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ShareThere was a time, not long ago, when making money on the Indian stock market was a piece of cake. Market manipulators would spread the whispered word that a 'Big Bull' was buying into specific companies, arrange for the sotto voce whisper to be amplified by strategically placed market megaphones, and sit back and wait for the stampeding army of witless, coattail-riding 'investors' to "buy, buy, buy" and drive stock prices sky-high.
The identity of the market-moving 'Man with the Midas touch' varied over time, from Harshad Mehta in the early 1990s to Ketan Parekh at the turn of the millennium. Given the herd mentality that characterises most 'investors', no rationale -- other than rumours that Mr Moneybags of the Moment was buying -- was required. Yet, there was no shortage of specious stock market theories.
During Mehta's time, sky-high stock valuations were justified by the so-called 'replacement cost' theory: a company's stock must be valued not on the basis of its earnings but by estimating how much it would cost to set up a similar company at prevailing prices. Similarly, KP's stocks rode the dot-com bubble when, it was argued, productivity gains from the tech boom had made a monkey of traditional valuation parameters.
Much the same phenomenon is unfolding on a global scale today -- from stocks to commodities to currencies. However, to move markets across such a vast spectrum, manipulators needed to conjure up a mythical moneybag of monstrous proportions. Just such an entity exists in the shape of China.
Today, just three words are sufficient for operators to drive up any market: "China is buying." A fourth word - "secretly" - gets them more buck for their bang. From foreign companies to oil to gold to currencies to property, these Chinese whispers have tremendous market-moving potential, on the strength of fanciful arguments that validate the 'Greater Fool Theory'.
Illustrative of this is what's happening to luxury property prices in Hong Kong ostensibly because new-rich mainland Chinese are rumoured to be snapping up real estate everywhere. Last fortnight, a developer sold a '68th floor' apartment in -- I kid you not -- a 46-storey complex for a world-record per-sq-ft price. So extreme was this deception that industry peers, who are not easily outraged, have broken ranks to criticise such methods.
Similarly, bullion traders invoke the China bogeyman to prop up gold prices and drive down the dollar by claiming that the Chinese government, looking to diversify away from the dollar, has secretly directed Chinese people to buy gold and silver. So secret was the directive that few Chinese people have heard of it. And the data for US Treasury auctions shows China accumulating even more dollar assets.
Likewise, market manipulators tried desperately to prop up the Shanghai stock market, in the months leading up to the October 1 anniversary of modern China's founding, by claiming that the government would not allow the market to fall ahead of such an important anniversary.But despite the diversion of mind-numbingly high bank loans to the stock market, the Shanghai stock index went into the anniversary holiday at its lowest point in months.
The latest bugbear relates to reports of a 'flood' of Chinese outward-bound investments to "buy up the world", particularly commodities companies. There have, of course, been some investment outflows and strategic resource acquisitions by China in the first half of this year, but they are more a trickle than a flood.
For China, hyperbole over its market-moving capability is a double-edged sword. On the plus side, it makes China seem more powerful than it is, which is useful. But it also pre-emptively pushes up prices of the very things that China is in the market for. It'll be a while, though, before brinjal and onion prices in your mandi go up because "Pssst...China is buying."
