Tuesday, 27 February 2007

Chinese stocks tank, causing global chain reaction

BBC News

AP (via Forbes):
Stocks had their worst day of trading since the Sept. 11, 2001, terrorist attacks Tuesday, briefly hurtling the Dow Jones industrials down more than 500 points on a worldwide tide of concern that the U.S. and Chinese economies are stumbling and that share prices have become overinflated.

The steepness of the market's drop, as well as its global breadth, signaled a possible correction after a long period of stable and steadily rising stock markets, which had not been shaken by such a volatile day of trading in several years.

A 9 percent slide in Chinese stocks, which came a day after investors sent Shanghai's benchmark index to a record high close, set the tone for U.S. trading. The Dow began the day falling sharply, and the decline accelerated throughout the course of the session before stocks took a huge plunge in late afternoon as computer-driven sell programs kicked in.

The Dow fell 546.02, or 4.3 percent, to 12,086.06 before recovering some ground in the last hour of trading to close down 416.02, or 3.29 percent, at 12,216.24, according to preliminary calculations. Because the worst of the plunge took place after 2:30 p.m., the New York Stock Exchange's trading limits, designed to halt such precipitous moves, were not activated.

It was inevitable, in some way or another, not only because markets have their ups and downs, but also on account of the record highs the Dow Jones and other stock exchanges have reached recently. Only last year did Japan's Nikkei stock exchange nearly collapsed from massive trading, buying and selling.

Some questions I have (to consider):
  • Is this a mere technical glitch from the 'computer-driven' trading?
  • Is it an indicator of weakness of markets in Europe and China?
  • How will this incident affect the year to come?
  • Did Chinese stocks fall because of a natural up-down pattern, or was it a sign?
  • Did stock regulations help prevent an even worse episode?
  • Should we let the market be free and fluctuate on its own?
  • Is this a one-time kind of event, or will we be seeing more extreme falls or rises?
  • Is the US and its market too dependent on China (after all, China's markets triggered the chain reaction)?
  • Does this tie into dynamic globalization?
  • Ultimately: Was this a mere 'correction' in the inflated stock prices or an indicator of the global economy?

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