-round exit from the world cup earlier this year. England’s “young guns” in their flame red shirts “lit up Old Trafford,” the Telegraph wrote. “England’s high-throttle new era rolled on,” the Guardian chipped in.

Enjoy it while it lasts, boys. The sterner test, against Australia, begins on July 8.

(An earlier version of this column was corrected to remove an erroneous description of a percentage change in the first item.)

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