Stockbrokers must be rubbing their hands with glee. World equity markets may have suffered a wobble in recent weeks but a new breed of investor has emerged, blinking into the limelight: national governments.
The Hong Kong Monetary Authority has stepped in to support the local stock market and there is talk that the Malaysian government will follow suit. Hard-pressed equity salesmen now have a new option when times are hard: a quick phone call to the nearest bureaucrat.
In the foreign exchange markets, government interventions are 10-a-yen. Their mixed record has led to a couple of golden rules: better for several central banks to intervene than just one, and better to intervene with the market than against it.
In western countries, direct intervention in stock markets is less common (although some harbour suspicions that the US Federal Reserve organised a support operation in October last year). The private sector has usually taken the initiative.
Tinkering with the market is tempting. Equity markets tend to be much less liquid than foreign exchange markets and, thus, intervention gets more bang for the buck; the Hong Kong stock market, for example, rallied 9 per cent on August 14th and another 6 per cent last Wednesday.
But this short-term effect is regarded with some suspicion by the free-market school, which raises a series of objections.
Bureaucrats and politicians are unlikely to be better judges of share-price levels than the markets themselves. When governments own stocks in private companies, they create potential conflicts of interest for regulators. Markets cease to be transparent when the government is taking part.
The long-running programme of support organised by the Japanese government - the socalled Price Keeping Operation - raises other issues. The Japanese used the Post Office life insurance funds, the postal savings system and state pension funds to support the market.
One obvious objection to the scheme was that it might have been preferable in the long run to let some weak banks fail and get the whole mess sorted out several years ago. Another is that the potential beneficiaries of the Japanese funds - policyholders, pensioners and the like - were adversely affected because managers had motives other than maximising returns.
What are the justifications for such schemes? One could be that share prices have ceased to reflect fundamentals, either because of some market failure or because prices are being manipulated (the standard "wicked speculator" defence).
This defence is easier to use in foreign exchange markets since an overvalued or undervalued currency can have significant, and immediate, economic consequences. The economy's links to the stock market are rather less direct; this rationale would also suggest that the authorities should step in when markets are overpriced. Nice in theory, but a surefire vote loser.
A second justification is that the markets are in such turmoil that authorities are stepping in to correct a "disorderly market", rather akin to the US Federal Reserve's willingness to provide liquidity to the system at the time of the stock market crash of 1987.
Arguably, investors can afford to be relaxed about intervention schemes. Markets will become less efficient, since one significant player (the financial authorities) will not have a profit-maximising motive. That should create profitable opportunities for private sector investors; after all, it seems unlikely that authorities will pore over research notes and annual accounts to pick out the most attractive stocks. And sometimes, just like central banks, when they sling good money after bad to support an exchange rate they will be the "sucker buyer".
And even when the authorities prove astute, and buy shares when the market is undervalued, that is good news as well. It puts a floor under the market, giving investors a free put option at taxpayers' expense. Wonderful things, governments.
