International Law

Live By the Bubble, Die By the Bubble

By Stan

You know, the financial community recently got all excited about the stock market here in China, even knowing full well that 1) a serious amount of money has been leaked from the government stimulus program into securities; and 2) a great deal of hot money has flowed into China recently, a lot of which ultimately went into the stock market.

China’s economy has been doing fairly well compared to the rest of the world. But most people living in the real world know a bubble when they see it, and the stock and real estate markets have been quite “frothy” of late.

So is the correction we’ve seen this week so surprising? Bubbles have a tendency to do this sort of thing.

And because so many folks offshore were talking up the market, they seem to be the first to say the sky is falling now, and blaming the China market for bringing down markets everywhere else.

When the US sneezes, the rest of the world catches a cold ? or so the old saying goes.

But in recent days it has been the sickly Chinese stock market that has been blamed for infecting markets in other parts of the world.

Take Wednesday ? the Shanghai Composite index fell 4.3 per cent. Other Asian markets dropped sharply and bourses in Europe initially followed suit before recovering later.

David Morrison, market strategist at GFT, says: ?We have put so much emphasis on Chinese growth and this bizarre notion that this will pull the rest of the world up with it, that when cracks begin to show traders start to worry. (FT)

Yes, it is a bizarre notion.

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Full post as published by China Hearsay on August 20, 2009 (boomark / email).