The 'Electronic Herd' Rides Again
TOKYO, Feb. 28, 2007 — -- "Highly speculative" is what the seasoned analysts call the Shanghai stock market -- it's a reasonable description given that local Chinese call it Shanghai's "slot machine."
A slot that has paid off handsomely over the last year, doubling almost every bet.
It is also what the experts might call a "frothy market," or more ominously, "a bubble." So, for many it was no surprise when Shanghai suddenly sold off by 9 percent in one day, its biggest plunge in a decade.
The sell-off was prompted by rumors that the Chinese government was set to impose new rules on its wild equities market, to try to rein in the speculative excess.
Not true, the Chinese government announced in a very transparent effort at crisis management. And, almost immediately, the slots were paying off again -- the market went up today more than 4 percent.
It would all be a curious anomaly if the world's equity and bond markets were not so interconnected these days -- by the Internet, by global institutions awash in cash, by international investors the world over chasing higher and higher returns.
As New York Times columnist and author Thomas Friedman keeps reminding us, the global market and the electronic herd shows no mercy.
Any perception of weakness, any bureaucratic misstep by governments, any misguided attempt by financial markets to change rules to benefit their societies can lead to a harsh and brutal market reaction.
Nothing personal. It's just globalization.
Was there any logical reason to believe that an effort by the Chinese government to impose some rational behavior on its unruly markets would somehow fundamentally damage the Chinese economy, the world's fastest-growing economy with tentacles reaching every corner of the planet? No.
In fact, it is the sort of action the investment world has been urging China to undertake.
I've been whipsawed through a few of these global equity panics during my years in Asia.
In 1987, it was Black Monday and eventually the bursting of Japan's enormous asset bubble. In 1997, it was the attack on SE Asian currencies and the start of the Asian contagion that affected markets around the globe.
