There are four things everyone in the markets now knows about China: its economy has been seriously disappointing recently; it has had its first bond default; the shadow banks threaten financial havoc and this week there was a run on a provincial bank.
Stock markets 101 instantly came into play. Once everyone knows something, it is already in the price. The Hong Kong-listed shares of Chinese banks are up 8 per cent from last week’s low and domestic bank stocks are up more than 5 per cent.
China’s credit problems present a serious risk but investor reaction suggests that it is now priced in.
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