The Recent (and Drastic) Decline in China’s Stock Markets

The Recent (and Drastic) Decline in China’s Stock Markets

Four members of the House of Morgan investigating banking institution’s practices, May 31, 1933, Washington.

Following deregulation earlier this year, China’s stock markets experienced explosive growth, however all this has changed in recent weeks – The Shanghai Composite Index has declined?29% since June, with other Chinese markets experiencing similar declines. In response, the Chinese Government has intervened to stabilize the markets by making pledges to?buy up distressed stock, however history – namely the tactics of the American Government in 1929 prior to the Great Depression of the 1930’s – sounds a large warning against such actions.

No one is bigger than the market, not even the Central Banks? exclaims Scott Wolf, Director of Research and CEO of Grace Century. He qualifies “Markets can be manipulated in the short run, however nothing can stem the flow of market forces forever. This comes down to supply and demand. The single worst thing a Government can do is to make policy decisions to directly benefit the country?s equity markets – it is like putting the cart in front of the horse. This is not the mandate of central banks, nor should it be. Fiscal and monetary policies must be strategic in nature providing a stable environment that will foster business?..this is the only way to affect the positive values of equity price. They are playing with fire as this article explains.”

Read the full story in Yahoo! Finance here.