Word: indexing
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...That's where the similarity ends. The index is not likely to return to its previous lofty perch anytime soon. Following a miserable performance in August - Chinese stocks fell nearly 22% last month - Shanghai's 81% Great Leap Forward from January to July has now been pared to 42% as of Aug. 31. That's still a hefty advance, but it's looking like the long march backward will continue for some time. (See pictures of China's infrastructure boom...
...Technically, what happens in the Shanghai bourse should not matter outside China. Only locals can trade in Chinese A shares, which comprise the composite index. But markets are supposed to anticipate the economy's health, so the fall in the index could possibly signal a relapse in the world's third largest economy. The jitters in Asia and the rest of the world are rooted in the fear that China will not be able to help pull the global economy from recession, a big blow to recovery hopes given the inability of the U.S., Europe and Japan to play that...
...Hong Kong's Hang Seng China Enterprises Index is probably a more realistic reflection of expectations about the direction of China's economy. It advanced only 45.8% from January to July this year. The sell-off in Shanghai trimmed that gain to 35.6% as of Aug. 31 - a strong gain, but hardly the stuff of bubbles...
...deflation of the stocks bubble in Shanghai. The danger is that policymakers may tighten too much, discouraging not only speculation but also business growth and consumer spending, which could precipitate a hard landing for the economy. So far, there's scant evidence for collapse. The latest Purchasing Managers Index numbers, released Sept. 1, show China's manufacturers are continuing to rally. The index rose to 54.0 from 53.3 in July, marking the sixth consecutive month the index has been in expansion territory (over...
...Praising China's use of moral suasion to persuade the banks to cut back on lending instead of resorting to the blunt instrument of raising interest rates, ING sees GDP returning to its trend growth of 10% next year. The Shanghai index now "rests two standard deviations below the trend line that starts in early November 2008, which we consider strong support," says ING chief economist Tim Condon. "We do not expect the support to be broken...