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The Chinese markets dropped 9% causing a major sell-off in China and then around the world. Investors were awestruck when markets shifted around the world in order to adjust for the change. The global world is interconnected and what happens in one part will affect the other part. The international decline over the past week highlights the problems with internally connected markets. Zhu Congjiu the general manager of the Shanghai Stock Exchange believes that the drop in the market was a normal correct that will finish playing itself out soon. He went on to say, “The sell-off was mostly related to their own economies but the growing integration of the Chinese economy with the global economy means that in the future there will be more incidences where Chinese and international stock markets will impact each other.” The Shanghai Stock Exchanges has a market capitalization of 8.9 trillion yuan ($1.149 billion) and is considered the largest in the country. The massive sell-off was the direct result of rumors spreading that the Chinese government was going to introduce hefty capital gains taxes on investments and interests rates were expected to rise. People wanted to sell their investments before the government could get their hands on it. The chain of events highlights the need to have protections in place when major declines happen in one particular country or region of the world. Failure to have these barriers or stoppages in place could cause a global recession even if the decline in the Chinese market was only the passing wind. These barriers could include temporary closing of trading on major stock exchanges in Western countries or a 15 day recall on all stock trades. Murad Ali is a three time published author, a doctoral candidate and a human resource professional. http://www.thenewbusinessworld.blogspot.com
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China, stock market, decline, globalization,
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