2010-12-02

Setting up the scapegoat

People's Daily Says Investment Bank Responsible for Plunge

Reading the headline, at first I thought a Chinese bank may have been involved, but the People's Daily isn't talking about a domestic bank.
China's official mouthpiece, the People's Daily, said December 1 that an international investment bank manipulated stock markets for its own gain and a group email that it sent to investors triggered off a plunge in share prices on November 12.

In a commentary contributed by Shi Jianxun, a professor at Tongji University, an unnamed international investment bank allegedly sent emails to investors, advising them to sell their shares. The article, titled "Where is China's stock market heading in the next two decades?" said that rumors of impending stamp taxes also sent the market into a tailspin.

On November 12, the Shanghai Composite Index fell 5.16 percent, the largest single-day drop in 2010 so far. China Securities Regulatory Commission has started a probe into the alleged manipulation and has not released their findings.
After seeing "international investment bank" I knew it could only be one firm: Goldman Sachs. Since foreigners cannot buy A-shares, Goldman's reach should be limited, but even the English press covered the story.

Did Goldman Sachs Hammer The Chinese Market?

Goldman Sachs is the target of a popular book in China, one that's prominently featured in all the bookstores:


Chinese bestseller slams Goldman Sachs for crisis

I previously discussed the attacks on Goldman Sachs in Goldman Sachs PR Nightmare and Goldman Sachs PR Nightmare: The Reckoning, but neither discussed China.

Here's a chart of the Shanghai Composite Index. The crash on Friday, November 12 is followed by a small rebound on Monday and then another big drop on Tuesday, November 16, but after that the index has traded sideways. If one wanted to blame Goldman for the drop or believes in a Goldman conspiracy, the chart looks like circumstantial evidence.

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