BIG swings in the Chinese stockmarket are par for the course. But even by its wild standards, the alacrity of its latest crash was stunning. Just 13 minutes into trading on Thursday, the CSI 300 index of blue-chip stocks fell 5%, triggering the first circuit-breaker: a 15-minute pause for traders to supposedly regain their cool. When the action resumed, it lasted all of one minute before the second and final circuit-breaker was hit: the CSI 300 fell 7%, which necessitated a closure of the market for the rest of day. Trading, in other words, lasted all of 14 minutes before being halted.
The obvious conclusion to draw from the market sell-off is that China’s economy is in big trouble. Why else would investors be in such a rush to dump their shares? Growth is certainly slowing, but the problem with this view is that the Chinese stockmarket has only ever had a tenuous relationship with reality. It is often derided as a casino. Wu Jinglian, a veteran economist, has quipped...Continue reading
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