[Marxism] Ouch!

Louis Proyect lnp3 at panix.com
Tue Feb 27 13:40:38 MST 2007

NY Times, February 28, 2007
Wall Street Plummets After Chinese Stocks Take a Big Hit

Stocks retreated sharply Tuesday after a sell-off in China rattled markets 
worldwide and data on durable goods orders came in well below expectations.

After reaching record highs on Monday, China’s stock markets reversed 
course drastically on Tuesday, plummeting in one of the biggest sell-offs 
in their history.

Analysts said there was no single reason for the plunge, but many have 
cautioned for months that the country’s volatile, roller-coaster market, 
which has been soaring almost nonstop for more than a year, appeared 

The plunge in Chinese stocks had global reverberations. Stocks fell across 
Europe, with the major indexes in France, Germany and Britain all dropping 
more than 2 percent. In the United States, trading got off to a bad start 
and stayed that way. At midday, the Dow Jones industrial average was down 
more than 170 points, or about 1.4 percent. The broader Standard and Poor’s 
500-stock index fell about 1.5 percent, and the Nasdaq composite was off 
more than 2 percent.

The benchmark Shanghai Composite index, which had passed the 3,000 
milestone on Monday after the weeklong Chinese New Year holiday, shed 268 
points, or 8.8 percent, to close at 2,771.79

The smaller Shenzhen Component index fell even further, dropping 797.87 
points, or 9.3 percent, to 7,790.82.

Share prices also tumbled elsewhere in Asia, although not nearly as much. 
Hong Kong’s benchmark Hang Seng index dropped 412.94 points, or 1.8 
percent, to 20,095.01. In Japan, the Nikkei fell 95.43 points, or 0.5 percent.

The wave of selling then spread to Europe, and later to the United States, 
where a government report showed that orders of durable goods — big-ticket 
items that include washing machines, airplanes and semiconductors — 
declined more than expected in January. That hastened the sell-off on Wall 

Chinese share prices have swung wildly in recent months, rising on huge 
interest from largely inexperienced retail investors in soaring stock 
prices, then falling on stern Chinese government warnings about “blind 
optimism” in the market.

The unmistakable trend, however, has been up. Share prices on the major 
Chinese indexes climbed more than 100 percent last year, ending a five-year 
stock slump.

It is too early to tell whether the decline today constitutes a healthy 
correction in China or the opening act of a broader collapse.

Some analysts said that rumors about new taxes on capital gains spooked 
some investors. Particularly hard hit were more liquid, big-cap stocks, 
which weigh heavily on stock indexes.

“It’s obvious that a large amount money was being pulled out of the market 
from big-cap stocks,” said Wu Jianxiong, an investment strategist at Guotai 
Junan Securities in Shanghai.

Stephen Green, a senior economist and stock market analyst working in 
Shanghai for Standard Chartered Bank, said the market fundamentals had not 
changed drastically in recent weeks, adding that the stock markets in China 
tended to be volatile, particularly after reaching all-time highs.

“People are just on edge,” he said. “It’s very possible in two weeks we’ll 
be right back up there.”



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