At last, China stock markets show some signs of healthy correction (or does it?) when the stocks tumbled on Monday registering one of the biggest sell-offs in years after the government’s move last week to impose a higher tax on stock trades. Since China government announced last Wednesday that it would triple the stock-trading stamp tax, to 0.3 percent from 0.1 percent, stocks have fallen by a total of about 15 percent in the four sessions.
On Monday, the Shanghai Stock Exchange index plunged 330.34 points, to close at 3,670.40. The other major index, for the Shenzhen exchange, fell 7.9 percent, to 1,039.90. Monday’s drop of 8.3 percent in the benchmark index has raised the fear of a wave of panic selling in China’s financial markets after an extraordinary bull run in which share prices have climbed by more than 300 percent in the last two years.
The sell-off continued Tuesday (June-5, 2007) morning when the Shanghai at one point drops to more than 6 percent but has since recovered into green territory. Frank Song, director of the Center for China Financial Research at the University of Hong Kong said “This is somewhat expected … Last week’s policy change is a strong signal that the government will no longer tolerate this rising bubble.”
Many experts have been warning that stock prices are rising much too fast and that stock valuations are far above historical or global norms but many individual investors have been betting on the market’s reaching ever new highs because of an influx of newly-opened stock accounts – as many as 400,000 on a single day. Also a lot of Chinese believe that the government would not do anything drastic to shake up the stock market before 2008.
Sensing uneasiness amongst investors with the plunge, Chinese financial newspapers has started the calling on investors to act calmly in the wake of the decision. But the Chinese who 
have just found this new money-printing machine are not acting rationally when there’re reports of hackers hacking into several government Web sites, including a finance ministry site and brought it down with the obvious intention of showing their anger online.
Can you imagine what type of other “vandalism” that the millions of investors (or rather gamblers) would do should the stock markets decide to call it quit and start to perform a major correction? From the above scenario, it seems the government has an uphill task in educating investors the basic 101 investing – whatever goes up must comes down and vice versa. So, be real scare when the actual consolidation occurs.
# TIP: If you’re a smart Chinese investor, start lock-profit now, at least 50% of your portfolios.
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June 5th, 2007 by financetwitter
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