Asia Blog: China, Japan, Korea, Vietnam

Today the Shanghai markets crashed, falling 9% due to psychological effects after yesterday’s high close and technical difficulties executing high-volumes of sell orders, leading to inefficient pricing. Here is the chart for the SSE composite index:

This led to a 400 point loss on the Dow here in the United States. Yahoo Finance has an article which gets at the root cause:

A 9 percent slide in Chinese stocks, which came a day after investors sent Shanghai’s benchmark index to a record high close, set the tone for U.S. trading. The Dow began the day falling sharply, and the decline accelerated throughout the course of the session before stocks took a huge plunge in late afternoon as computer-driven sell programs kicked in, and also as a computer glitch caused a delay in the recording of a large number of trades.

You can see the glitch yourself as a 90,000,000 spike in trading volume around 1 PM on the Yahoo chart.  There are two funny things about this:

• Investor disbelief at record gains led to a crash
• Technical problems led to market inefficiencies

In a perfect market neither of these things would happen.  Interestingly, the effect was felt in markets around the world, which really points at China’s new role in the global space and the increase of globalization.  One thing America needs to learn is that it’s now a part of a bigger global community, not a single superpower by itself.  We’re going to see an event in Asia crash the world markets again, more strongly than this, and vice versa.  We’re all connected now!

This entry was posted on Tuesday, February 27th, 2007 at 8:34 pm and is tagged with shanghai markets, sse composite index, market inefficiencies, computer glitch, crash today, chinese stocks, yahoo finance, market crash, perfect market, global space, s trading, benchmark index, china market, psychological effects, world markets, funny things, root cause, global community, late afternoon, disbelief. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback.

2 Responses to 'China Market Crash'

1. 
   China Law Blog said:

   on February 28th, 2007 at 7:21 am

   Come on. How many smart investors did not realize many years ago that we are all connected?

2. 
   Qingdao China Guide said:

   on March 14th, 2007 at 4:53 pm

   European and Asian stocks plummeted today (Wednesday, March 14th) after Wall Street chalked its second-biggest point decline in four years and rattled already nervous markets worldwide! Let’s face it — when any one of the “Big Boys” on the block suffers we all suffer. Are you ready for a Bear Market?

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