Archive for June, 2007

What’s Going on With Chinese Stocks?

Tuesday, June 5th, 2007

After a tumultuous week that saw two sharp dips in the Shanghai Index, Tuesday saw the market end in positive territory, after being down 7% earlier in the trading day.

What gives?

Investors in China and other emerging markets should be aware that these are high-risk investments, and therefore will experience higher volatility than investments in the more mature markets of Western Europe, North America, and Japan.
The recent dips experienced in Shanghai are the direct result of a change in China’s taxes on stock investments. The change was implemented to detract speculators from high-risk short-term investments. It is the first step in the maturity of China’s Finance Ministry, which is implementing long-term solutions to the rapid business development issues the country is facing.

Though it is likely that highly volatile days like the ones we have seen will happen again in China, the long-term trend should remain positive, as its development is just underway.