An eye for growth

Stocks plunged in China earlier today as the rest of the world watched and yawned. The Shanghai Composite Index dropped 8.3 percent to 3670, its steepest decline since February, putting shares 15 percent lower over the last four trading sessions.

While more than half of the market's main class of shares finished Monday down by 10 percent, the maximum daily limit, other Asian markets were firm, as if watching their gigantic baby brother struggle with training wheels, once again falling face first into the pavement.


Editorials on the front pages of three state-controlled financial newspapers called for "rationality" in the market, an attempt to reassure investors after a tax hike last week that resulted in a paltry $2 increase on every $1,000 stock purchase (there are no capital gains taxes on the sale of stock in China.)

Government officials are in the unenviable position of trying to control a speculative mania that has caused a huge run-up in share prices over the last two years.

Perhaps they should hire Alan Greenspan as a consultant - surely he would advise that it is impossible to know with any certainty that Chinese stocks are now in a bubble and that the best course of action is to do nothing, standing at-the-ready to mop up the aftermath, rather than to risk being blamed for causing the mess.


Even with the recent declines, the Shanghai index is still up almost 40 percent on the year after soaring 130 percent during 2006. The increase has been driven by massive participation by ordinary citizens, now clearly hearing the siren call of Western capitalism where even shoeshine boys can get rich overnight, just by joining a speculative frenzy.

Chinese investors have opened brokerage accounts in unprecedented numbers and are now using their savings and mortgaging their homes to purchase shares - kind of like buying condos in the U.S. circa 2004.

Though the pace has slowed in recent weeks, from an average of over 300,000 new brokerage accounts per day to less than 100,000, last Thursday saw almost a half million new traders join the fray.

Oh, I don't see why not

Unrelated to the government's moves to cool the markets, a blind man with the surname Fan was rejected by a brokerage firm last week when he attempted to open an account. According to a report in ChinaDaily, Fan was anxious to join the ranks of investors through the brokerage firm Fangshan but was rebuffed after a clerk realized that the man could not read or sign all the forms now required by the Chinese government let alone watch the big board.

"You can't see the price movement, then how could you make the stock investment?" the clerk said to Fan.

Momentum trading at its best, apparently.

A kindly friend of Fan's pleaded with the clerk to allow Fan to hold her hand while signing the forms for him, but the clerk refused, mindful of potential legal disputes that may arise as a result of one or two poorly timed trades by the inexperienced and blind investor.


The deluge of novice investors has worried regulators and though unconfirmed, after comments made last week, this may indeed be a bubble that Alan Greenspan can detect in real time.

Whether he would advise doing anything about it is an entirely different question.