The sizzling growth of China and India is one reason often cited for high price of oil. But something may be wrong with that picture, since some signs point to a dramatic slowdown in those countries. China’s and India’s stock markets have shed over $2 trillion in value this year. WSJ:

Indian shares are off 28% this year as of Friday, well into bear-market territory. Chinese stocks have tumbled 46%…

The U.S. economic slowdown threatens to dent export growth for both countries. High commodity prices and mounting inflation are an even bigger threat. On Friday, a key measure of Indian inflation, the wholesale price index, jumped to 11% for the week ending June 7, sending the Sensex down 3.4%. China’s consumer-price index for May grew 7.7% year on year, according to China’s national bureau of statistics…

This situation poses a dilemma for policy makers. The typical response to higher inflation is tighter credit, but that would slow growth. Policy makers could allow their currencies to strengthen faster to stem import inflation — but that could hurt exports. Beijing last week took steps to allow highly regulated domestic fuel prices to rise, which could cut into corporate profit margins and squeeze consumers.

It was only last October that the Shanghai market was at 6000. Now it is less than half that. It is said that the stock market looks ahead 6-9 months. Maybe future growth in these two economies is going to be even less than the high single digits currently forecast. Sometimes the market is wrong; but sometimes it is right too. We’ll just have to wait and see if the gloom-meisters are correct.

This entry was posted on Monday, June 23rd, 2008 at 6:19 am and is filed under China, General, business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.