Friday, 11 May 2007

A Chinese Bubble?

The Shanghai Composite, China's main stock market index amazingly rose a whopping 130% last year and so far this year it is ahead 50%.

With the interest rates on bank accounts being offered at about 2%, it is no wonder that every man on his bicycle, it seems, is rushing to help himself to some shares -- Lots of people have bought shares with borrowed money - borrowed either from their relatives or by re-mortgaging their houses and some have even sold their homes and invested the proceeds in the stock market - everybody seems to be wanting a slice of the daily 3-4% rise that the Chinese stock market seems to be getting more often than not - so who could blame them? After all, this is what sweet capitalism is all about - So is there going to be a bubble in the air? -- Well, the steady rise in the market has got Mr Zhou Xiaochuan, the governor of the China’s central bank worried a bit but he seems to take no actions to prevent the bubble from bursting - according to the FT: “If Mr Xiaochuan really wanted to affect the market, he could double the bank deposit rate, but that would wipe out the state-owned banks.” Hence, the reluctance by Mr Xiaochuan to do anything about the issue - at least it seems that way for the time being.

As regards me wanting to take a CFD position on the Chinese stocks? No thank you - I would be terrified to do so! If I did, I would need my screen on next to my bed at night time!

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