The SSE Composite Index (?)

Shanghai, China

I don’t usually post about business because I understand it very little and like it even less, but events on the other side of the world merit a brief mention (also I can’t think of anything truly worthwhile to write about today). The SSE Composite Index is a stock market index of all the shares traded on the Shanghai Stock Exchange (well actually all A and B shares).  Since June of 2014 this index has shot up by 40% pushing it to heights not seen for 3 years.  The news is all the more baffling considering that a consortium of experts agree that nothing in the actual Chinese economy supports this rampant bull market. Sophie Yan from CNN Money describes the Chinese economy in somewhat bleak terms: “factory activity is at an eight-month low, the real estate sector is shaky and the economy just saw its worst quarter since the financial crisis.”

So why are stocks surging upward with no relation to the real news?  Well, America’s economy is doing better than it has for a long while and China sells a lot of goods across the Pacific Ocean.  Also ordinary Chinese small holders seem to finally be digging up jars of coins and investing them in the stock market (the average Chinese householder has been wary of investing savings in institutions or businesses for obvious historical reasons).  But, it seems obvious that the real answer is that this is a speculative bubble.

Like I said at the top, I do not understand business: perhaps secret unknown market forces are privy to information which nobody else knows about…or maybe the rules of human economics have been eternally suspended.  However barring those potentialities, the SSE is full of froth and is about to pop (in fact, on Tuesday, AKA yesterday, the index shed 5% in a day…and then bounced back).  I wonder how high it will go before it falls and I wonder how far the fallout from a correction will go.  Our own market seems a tad frothy too…but Americans have a proud ability to willfully ignore what everyone else in the world is up to.  Whatever happens, it should be an interesting few months for volatile speculative craziness in Shanghai.