Tuesday, February 27, 2007

The Crash

Being in the Pacific Northwest we have been studying China a fair amount in B-school, so this is not that surprising:

Yesterday's plunge in stock prices around the world, including the steepest percentage decline in the Dow Jones Industrial Average in nearly four years, signals that investors may finally be re-evaluating their insatiable appetite for risky investments.

The catalyst was Tuesday's nearly 9% fall in stock prices in Shanghai, one of the hottest and most volatile markets in the world. That helped send U.S. stocks on a roller coaster that ended with the DJIA down 416.02 points, or 3.3%, to 12216.24.

While China has had phenomenal industrial growth over the last two decades, their financial and regulator systems are still rather backwards, so get ready for a rough ride. Many companies are poorly managed, and accounting systems tend to be rather... uh... loose. Hopefully things will shake themselves out over the next two decades, and not disrupt the world markets.

I am actually visiting China for a couple of weeks on a study tour, starting next week, including visiting the Shanghai Stock Exchange. Maybe I can get some tips?