Tuesday, January 22, 2008

Shock to the System

Stock markets are plummeting around the world with fears of the United States sliding into a recession.

Today the Shanghai Composite Index fell by around 354 points or 7.22 per cent, while the Hang Seng Index suffered an even bigger loss of 2,061.23 points or 8.65 per cent.

The US market opens this morning and so it'll be interesting to see how it reacts to two straight days of losses in Europe and Asia.

The big market players probably started selling off days or weeks ago, knowing a big correction would be made in the so-called bubble market in China.

Those left holding the bag are mostly individual investors who don't know much about the stock market. Many of them just assumed the Shanghai Composite Index would just keep climbing. Or because it's the Olympic year, the government would make sure things would be rosy.

How these investors will react to the loss will be telling in the next few days.

Ping An Insurance has a plan of raising 150 billion yuan through new issues of stocks and bonds. But diluting the market makes the value of its shares drop even more. And not everyone can afford or dares to invest in the market now.

Some analysts think China will weather the financial storm because it isn't as exposed to outside markets. But exports will definitely be affected. Americans won't be clamouring for as many Chinese-made goods as before when they finally start saying the R-word.

Another optimistic outlook for China is that it has started developing more trading partners in the Asia region. However, those customers are just as exposed to the US markets and Chinese exports may be affected indirectly.

Either way China is now being pushed -- reluctantly or not -- into a real capitalist market situation.

It is beyond anyone's control now. It just depends on how bad people think a possible recession will impact the US.

1 comment:

ks said...

let the blind current learn about disasters in the stock market and not be too naiive . they all think too rosy about stocks. all you have to do is buy the stock and make money on it wihtout knowing any thing about the company they are investing in. when the economy is too hot it is a good thing to cool down a little bit.