China’s Stock Market Crisis: Stocks Stage Monster Rally as Government May Have Found the 'Secret Cure' to the Meltdown…

The troubled Shanghai index opened the day again under tremendous selling pressure.  The key index even stumbled to a low of 3,383 or a loss of 3.5% early session before staging an initial uneasy rally that ended the morning trade.

Following the Philippines index managers' afternoon delight pump, which involves manic panic buying after the lunch recess, the Shanghai index's rally picked up steam post lunch to close the day with a mammoth 5.76% rebound. 

Today’s gains, the biggest one day gain since 2009, according to Bloomberg, almost offset yesterday’s 5.9% crash.

The rally looked broad based as “about 600 stocks rose by the daily 10 percent limit on the benchmark index” notes the Bloomberg. All benchmarks posted substantial gains for the day.

Of course, there has practically been no day since the emergence of the crash where the government's hand have not been attempting to quash the panic.

And the likely secret to today’s success, as tweeted by SCMP’s George Chen 

The Bloomberg may haved picked this up: (bold mine)

Officials have unveiled market-boosting measures almost every night over the past two weeks to reverse the rout in the world’s second-largest stock market. Regulators late Wednesday banned major stockholders from selling stakes in listed companies, while announcing Thursday banks can roll over loans backed by shares. China’s public security bureau is also stepping in to investigate “malicious” shorting of stocks, the official Xinhua News Agency reported Thursday.

Yet despite the rally, the Bloomberg article adds that “another 1,439 companies were halted on mainland exchanges, locking sellers out of 50 percent of the market”

So China’s stock markets have become a buyers’ only market.

Hence the secret to containing bear markets, as unraveled by the Chinese government, has been to proscribe “selling” that have NOT conformed with the dictates of authorities. It is "price discovery" based on political ukase.

Bloomberg further notes that foreigners had been net sellers yesterday: Traders unloaded a record 112 billion yuan ($18 billion) of shares purchased with borrowed money on the Shanghai exchange Wednesday, the 13th straight day of declines. A five-fold surge in margin debt over the 12 months through June 12 had helped propel the Shanghai index to a more than 150 percent gain.

So the recent ruling to prohibit selling by shareowners, corporate executives and directors with holdings exceeding 5 percent transforms China’s stock markets into a roach motel—you can get in but cannot get out

Yet despite the recent crash, Chinese stocks remain very pricey. Again from Bloomberg: While the median price-to-earnings ratio in China has dropped to 53 from 108 at the height of the rally, valuations are more than twice as high as those on the Standard & Poor’s 500 Index.

Of course, the other way to look at is that this may have been an oversold dead cat bounce.

Yet pretty soon, China’s latest anti bear market paradigm may be embraced by political agents of other nations.

All of these measures constitute another form of capital control (financial repression). Yet capital controls have become a du jour global political tool: From Greece’s bank holidays (and ATM cash withdrawal limits) to China’s stock market sellers’ holiday.