China warning signs coming fast and furious

This article is actually a blog I found on BusinessWeek.com discussing the warning signs of a large potential pullback in the Chinese stock market. This Blogger cites 'The Oracle of Omaha', Warren Buffet, who commented today while on a trip to China that investors should be cautious when it comes to increasing prices in stocks that trade on that stock exchange.

I'd like to think of those comments as a shift variable in the demand for Chinese stocks and other emerging markets; because it gives people expectations of future prices there. I think that Warren Buffet has such a good reputation for picking stocks and other good investments (as well as when to get out of them) that many, many people will listen to his advice and pull their investments in China and other emerging markets in regions affected by China's stock market run-up. To be totally honest, I've seriously thought about arranging my own portfolio tomorrow when I get to work to reduce my exposure to this potential retirement landmine.

All these future expectations could then possibly affect the demand of the stocks trading there and a fall in prices could then occur, possibly affecting demand for other stocks on other indexes such as our own. We should not forget the huge drop in stocks earlier this year when China's stock market stumbled and rattled our own Down Jones Industrial Average to the tune of a 416 point fall.


Dr. Tufte said...

-1 on Timothy for a spelling error.

I think this is absolutely a shift variable - of the "states of the world" variety.

Matthew said...

Isn't it interesting how one person can move a market? When Buffett speaks, the markets move.

Dr. Tufte mentioned in class how everyone is so concerned about the stock market, but does it really affect the majority of people? A more direct variable on our wealth would be the variety of hours that we work each week. Granted, if a person's pay is related to stock options or if they have a large amount of their money invested, of course it will be related. However, maybe we put too much emphasis on the volatility of the market, which is largely caused by expectations and what “everyone else” is doing.