Behind China’s Stock Meltdown – Bill Powell


Following , some explanations, from Time Magazine:

Chen Jing was one of the lucky ones. The 56-year-old retiree, who lives in Shanghai, dabbles a bit in local stocks, exchanging investment tips with what she calls her "mah jong friends," a group that gets together each week to play and chat. Just before the Chinese New Year holiday last month, one of her friends spoke ominously of rumors that China's government was planning a crackdown on stock speculation, including a possible tax on capital gains. Over the past 18 months, Chen's small portfolio had almost doubled in value as the Shanghai market shot straight up. So she decided to pull the plug, suddenly afraid it would all go wrong. "I sold everything just before the holiday," she says, and was blithely unaware that the Shanghai stock index plunged 8.8% on Feb. 27, its biggest one-day drop in a decade.

Rollercoaster rides are not unusual for China's stock markets, which sometimes resemble a casino in Macau. What happened next, however, was decidedly unusual: investors in New York's equity markets woke up, saw that Shanghai had tanked, and had a collective heart attack: they sent the Dow Jones industrial average down more than 400 points, its biggest single-day drop since Sept. 17, 2001 " the first trading session after the terrorist attacks of 9/11. [Full Text]

Read also: What's going on in China: A guide to macro-economics from Musings of an Entrepreneur blog.

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