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Shanghai stock market CRASH
Down 8.8% today. Bring out the marshmallows and keep your cash handy, folks!
The latest from the WSJ...
The latest from the WSJ...
Shanghai's Index Plunges 8.8%
By JAMES T. AREDDY
February 27, 2007 9:10 a.m.
SHANGHAI – The biggest drop in China's benchmark stock index in a decade wiped out more than $100 billion of market capitalization and sent ripples through other Asian markets, in the latest sign of the emerging global importance of the country's economy and financial system.
A day after the Shanghai Composite Index hit a new record high, it plunged 8.8% on Tuesday to 2771.79, on what analysts said were widespread efforts by investors to cash in on big gains and avoid any government attempts to cool the markets. Tuesday's drop was the biggest in percentage terms since an 8.9% fall on Feb. 18, 1997, triggered by rumors that then-paramount leader Deng Xiaoping had died, a day before he actually did.
There were no new policies announced Tuesday, and few analysts said they saw the one-day fall as a turning point for China's stock market. In fact, most signs suggest investors have returned from last week's Chinese New Year holidays keen to hold more stock. Monday, for instance, a mutual fund from a joint venture called CCB-Principal Fund Management reached the maximum subscription amount, 10 billion yuan ($1.29 billion), just hours after it began accepting applications.
[China's stock market]
"Investors are choosing to cut their positions to avoid the fluctuations in the market, but it's still too early to say the market has reached its peak," said Chen Huiqin, an analyst at Huatai Securities.
Chinese share prices, after years in the doldrums, have soared for most of the past 20 months -- a rally that has prompted millions of Chinese to take up stock trading. Officials have expressed concern about the pace of the runup, after the benchmark index surged 130% in 2006. Traders said Tuesday that the index's close above 3,000 the day before -- for the first time in its history -- made them nervous that the government would have added reason to adopt new taxes or other measures to brake the market when China's legislature meets next week for its annual session.
The plunge in China exacerbated weakness in Asia and elsewhere. Markets from Hong Kong to South Korea to Australia were already spooked by a variety of factors, including higher oil prices and a comment from former Federal Reserve Board Chairman Alan Greenspan that a U.S. recession is possible this year. The sharp drop in China was a factor in Sydney, where the benchmark S&P/ASX 200 index fell 0.8% to 5993.80. "The selling [in China] turned into a bit of a wave, a bit of panic even," said Patrick Crabb, an institutional sales trader at Goldman Sachs JB Were.
The 174% gain in the Shanghai index since mid-2005, including Tuesday's drop, has made China's stock market more important globally by pushing capitalization of the Shanghai and Shenzhen exchanges to around $1.5 trillion. Many of the world's best-performing mutual funds last year were those that targeted stocks of Chinese companies listed overseas. And, while foreign investors have little direct access to domestic Chinese stocks, their rising value and influence reflects broader growth in the importance of China's $2.7 trillion economy.
Traders in Hong Kong are particularly attuned to mainland China since some of its largest stocks are also listed in Shanghai, including big banks and insurers. Hong Kong's blue-chip Hang Seng Index lost 1.8% Tuesday to 20,147.87.
Concerns about possible official action to cool stocks had already slowed the China market this year. After Tuesday, the Shanghai index is holding a 3.6% gain in 2007, but the most notable trading sessions have involved drops in prices after officials issued warnings, tightened credit and put limits on the size of mutual funds.
Traders are now looking at whether the National People's Congress next week will be bad for stocks. In past years, the market has often risen ahead of the meeting -- where major laws are adopted and top leaders make speeches - -on hopes the government would unveil supportive policies. Most years nothing happened, although in 2005, Premier Wen Jiabao indicated anxiety about investor losses, and weeks later regulators unveiled a restructuring of stock ownership rules that many say sparked the current rally.
Tuesday's losses were widespread across sectors. Stocks in China are limited to a fall of 10% in a single session and a number of heavyweights fell by that scale, including Baoshan Iron & Steel Co. and China Petroleum & Chemical Corp., or Sinopec.
Write to James T. Areddy at james.areddy@wsj.com
By JAMES T. AREDDY
February 27, 2007 9:10 a.m.
SHANGHAI – The biggest drop in China's benchmark stock index in a decade wiped out more than $100 billion of market capitalization and sent ripples through other Asian markets, in the latest sign of the emerging global importance of the country's economy and financial system.
A day after the Shanghai Composite Index hit a new record high, it plunged 8.8% on Tuesday to 2771.79, on what analysts said were widespread efforts by investors to cash in on big gains and avoid any government attempts to cool the markets. Tuesday's drop was the biggest in percentage terms since an 8.9% fall on Feb. 18, 1997, triggered by rumors that then-paramount leader Deng Xiaoping had died, a day before he actually did.
There were no new policies announced Tuesday, and few analysts said they saw the one-day fall as a turning point for China's stock market. In fact, most signs suggest investors have returned from last week's Chinese New Year holidays keen to hold more stock. Monday, for instance, a mutual fund from a joint venture called CCB-Principal Fund Management reached the maximum subscription amount, 10 billion yuan ($1.29 billion), just hours after it began accepting applications.
[China's stock market]
"Investors are choosing to cut their positions to avoid the fluctuations in the market, but it's still too early to say the market has reached its peak," said Chen Huiqin, an analyst at Huatai Securities.
Chinese share prices, after years in the doldrums, have soared for most of the past 20 months -- a rally that has prompted millions of Chinese to take up stock trading. Officials have expressed concern about the pace of the runup, after the benchmark index surged 130% in 2006. Traders said Tuesday that the index's close above 3,000 the day before -- for the first time in its history -- made them nervous that the government would have added reason to adopt new taxes or other measures to brake the market when China's legislature meets next week for its annual session.
The plunge in China exacerbated weakness in Asia and elsewhere. Markets from Hong Kong to South Korea to Australia were already spooked by a variety of factors, including higher oil prices and a comment from former Federal Reserve Board Chairman Alan Greenspan that a U.S. recession is possible this year. The sharp drop in China was a factor in Sydney, where the benchmark S&P/ASX 200 index fell 0.8% to 5993.80. "The selling [in China] turned into a bit of a wave, a bit of panic even," said Patrick Crabb, an institutional sales trader at Goldman Sachs JB Were.
The 174% gain in the Shanghai index since mid-2005, including Tuesday's drop, has made China's stock market more important globally by pushing capitalization of the Shanghai and Shenzhen exchanges to around $1.5 trillion. Many of the world's best-performing mutual funds last year were those that targeted stocks of Chinese companies listed overseas. And, while foreign investors have little direct access to domestic Chinese stocks, their rising value and influence reflects broader growth in the importance of China's $2.7 trillion economy.
Traders in Hong Kong are particularly attuned to mainland China since some of its largest stocks are also listed in Shanghai, including big banks and insurers. Hong Kong's blue-chip Hang Seng Index lost 1.8% Tuesday to 20,147.87.
Concerns about possible official action to cool stocks had already slowed the China market this year. After Tuesday, the Shanghai index is holding a 3.6% gain in 2007, but the most notable trading sessions have involved drops in prices after officials issued warnings, tightened credit and put limits on the size of mutual funds.
Traders are now looking at whether the National People's Congress next week will be bad for stocks. In past years, the market has often risen ahead of the meeting -- where major laws are adopted and top leaders make speeches - -on hopes the government would unveil supportive policies. Most years nothing happened, although in 2005, Premier Wen Jiabao indicated anxiety about investor losses, and weeks later regulators unveiled a restructuring of stock ownership rules that many say sparked the current rally.
Tuesday's losses were widespread across sectors. Stocks in China are limited to a fall of 10% in a single session and a number of heavyweights fell by that scale, including Baoshan Iron & Steel Co. and China Petroleum & Chemical Corp., or Sinopec.
Write to James T. Areddy at james.areddy@wsj.com
Maybe some day.
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