September 17, 2010

Shanghai Back Below 2,600

The Shanghai Composite, China's bell-weather stock index, is back below 2,600 after a hefty sell-off at the end of the week. Commenters variously credit rising real estate values and tightening lending standards (for 2nd and 3rd homes only) or the tension with US Treasury Department over currency as the cause for the drop. However, as I have pointed out before the impact of China's week-long national holidays may be at play. At Chinese New Year there is what I call a "hong bao" or "lai see" effect - that is selling stocks for cash gifts. The week-long National Day holiday is coming up soon and the sell-off could be in preparation for the holiday. National Day holiday is also a big occasion to travel, visit family, shop, and party....

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