Chinese stocks drop by 9% US stocks down 400 points!

tphuang said:

man, it hurts, I lost like $300 today. I was so pissed off. I blame it all on the communist government.

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I did not lose anything. I have no stocks. Just some CD's... Why? I'm chicken. I look at the stock market as a gamble. And that's a risk I'm not willing to take.

By the way you guys are doing a good job discussing this subject. I thought it would be a great topic!

Its the CCP. Stocks grew 140 percent last year. Thats faster than real economic growth which is 10 percent annual. Such kinds of growth is not consistent with whats going on, on the ground. So the CCP called it irrational exuberance. As a result stocks fell 4 percent with that comment. But then it quickly picked up again breaking the 3000 mark for the first time. Speculators knowing how the CCP is quick to pick up on these things quickly turned towards profit taking before the CCP could take action. But this was larger than the 4 percent drop previously.

People will probably push it up again, but a lot of it is due to anticipating government reaction which is largely negative towards financial markets and more geared towards fixed asset growth. And even in fixed assets, the government takes a fancy to controlling property prices.

bd popeye said:

Excellent comment. No matter what anyone thinks>> It's those green American dollars that makes makes the world ecomomies go around.

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Still largely true, but getting less so all the time. This is an excellent example. There's no way that a sell off in China would have triggered a worldwide drop in the stock market 10 or even 5 years ago.

I think the dominance of the greenback won't last much longer either (with heavy disclaimers here - I'm talking about the next decade or so, and a lot can change in that time). The U.S. is no longer the world's biggest exporter, and there's a lot of downward pressure on its value.

I don't think the drop in the Chinese market can be entirely attributed to profit-taking, although that might have been the trigger. As I said, investors were nervous anyway. A little bit of profit-taking may have spooked people into pulling out.

... Ami.

"China stocks bounce 4%
Erases nearly half of the Tuesday's 8.8 percent decline as traders see no threat from sell-off".


The domestic economy continues to perform well. It grew 10.7 percent last year. Domestic consumption was at an all time high during the lunar new year, the external economy is pushing China towards world's largest exporter. The surplus for January broke a new record. All of this pushed the stock market to peak towards the 3000 mark.

The CCP is very cautious about this however. They are aware that financial growth isnt in line with economic growth. The economy grows 10 percent annual but investors keep pushing stocks up as if the economy was growing 140 percent a year. I suspect its ok, because a lot of these companies are being listed for the first time so its typical that their financial value would jump several fold due to being rather new. Financial markets were flat for 2004 and 2005, so its possible the market was simply making up for lost time.

"China has set up a special task force to halt illegal stock offerings and banned margin trading -- healthy reforms, but the government has a long history of micro-managing -- or, some would say, meddling -- in the markets and economy. The concern is that the National People’s Congress, China’s legislative body, will overstep needed efforts to address fears of a stock market bubble and cool the economy".



So the government attacked the financial markets yet again. Chinese and global investors responded negatively to this act. Its just another form of big government interfering with the economy. To the CCP 2006 was irrational exuberance, for investors, it was considered a good year.

Good news! the Chinese stocks have recovered nicely today. Recovering almost half of what was lost yesterday!. Amazing... Now lets see how the US stock market reacts...

Up to now (16:24 UK), Dow Jones is at 12319.4 (up 103.08). Not bad for both side of pacific today.But FTSE 100 is 6207.8 (still down 78.30). It's not hard to see where the economy powers are.

The euro stoxx (top50 € stocks) lost continiously yesterday and especially today with market opening, as did the DAX. With the WallStreet opening they recovered and are now slightly below opening values.

The cause of the problem in China yesterday was a leaked report that the govermement is planning to implement a Capital Gains Tax in order to cool over investment in more speculative stocks. A tax of about 10% sounds about right and; funnily enough, seems to mirror the size of Tuesdays Fall.

The news from China seemed to upsettle US Investors (presumably relying on their Chinese assets to pad out the profits this year) on Wall Street, and then went into a tailspin when Alan Greenspan warned of a shortage of Motzas and Gefeltafish (or was it a possibilty of recession).

Anyhow Chinese Stocks recovered about 4% today so no lasting damage appears to have been done.

Interestingly though the HSI fell less than 2% on Tuesday, which is highly significant as it is where most of China's big IPO's have been floated in the last 12 months.

The upshot however all seems to show that now if China sneezes, the world may not yet be catching a cold, but it is certainly getting out the thermometers and stocking up on hankersheves and paracetamol.

and then went into a tailspin when Alan Greenspan warned of a shortage of Motzas and Gefeltafish (or was it a possibilty of recession).

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:rofl: Now that is funny...

Capital Gains Tax? Gee..where did China get that idea? I wonder if someone in the central government is raking in a profit from this?