Shanghai Traders Wait for Real News

07/13/2010 5:19 pm EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

Live by the rumor; die by the rumor.

Maybe they ought to engrave that above the entrance to the Shanghai stock exchange.

Yesterday, July 12, the Shanghai Composite index climbed 0.8% to the highest level since June 28 after newspaper reports, essentially unsourced rumors, said that banks had resumed making mortgages on third homes in China’s biggest cities. A prohibition on third-home mortgages had been a conspicuous part of Beijing’s efforts to slow real estate speculation.

On Tuesday, the Shanghai Composite index fell by 1.6%—that’s the biggest drop since June 29—when named government officials said, on the record, that bank regulators had made no changes to the rules on mortgages and called on banks to strictly enforce current rules that ban third-home mortgages and restrict second-home loans.

That same announcement took the Shanghai real estate index down 3.2% for the day. Shares of China Vanke, the country’s largest real estate developer, fell 2.4%. The slump extended to the shares of commodity producers that supply the construction market. Jiangxi Copper, China’s largest copper producer, fell 3.1%.

This kind of volatility isn’t especially unusual on the Shanghai market, which often resembles a betting parlor more than a stock market as traders furiously move shares in an effort to profit from any sign of a change in government policies.

But the market is especially volatile right now because real, official, market-moving data is set for release on Thursday (Wednesday night in New York and after that market has long been closed.) That day, the government will report second quarter GDP growth for China’s economy.

With every trader in Shanghai and well beyond wanting to know if China grew too fast (more government restrictions on credit on the way); too slowly (more government spending on infrastructure on the way); or just right (no change in current policy), you can bet that news will move markets. (For more on what that data might mean, see this post.)

Full disclosure: I don’t own shares of any company mentioned in this post. 

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