In only three weeks, shares of PetroChina (PTR have lost about a third of their value, which at one point was about one trillion dollars. The Shanghai Composite has fallen from over 6,000 in mid-October to 4,872.
As the Telegraph points out "What began as a bout of profit-taking in Shanghai now risks turning into a serious correction as the government steps up efforts to ration credit and drain liquidity."
The fortunes of the stock market in China may be tied to the economy and money policy in the country, but is the economy tied to the stock market? Probably not. A drop in the market could do financial damage to the Chinese middle class, but there is no reason to believe that it would do significant damage to exports or to GDP growth. The government still underwrites too much of the critical commodity base which helps that country grow, especially by keeping energy costs at an unreasonable low. It also still owns or controls the lion’s share of business and industry.
The Chinese may get killed in their own markets, but, in an odd way, it could make investing in the US and Europe more attractive. The Dow could use a little lift.
Douglas A. McIntyre
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