Has the Chinese Stock Market Crash Been Reversed?

Following up on yesterday's comments on China's stock market collapse after a year of ridiculously outsized gains, we note that the central bank's response, while seemingly ignored at first, may be riding to the rescue:

“Panic selling may have come to an end after the recent correction,” Chen Jiahe, a strategist at Cinda Securities Co. in Shanghai, said by phone. “Investor confidence is restoring gradually after the central bank’s rate and RRR cuts as well as China’s plan to allow pension funds to invest in stocks.”

The People’s Bank of China on Saturday announced a cut in the one-year lending rate to a record low of 4.85 percent and lowered reserve-requirment ratios for some lenders including city commercial and rural commercial banks by 50 basis points.

We await the action of the next few days. After all, a bounce after a severe drop is simply natural market action, so really the assessment by this "strategist" bears no special weight or merit. It will take a few days to really be able to make any kind of reasonable judgement.

Why should we care? In a world where markets are interconnected, what happens there may spill over here. More specifically, in a world where trillions of dollars of derivatives are based on price actions in various world markets, what happens just about anywhere can trigger counter-party defaults, potentially on a massive and dangerous scale. You should be aware of this.