Chinese stocks rebounded in volatile trading Tuesday following their sharpest one-day drop in three months as strong buying by institutions offset selling by retail investors. Japan and Hong Kong also ended higher.
The benchmark Shanghai Composite Index gained 2.6% to 3767.10 after a roller-coaster session that saw the index plunge as much as 7.2% earlier in the day. It fell 8.3% on Monday — the benchmark’s sharpest decline since an 8.8% drop Feb. 27 triggered a global market selloff. The Shenzhen Composite Index for China’s smaller second market rose 2.5% to 1066.05.
Chinese investors had dumped shares Friday and Monday in reaction to a government decision last week to triple a tax on stock trades, viewing the move as a signal regulators are determined to cool frenzied trading that had lifted stock prices nearly 60% since the start of the year, following a 130% surge in 2006.
By Tuesday’s close, the benchmark Shanghai index was 13% below its record high of 4334.92, hit May 29. But it was still up 40% for the year so far.
China’s stock markets are largely closed to foreign investors. Analysts attributed the selloff Monday to panic-selling by individual retail investors. The stock market boom has prompted millions of first-time investors to jump into the market, tapping savings and retirement accounts and mortgaging homes to buy stocks. Authorities are worried that the new money is fueling a bubble in prices.
In JK Galbraith’s marvelous read, The Great Crash, 1929, he describes a Florida land rush (followed by a bust) in the mid-twenties, and a series of wild swings in the stock market in the 1927-1929 period that included several mini-crashes that should have been a warning to investors, prior to the wild ride of mid-1929. Does history repeat itself, with a Shanghai real estate boom and Shaghai 4000 or more? We can’t help on occasion looking at current events through the prism of what has gone before in a major period of the industrialization of an industrious people.