stock market crash
Originally posted on the Wharton China Business Society blog On Saturday, January 30th, the Wharton China Business Society
SHANGHAI -- "Markets with Chinese characteristics" are as volatile and hard to control as markets with American characteristics. Markets invariably take on a life of their own; they cannot be easily ordered around. To the extent that markets can be controlled, it is through setting the rules of the game in a transparent way. The policy approach China adopts will strongly influence economic performance and prospects worldwide.
In such a fugue state, a "wag the dog" scenario in which the Chinese Communist Party tries to rally its citizens by attacking
Chinese-style "manipulation" is clearly a disaster. While it has generated 35 years of stunning economic growth, it has also forced rich people around the world to endure a week-long, anxiety-provoking drop in stock prices!
Markets do fluctuate, but the crash of Shanghai means China will soon need a new development model. And there seems to be no secret Chinese institutional or developmental sauce. China will -- unfortunately -- likely become another corrupt middle-income country in the middle-income relative development trap.
How could a stunning one-day decline in a 2,000 point index be projected within 2 points of the 1971.89 close? How could the Dow's ninth largest point decline ever, and largest point decline since August 8, 2011, be projected within one percent?
Unless you work in finance, just sit tight.
That's some televangelist logic for you.
At best, equity returns over the coming decade will simply reflect earnings growth, assuming valuations can remain elevated. Historically, this has averaged about 3.8 percent over time.
First, make sure you have all the information you need to make a good decision. Second, don't make a quick decision about money. Finally, like I said before, make decisions that you would feel comfortable making for your own money.