Wednesday, February 28, 2007

China stock sell-off affects world markets

Chinese share markets and others around the world were shaken yesterday with millions of dollars being wiped off the value of shares. The Tuesday sell off was said to be the new influence of Chinese financial markets.

CNN described the Chinese market place as being like a ‘bull market like no other’. The Daily Telegraph in the UK also put the slump in share prices down to “China’s growing global influence”. The Shanghai fall was the biggest since the death of Deng Xiaoping, ten years ago. Yesterday’s fall coincided with Chinese prime minister Wen Jiabao’s announcement that China would “maintain socialism for 100 years”. A share-buying frenzy which has been seen in China over the last few years was turned around by what many saw as a possible clamp down by Beijing. As the sell off peaked on the Shanghai markets, world markets reacted sharply with the FTSE 100 closing 148.6 points lower at 6,286.1 and the Dow Jones closing 416 points down. More than $140 M was wiped off Chinese share market whilst the Nikkei closed 3% lower and the Nasdaq nearly 4% down. In the US $600,000 M were wiped off the value of stocks. Chinese stocks have doubled in the past year prompting some analysts to suggest many are overvalued.

The fall was not entirely blamed on Chinese markets. Falls had also been seen earlier in the day after the failed suicide attack on US Vice President Dick Cheney during his visit to Afghanistan. The fall in sales of US cars and other commodities as well as a drop in house prices was also seen as a contributory factor.

There are some who suggest the sell off is a ‘storm in a tea cup’ and that markets would soon recover. There was some sign of recovery early Wednesday, but it may take some time for investors to regain their confidence in the changing global financial markets [BBC]

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