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Shanghai Composite

Shanghai melt down again

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It was not too long ago (April 18 to be exact) Shanghai Composite Index hit a low of this year. Shortly after that Chinese goverment issued new policies trying to stablize the market. Well, it looks like we need the goverment do something about the market again: on June 10 the Shanghai composite dropped 257 points (7.73%), and closed at a new low of 3072. More than 1000 stocks dropped 10% in Shanghai and Shenzhen markets (see below).

Shanghai composite index June 10 2008
(source: finance.cn.yahoo.com; full size picture here)

What’s reason behind the broad sell off? Two things: the central bank raised bank reserve rate by 1% (largest increment so far) to historical high of 17.5%; the upcoming IPO of China contruction (about RMB 40 billion). The former measure is more significant than the latter, I think. The tightening of monetary policy like that is targeted to cool down real estate development, inflation, the inflow of hot money,…all this make people nervous. Some even think China economy will crash amid the slow down of exports to US.

I am not economist, and nor do I like to predict the future of market trend. But the broad sell off did make more A shares (especially Chinese bank stocks) more in line with the H shares (see this A H stock price comparison).

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