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Stock market rallies on Wall Street and elsewhere are looking like bubbles and bound to eventually correct, warned China’s top banking regulator on Tuesday.
“Financial markets are trading at high levels in Europe, the U.S. and other developed countries, which runs counter to the real economy,” Guo Shuqing, head of the China Banking and Insurance Regulatory Commission (CBIRC), said in comments at a news conference, according to Reuters, Bloomberg and other media outlets.
Guo said those asset gains have been a direct result of measures from central banks and governments over the last year to ease the economic strain of the COVID-19 pandemic. He warned that corrections may come “sooner or later.”
Amid concerns foreign capital could flow too quickly into China and create instability, Guo said his agency was looking at ways to control those inflows. That’s as he also warned about “dangerous” property speculation in China.
His comments were credited with knocking the wind out of Asian markets on Tuesday. That follows the best day in nine months for the S&P 500 SPX, -0.81%, as investors cheered upbeat economic data. Hong Kong’s Hang Seng HSI, -1.21% slipped 1% and China’s CSI 300 index 000300, -1.28% fell 1.2%. U.S. stock futures ES00, -0.62% NQ00, -1.57% were also pointing lower.
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Market reaction indicates “how sensitive markets are to policy accommodation being taken away. It also highlights that central banks will run at different speeds in pulling away from last year’s crisis,” Stephen Innes, chief global markets strategist at Axi, told clients in a note.
But Jeffrey Halley, senior market analyst at OANDA, noted that Guo’s comments came on a “slow news day,” and made a bigger splash than they normally would have. “Mr Guo’s statements have more than a hint of politics in them,” he added.
“Before the bond yield tantrum last week, no one was talking about bubbles at all. One week of two-way price action in markets and everyone is panicking about bubbles, such is the low attention-span schizophrenic nature of financial markets these days,” the analyst said in emailed comments.
Picking the “top of the stock market is luck, not science and the conditions that powered the underlying rally remain as strong as ever, despite the markets chasing their tails in short-term noise. We could well be heading towards a correction lower in stock markets, but that is all it will be, a correction,” he added.
