The recent fall of the US dollar meant that the cash-rich Chinese government hoard of currency has taken a bit of a pounding. The recent increase in value would have been somewhat pleasing for those holding US dollars, but I’m pretty doubtful that will continue. Indeed, China might find itself in the position that it’s key markets may have imploded if the USA and Europe are headed for deep and entrenched economies. 

The recent bounce in share prices over the past couple of days does not signal increased confidence in the markets in my opinion. I think it is more a function of the ban on short-selling. This is the practice of borrowing shares to sell them, in the hope of buying them at a cheaper price later. As the positions were unwound, this would lead to an increase in price. Two things happened at once in the last couple of days – injection of liquidity into the markets by the central banks and the temporary ban of short-selling. I think they are confounded and that most people are attributing the stock market bounce to the increased liquidity in the system. My hunch is that this is a false attribution. 

A lot of analysts reckon this isn’t over by a long shot. I’d have to agree.

Peston goes on to speculate that the Chinese state , if it marshaled all the resources available to it through sovereign funds, and cash-rich institutions , could end up snapping up some of the major names in investment and retail banking, and with it a stake in the heartlands of both the UK and the USA – perhaps even wider afield.

My sense is that is not an unrealistic possibility. It may be hidden from our direct gaze, but I could see this happening. And quickly too. Sobering times.