China’s financial markets remain in a very precarious state as the stock indices are moving up and down like yo-yo’s. Despite this, the index is still trading 50% higher than where it was just one year ago even though it has fallen through the important 200 day moving average after bouncing on this average for three consecutive times.

Source: stockcharts.com

There’s no immediate solution available and China’s prime minister has assured the country would not use quantitative easing  as a solution to support its weakening economy. That’s an interesting move given the fact it devaluated the currency by 2% in August, and one would think a round of quantitative easing would help the Chinese government to reduce the value of the Yuan even further to improve China’s export position.

The comment that China would not use quantitative easing to boost the economy is seen in the exceptional trading volatility of the offshore Yuan on Thursday. In a very short timeframe, the Yuan gained approximately 1% versus the US Dollar and this was a very surprising (and large) move. The Chinese Central Bank hasn’t confirmed this yet, but our suspicions are that the Central Bank has been dumping some more foreign currency on the market to boost the Yuan, strengthening the impact of the statement that it would not resort to quantitative easing.

Source: NY Times

Meanwhile, the country has announced major construction activities to start, and reports of $22 billion plus bridge and highway construction projects have been confirmed by the office of the economic planner of the country. Approximately $1.1 billion will be spent on developing one single bridge in the Hubei province. It sure looks like China is pretending everything is all right and the world should stop focusing on them as being the source of all problems.

And the country gets help from an unexpected party; the IMF. In a recent statement, IMF chief Lagarde said that ‘if there’s any growth among the emerging economies, it will come from India’. Wait, let’s take a step back and re-read the statement. China is still growing and will continue to do so, albeit at a slower rate, and the head of the IMF dismisses that and says all eyes should be on India?

Source: ndtvimg.com

This seems to be an attempt to divert attention from China and instead push another emerging economy into the spot light. While we don’t want to deny India’s growth prospects are excellent, the IMF seems to be overstepping its boundaries here.

Everybody is trying to make us believe that everything will be all right, but isn’t that usually the case when the situation is worse than expected?