Chinese shares hit 20-month low

While the the global economy slowed in 2007, China, the dragon of global economic growth recorded GDP growth of 9-10%. However, it has been a different story for Chinese stock markets and internationally listed shares.

The Shanghai Composite Index, which was just recently one of the best performing markets on the planet, rising over 200% in just a few years time... is now ranked as one of the world's worst preforming benchmarks.

The drop was bound to happen for a variety of reasons. One reason in particular which I would like to focus on has been because of risky speculation by the common Chinese citizen.

It is not exactly a good thing when a large portion of the money moving in and our of your financial markets, particular in equities and bonds is being moved by people like this:


Investors watch the electronic board at a securities exchange in southwest China's Chongqing Municipality, Aug. 18, 2008. Chinese shares slid more than 5 percent on Monday to a 20-month low. The Shanghai Stock Exchange closed at 2,319.87 points, down 130.74 points, or 5.33 percent, from the previous close.


Investors watch the electronic board at a securities exchange in southwest China's Chongqing Municipality, Aug. 18, 2008. Chinese shares slid more than 5 percent on Monday to a 20-month low. The Shanghai Stock Exchange closed at 2,319.87 points, down 130.74 points, or 5.33 percent, from the previous close.

As Chinese stocks and the economy surged, and the common Chinese person for the first time in centuries had a completely new way to store their wealth. In addition to believing their money was safe, much like it is in banks, the average person was seeing their savings (invested in securities) grow... A very rare and un-heard of concept in China. Even after the introduction of modern banking in China it was rare for people to earn significant returns from interest on their deposits, not to mention growth of 200% as they recently experienced from investing in stocks.

As a result there has been a tremendous influx of money into Chinese equity markets, many times by investors choosing stocks based off lucky numbers or anonymous tips. As you can see above, even in cities such as Chongqing, which is hardly as wealthy as places like Beijing or Shanghai, people have become fascinated by the stock market. They now sit days on end watching their life savings tick up and down on gigantic boards in trading houses located throughout the country.